Cheap Gas Worries Auto Makers

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By JOSEPH B. WHITE

Efforts to Develop and Sell Efficient,– and Lower Polluting — Vehicles May Be Sabotaged by Oil Price Slide

Summer seems a long way off, and it’s not just because it’s finally snowing in Michigan. The price of regular unleaded gasoline is suddenly back below $2 a gallon around the Motor City, and that has General Motors Corp. Chairman and Chief Executive Officer Rick Wagoner worried.

"With the price of oil at its lowest level in 19 months, we run the risk
of reverting back to our traditional energy policy," Mr. Wagoner said
in a speech at the Automotive News World Congress in Dearborn,
Mich., last week. "That is, relying on the lowest-cost energy available
on world markets (including imported oil), without providing
adequate support for developing alternative sources."

When the head of the world’s largest car maker — and the leading
marketer of large sport-utility vehicles in America — complains that
oil is too cheap, you know the U.S. energy debate is headed in a new
direction.

Since the oil shocks of the 1970s, the energy arguments in the U.S.
have centered mainly on the pros and cons of relying on "imported
oil." When Mideast tensions actually disrupted the flow of oil to
America’s gas stations, the government took rapid and dramatic steps
— such as enacting "Corporate Average Fuel Economy" standards that pushed auto makers to more
than double the average fuel economy of their cars from the mid-70s base.

When supply concerns eased, however, that curbed the nation’s appetite for tough new measures to
discourage petroleum consumption. Political and industry leaders contented themselves with what
John DeCicco, an automotive policy expert with the Environmental Defense Fund, calls "talk and
spend" approaches. There’d be talk about developing high mileage alternative power cars, and some
Chevrolet Volt government spending on projects such as the ill-fated Clinton-era Partnership for a New Generation
Vehicle. But otherwise, the industry’s focus was on selling what Americans wanted, which in the
late 1990s was V-8 powered SUVs.

But now, the energy debate is being reframed as a battle to do something about climate change — and
the potential long-term threat carbon dioxide poses to the livability of the planet.
"I see a real shift in the tenor of the debate," says Mr. DeCicco, who watches the industry from his
home near Ann Arbor, Mich. "The key is climate."

The impulse to do something about CO2 and climate change increasingly transcends traditional
ideological categories. The leadership of the Sierra Club, California Gov. Arnold Schwarzenegger
and Arizona Sen. John McCain define three points along a wide left to right spectrum. But all three
agree that the U.S. needs to take climate change much more seriously.

Gov. Schwarzenegger last week signed an executive order1 requiring a 10% reduction in the CO2
emissions from transportation fuels by 2020 — an action his office says is a world-wide first
(www.gov.ca.gov2). Exactly how this reduction — equivalent to taking three million cars off the
road — will be achieved is going to be left to market forces, according to a summary of the order. In
other words, auto makers and fuel producers could decide whether to reduce carbon output by
blending gasoline with ethanol, or buying carbon credits from utilities that have cut their own output.
Meanwhile, a number of bills designed to curb greenhouse gas emissions are vying in Congress,
and President Bush is expected to outline a plan to substantially increase the use of ethanol fuels in
his State of the Union address.

There’s just one problem: The signal motorists are getting from the gas pump is, "What? Me
worry?"

For Mr. Wagoner, this is a problem. If fuel prices are too low, particularly relative to the incomes of
new car buyers, there’s less economic rationale for paying a premium to own a high-tech,
fuel-saving car. GM’s North American auto business is fighting to break even as it is. Mr. Wagoner
hardly needs to lose more money pushing expensive alternative technology vehicles, such as a
production version of the plug-in hybrid Chevrolet Volt3 that anchored GM’s publicity blitz earlier
this month at the North American International Auto Show in Detroit.

Mr. Wagoner’s rivals at Toyota and Honda have an
advantage, in that they are profitable and have a lead in
engineering and marketing hybrids and smaller, fuel
efficient gasoline-powered cars. But that doesn’t mean
they’re not concerned, too. After all, Toyota’s next big U.S.
vehicle launch is a V-8 powered, large pickup truck. A
sustained period of low gasoline prices could blunt demand
for subcompacts such as the Honda Fit, and make it harder
to sell hybrids.

The auto industry, and particularly the Detroit Three of GM, Ford Motor Co. and
DaimlerChrysler AG’s Chrysler Group, is at a critical moment. As lawmakers at the federal and
state level scramble to do something in the face of public concern about melting ice caps and weird,
violent weather, the auto industry presents a tempting target. Just as in the 1970s, the easiest thing
may be to demand that auto makers actually build the high mileage concept cars they hype at auto
shows. That’s what happened in the early 1990s after GM touted its electric vehicle technology.
California regulators concluded electric vehicles were feasible, and demanded they be offered for
sale. The result was an expensive drive down what was then a technological dead end.
The EDF’s Mr. DeCicco says the industry should seize this opportunity to make the case for
gradual, doable change that works with consumer desires instead of against them. Recent sales
trends suggest that a meaningful slice of American car buyers are recalibrating their values, no
longer equating status with sheer size, but instead giving more weight to technical sophistication,
smart packaging and somewhat better fuel economy.

Filtering out moon shot, 80-mile-per-gallon show cars, the displays at the Detroit auto show
demonstrated that most mainstream auto makers already are moving away from the late 1990s
"super size" trend that brought us goliaths like the Hummer H2 or the Mercedes G Class. Instead,
Mr. DeCicco says, there’s a greater emphasis on appealing mid-sized cars and lighter crossover
SUVs. If a significant number of mainstream consumers choose vehicles that average 20 miles per
gallon instead of 14 or 15 miles per gallon, the potential fuel savings could be dramatic, he says.
Moreover, he says, that kind of shift is something the industry can handle within the constraints of
normal product development budgets.

"Done correctly, and in sync with broader trends, we are not talking about a costly proposition," Mr.
DeCicco says. "And that would make an enormous difference."

No Responses to “Cheap Gas Worries Auto Makers”

  1. in other country diesel an gasoline are very high price, just for example philippines gasoline is very high, in what ways that consumers would not experience in in that particular problem..

  2. I bet phillipinos don’t pay anywhere near the ridiculous price of £1.15 per litre that we have to pay here in th uk?

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