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Bush to GM and Ford: Build a Better Car
Posted by Glenn on January 27, 2006 - 3:03am in The Oil Drum: Local
Topic: Economics/Finance
Tags: auto industry, chrysler, delphi, ford, general motors, oil, peak oil [list all tags]
The US auto industry has not been particularly good at building car models that are well suited for fuel efficiency. The cheap oil boom they experienced in the 1990s combined with the easing of truck fuel economy standards created Minivan and SUV lines that are distinctly ill-suited for rising oil prices. As a result, a peak oil related economic transition is already underway the auto-industry. President Bush added today that they should not look to the Federal government for assistance.
In an interview with The Wall Street Journal published today, President Bush said that G.M. and Ford executives have not asked him for federal aid and that he would not look favorably upon such a request. Mr. Bush said he would instead encourage the automakers to build "a product that's relevant. I would hope I wouldn't be asked to make that decision," he told The Journal.
We'll see about that when the moment comes that Ford or GM has to file some sort of backruptcy, which could be as early as this year.
Since 2000, G.M., Ford and the Chrysler Corporation have cut or announced they would eliminate up to 140,000 jobs, or a third of their payrolls. Earlier this week, Ford announced that it would cut 30,000 jobs and close 14 plants over the next six years.
But you can only cut so deep into the workforce before you cease effective operations at economies of scale.
If just one of the major automakers files for bankrupcy, it could throw the whole auto-industry into a race to the bottom similar to what we've seen in the Airline industry. If the company continues to operate during its re-organization period - as the courts let the company break its contracts with creditors, workers and retirees - automobile prices could plummet as they will only have to cover the marginal cost of production, not the fixed asset costs.
What could avoid this scenario is a buy-out by another major automaker, perhaps one that can build a better and more fuel efficient car, like Toyota or Honda.
Gore and Lovins presented all the world's automakers with the hybrid concept back in the 1990s. Detroit ignored it; Japan embraced it.
Are we supposed to cry for these people now?
What is most interesting to me is that the importers were clearly making US inroads before the first oil crisis hit. Even once it did occur, real fuel price driven growth among import sales didn't take hold until the second shock in 79/80.
I don't have data for the current situation but I'd venture a guess that it looks similar to the 1970-1984 period. Toyota alone has about 20% of the US market. You're right Don, the Big 3 deserve no sympathy. They learned nothing from their past mistakes and made few efforts to learn from their rivals. They have repeatedly shown very little aptitude for relevant innovation (bigger engines, heavier trucks??) and business foresight. This is why no matter how much it may hurt the North American economy they must be allowed to die so that something better may take their place.
Good post...
Ford, GM and Toyota.
Good day!
The VW TDIs are an outstanding example of a clean diesel that does what the manufacture says in a car that is reasonable. The downside for greenies is the "diesel" fuel.
The Prius and Insight also face a recycling challenge given the lead acid batteries at the core of the cars' electrical systems. When there are enough of these "nice trys" in circulation, then that nasty issue will surface to blemish the hype. Right now, they are merely the rich man's feel good and the greenies' example of "doing it right".
The problem is resolving the major use of hydrocarbon resources by replacing power generation with . . . NUKES. Yeah, nuclear power plants to replace all of those NG power plants.
The fact is that in all the statistical measures of real-world performance, in the US market, hybrids claim top mileage.
So the EPA overshot in their euphoria. Big deal.
Diesels are also very good, and if the California EPA had let me buy one, I probably would have had one before my Prius arrived, but they didn't. FWIW,
real-world Prius mpg: 47.6
real-world Jetta TDI mpg: 40.3
I compared 2005s to 2005s, and chose a pretty much random VW. Feel free to pick another:
http://www.fueleconomy.gov/mpg/MPG.do?action=browseList
Most people are unaware that the Prius' #1 design goal was to create less pollution from cradle to grave. High fuel economy was a secondary result of that design premise. See Hideshi Itazaki's "The Prius that Shook the World," about the original 1998 Prius. (Available somewhere online as a PDF - I'll look for the link if anyone's interested.)
As for the Prius and EPA numbers - they're highly variable, but yes, some owners achieve or even comfortably exceed them. My 2005 Prius gets about 95% of the EPA estimate - 52.5 mpg versus the EPA's 55 - which is closer than most drivers of conventional cars get. One's particular driving conditions have a huge impact on mpg.
When Mr. Bush stepped in the White House one of his first actions was to impose quotas on the imports of steel and other metals. By then some economist said: "that will kill the american auto industry in a few years".
A guess we are at those few years later. If oil has a bigger role on that I don't know, but it's important to aknowledge this steel war thing.
Another paralel can be made with the aerospace industry, where Boeing has been losing ground to Airbus, competing in the same market. With the same fuel costs.
US GDP = $11,750,000,000,000
So Ford and GM = 3.2%
I gues if you added in Chrysler and the American components of foreign firms manufacturing here that would bring it to 5%.
I have included a link to the Public Radio show On Point from this past Monday, Jan 23rd. The topic of discussion was Japan, but there is an excellent segment on Japanese vs. American auto manufacturers that starts 30m30s into program(just fast forward). You need RealPlayer or Windows Media to listen.
http://www.onpointradio.org/shows/2006/01/20060123_a_main.asp
The good news is the Japanese are replacing Ford and GM's marketshare, introducing more efficient vehicles. Detroit will be forced to follow. If only they would get rid of their incompetent management.
In my opinion, these guys in Detroit have done the country as bad a disservice as those at Enron.
When Mr. Bush stepped in the White House one of his first actions was to impose quotas on the imports of steel and other metals. By then some economist said: "that will kill the american auto industry in a few years".
A guess we are at those few years later. If oil has a bigger role on that I don't know, but it's important to aknowledge this steel war thing.
Another paralel can be made with the aerospace industry, where Boeing has been losing ground to Airbus, competing in the same market. With the same fuel costs.
We loved the stuff they were selling! Big SUVs and trucks, lousey mileage cars, we couldn't get enough. Even the imports are making this stuff, but some still sell fuel efficient cars here too - mostly because they sell them elsewhere and they're already designed. Interestingly, Ford and GM have such vehicles too, they just don't bring many over here, I guess because the profit margins are too low, etc.
And part of the reason the profit margins are too low is health care costs, and another part is that US workers are paid more. Now we can watch as many of those workers experience the wonders of globalization, and their salaries move downward towoards those in 3rd world nations. No,no, it's a good thing, really - maybe not for you, but.....
Now I am back in the UK, paying $6/ for a UK 4.5L gallon. I'm back in a diesel toy that does an even better 50mpg at 80mph.
The country always had the option of going for fuel efficient toys, but instead they went for the V8 pickup. Why? advertising? because its cheaper to deliver speed from a v8 than a turbocharged 1.8L engine? Or because with cheap fuel it didnt matter?
on the subject of health care, I'd argue the underlying problem is that in the US, health care for retirees comes from the current revenue of the individual company. Whereas in Europe, it comes from the entire tax base of the country. This still causes disadvantages with other countries, but it doesnt penalise shrinking revenue companies with a large retiree workforce.
ps, bush said "build a better product". Maybe he meant bicycles :)
And ya know, I wouldn't have minded if they used this lucky tarrif respite to get their act together: but they didn't. I'm not entirely sure who's fault that is, but a lot of it has to do with this "free market as god" nonsense I keep hearing ... sure free markets are great and deserve respect, but Toyota certainly didn't leave it to them alone when coming up with the Prius. This is a large part of why America is loosing: it's believing it's own BS.
George Bush is a fool if he thinks just letting America's car companies fail is a smart thing to do (and I seriously hope he isn't really contemplating this): Imagine, America, most powerful nation on earth, put men on the moon, but can't compete with Korea when it comes to making cars!
Pathetic
If not cars, or aircraft any longer - what it is that America really can produce?
Why American Dollars of course ... and without any sort of real manufacturing base to speak of, how long can that continue?
Get it together guys - and if that means eating a little crow when it comes to free market rhetoric and doing something - temporary - to get your manufacturing back on track, do it.
An academic interviewed on Democracy Now this morning mentioned that health care for Ford's predominantly over-50 workforce adds $1200 to the cost of each Ford. Honda in America has a much younger workforce and their health costs add $400 to each vehicle. If Ford had younger workers in America it would still be profitable. The U.S. has no universal health care like a civilized country like Sweden. Healthcare and civilization only matter if you are a human, but soon it will all be moot because China has the lowest wages, a cash only healthcare system and it is poised to move into the American auto market by 2008. Say hello to Chinese worker's living standards. Public transit and health insurance would have been nice but now ...
So the employees are creditors, not parasites.
Having said that, listen to what Bill Ford is saying now about Ford Motor Co. He has a vision on how to compete with Toyota and Honda. If I am not mistaken Ford Motor has lost market share, but is profitable. They might be closing plants so they can remain profitable and retool. I think Ford is in a position to trade intellectual property with Toyota on Hybrids, especially trucks and 4x4's.
I see no hope for GM. No vision. No vehicles. Not enough intellectual property in hybrids and alternative vehicles. They are generations behind in building fuel efficient vehicles even if the have concepts.
Better yet, have the same said tax go into a separate pot, specifically earmarked for Alternative Energy development.
Ah, if only I were el-presidente-and-dictator-for-life.....
The key, however, is giving every driver in the US an equal and large percentage collected from a gas tax in the form of an income-tax refund, say $1500 every year. That way nobody can complain that lower-income citizens are getting screwed - I believe economists call that "regressive."
So if you decide to drive a Hummer 20,000 miles a year, you'd be subsidizing someone driving an Echo only 6,000 miles.
I think this would seriously put the brakes on US gasoline/deisel consumption, pressuring trucking companies and other heavy users to, in turn, force the auto industry to develop more efficient engines and expand CNG use in trucks and buses.
Some might say this is complicated, but the truth is, it is a lot simpler than the rest of the present US tax code.
I commute by bike in order to conserve and because I'm a cheap bastard who needs to lose some weight. Why shouldn't I be able to pocket the complete $1500 each year?
- Stop the Iran war -
If Gasoline were say $6/gallon as it is in parts of Europe, and 60% of that was tax, think of the enormous potential there would be to actually stabilize the price.
Much the way Federal reserve manipulates the interest rate, stimulating and slowing the economy, in order to keep economic stability, we could cut the tax by a dollar or two temporarily in times of a crisis - hurricane, OPEC embargo, etc. - and raise it when the wholesale price dropped.
This may sound madness to those opposed to government interference in the market, but if our predictions of peak-oil and the possible consequences are correct, I for one believe we are going to need this level of control to successfully transition to the next level - whatever that may be.
They closed the public schools for two days. Consider the savings from a couple of thousand school buses opposed to a couple of million SUV-s, each day creeping slowly down the overloaded GA highways... pure madness. God help us if education is the thing we are going to start to save from when times get worse.
The last thing Americans want to hear is tax, especially not "gas tax". If anything, the aversion stems from the fact that you actually see this tax as you stare at the sign in front of you while you fill up the tank.
Politicians hate the idea, are cowards when it comes to facing this issue, and in many ways are worse than the citizens of this great nation when it comes to the issue of gasoline.
However, that being said - the key component here is the "revenue-neutral" aspect of my proposal. The average driver drives 12,000 miles at 25mpg, that makes 480 gallons per year. Let's round that to 500 and make the gas-tax $3 a gallon. $1500 per year. That's what that same person gets back, a $1500 check, on say December 1st, every year. So if you use more than 480 gallons, you are being wasteful and you pay more. If you use less, you make money. If you use the average amount, nothing changes.
If I can explain that to you in that time, why couldn't John Kerry or John McCain do it in the Halls of the Senate, on TV, or on the campaign trail?
Believe me, gasoline is going to $6, anyway. You may as well tap that money now to drive down demand, finance your own country, and keep it away from the Saudis and Iranians.
Driving down that demand will keep the overall price down in the long run. Americans are not stupid as our friend from Brazil likes to think. They just need a little straight talk about the situation. It may take gasoline rising a little more before they notice, but they'll notice.
Explain it in terms of Energy Security and National Security. The American people can relate to that.
The New York Times has already published at least two editorials suggesting a $1 gas tax. I think we need bolder measures. Get on the winning team, man.
Like I often say PO is not a technical or economical, but a societal problem and different societies may be able to solve it or not. Ours won't... I'm already pretty much confident about it - we are simply too detached from the reality; worse we are so much addicted to our delusions that we will simply sit around and wait until it's too late and maybe a little after that.
Surprise, less than 5% of us Canadians voted for them. In fact, we just elected a conservative (conservative?? of what??) government that, if it had gained a majority, would have backed Canada out of Kyoto. Not that our Liberal government actually did anything positive for the environment why they were in power for the last 12 years. Anyway, we need to transfer subsidies from oil companies to alternative energy companies or we will get left behind.
Building a 3,000 pound machine, whether it's diesel, plug-in, or fuel cell, to move a 160 pound human will never solve it... And of course, one needs to calculate the costs of the automobile grid. There's a lot of energy used to build and maintain the road system. There's major, major, queuing costs that occur each morning and evening as motors accererate-decelerate billions of auto-pounds repeatedly in traffic.
Cars caused peak oil. THEY ARE THE PROBLEM.