The Oil and the Glory
Detroit’s anti-efficiency hedging strategy
With the push of oil prices up up up, we are seeing genuine security threats — food prices going through the roof and populations thus endangered. Then there are the crises-of-convenience that also hew closely to the price of oil, but are actually public relations exercises. Interestingly, this time airlines are not predicting their imminent ...
With the push of oil prices up up up, we are seeing genuine security threats — food prices going through the roof and populations thus endangered. Then there are the crises-of-convenience that also hew closely to the price of oil, but are actually public relations exercises. Interestingly, this time airlines are not predicting their imminent demise, but instead say they have learned from the past and are hedged for survival and even profitability with even $100-a-barrel oil, Linda Loyd reports at the Philadelphia Inquirer. The automobile industry is another story — U.S. carmakers, only recently rescued after decades of losing market share to forward-thinkers abroad, are again suggesting that if they are forced to produce fuel-efficient vehicles, well, they just might not make it. Pass the Kleenex.
In Detroit, the North American car industry’s annual auto show is under way in an ebullient atmosphere, with carmakers from around the world elated over their sales numbers and revived future. New luxury models are among those unveiled, in addition to well-considered concept vehicles meant to cash in on forecasts of oil-price spikes. Chrysler, for example, suggests boosting the number of gears in its automatic transmission to nine from the current five for a 25 percent increase in fuel efficiency, writes David Sedgwick at Crain News Service. China’s BYD, Toyota (Prius), and Ford all talk of their new electric and plug-in cars, David Bullis reports at MIT Technology Review.
Against that backdrop, American carmakers — as they did in previous decades in protest of calls to improve efficiency — have gone to Washington arguing that they simply cannot meet a 15-year goal of creating 62 mile-a-gallon car and truck fleets. And if they do, the price will rise so high, they won’t sell enough to stay in business, Josh Mitchell writes at the Wall Street Journal. Cars could cost $6,400 more and drive down sales by 25 percent. (Once one accounts for inflation, is a 21 percent price increase on a $30,000 car over a 15-year period egregious?)
Others have asserted public-policy arguments for higher fuel efficiency. Less oil use means a better balance of trade: If you strip out oil imports in the most recent reporting period, for example, the United Kingdom’s import-export balance would have shown an improvement rather than the worsening that did appear, Emma Rowley reports at the Daily Telegraph. More efficient vehicles would instantly boost the United States’ ability to meet CO2 emission- reduction goals.
But what about the simple matter of competitiveness? Toyota is busy branding itself in the efficiency space by trotting out a whole line of Priuses, Hybrid Cars reports. Renault and the whole country of France are preparing to file an intelligence case today against a trio of scientists who may have passed on highly strategic electric-car secrets to another country, said to be China, Reuters reports. (Update:Renault today filed a criminal espionage complaint that does implicate a Chinese firm, the State Grid Corp. of China, in allegedly making payoffs to two of the three Renault employees, reports Bloomberg.)
Yet in the United States, we see the Alliance of Automobile Manufacturers arguing that carmakers must be permitted to churn out gluttonous vehicles. I wonder, however, if we are seeing a version of the airline industry’s hedging strategy — carmakers may be seeking flexibility in Washington, first and foremost because, with a new Republican surge, they can. In actuality, however, as Bernard Simon writes in the Financial Times, carmakers are fairly cheerful regarding the financial potential of their new fuel-efficient fleets.
Caution is advised. One cannot ignore the Jevons Paradox, for instance, which argues that more fuel efficiency could result in more gasoline use because people might drive more, writes Edward Glaeser. In addition, there are winds blowing the other way — Americans are still buying large vehicles. Simon writes:
Demand for big pick-up trucks has been unusually strong in recent months, accounting for 13 per cent of US industry sales in December, the highest in almost three years. According to a survey published by Consumer Reports, an independent consumer watchdog, only 28 per cent of car buyers cited the environment as an important factor in their choice of vehicle, down from 40 per cent in 2008.
Yet, gasoline prices will not drop back down to $2 a gallon anytime soon. And that is apparent in Detroit’s move to reduce its reliance on gluttonous vehicles. Do not weep for Detroit quite yet.