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Web www.startsandfits.com
Friday, April 08, 2005
A Lose-Lose Proposition for the Automakers

As everybody who follows the global financial markets knows by now, Goldman Sachs issued a report last week that said oil prices would be entering a years-long period marked by a "super spike," of high prices that could reach $105 per barrel. Some have scoffed at this report, though the market reacted immediately as people bid oil prices up. But regardless of whether or not the oil prices are entering a "super spike," gasoline prices already have, as seen above. During the past three years, there have been four spikes in the average price of regular gasoline, each of which lasted for two months or so: Feb.-March 2003; Aug.-Sept. 2003; May 2004; Oct. 2004. But now, gas prices have been rising steadily and quickly since the 2005 began, and the "summer driving season" hasn't begun yet. The spike we're in now dwarfs those four earlier spikes, and we could potentially be in the early stages of its upslope.

Given this climate of rising prices and volatility, I draw your attention to a news report about Congressional action in Washington on Wednesday. Two things of note happened at a meeting of the House Committee on Energy and Commerce.

First, the committee voted to extend daylight savings time for two months a year so as to save 10,000 barrels of oil a day. If that estimate is correct, this tremendous step would save our nation — hold on to your seats — 0.05% of our daily oil consumption, which is some 20 million barrels a day. This is a trivial, negligible amount of oil.

Second, as the article states:
The committee voted down, 39 to 12, a separate amendment to require the federal government to find a way to cut U.S. oil demand by 1 million barrels a day by 2013. The amendment offered by Democrat Henry Waxman of California aimed to reduce imports of crude oil.

Lawmakers with automakers in their districts led the fight to defeat Waxman's proposal, arguing it was backdoor way to require U.S. mini-vans, sport utility vehicles and pick-up trucks to improve their fuel efficiency.

Here is why the U.S. automakers are stuck in a lose-lose downward spiral right now. To increase the average fuel economy of their products, they would have to spend money and eat into their already low profits. But by keeping the average fuel economy at the low point where it is now, the automakers will encourage gasoline consumption, which will drive up gas prices. As gas prices rise, fewer people will buy the gas guzzling SUVs, mini-vans and pickup trucks that are the only profitable thing for Detroit these days. In the meantime, we will have sent more of our national earnings over to Saudi Arabia and the other Persian Gulf States than we would have if our legislators had done the right thing in the first place and required higher fuel efficiency.

The automakers had a dismal choice: spend money now (in a way that would help consumers who buy gas and help any component of the economy that depends on gas prices, which is most of it) or save money in the short run but dampen long-term demand for the source of their profits! Rather than pause to think about their own long-term interests, or the interests of our nation as a whole, the auto industry defaulted to corporate inertia, and asked for more of what it has always asked for in the past, even if in effect that meant it was lobbying against its own best interests. Meanwhile, our men and women in Washington made a symbolic gesture but avoided the opportunity to take real action.
- Posted at 12:58 AM | Permalink | Comments: 3 | Post a Comment |  

Nice blog.

US oil consumption is "only" about 20M bpd, which is about a quarter of the world's total (for five percent of global population).

Nonetheless, your point that the extended daylight saving time thing is a bunch of nonsense holds.


By Anonymous, at 4/08/2005 11:15 AM  

Daylight Savings Time in March is probably OK (pointless and futile, but harmless), but moving the end of DST to late November is not a good idea, at least for people (like me) who live in Wisconsin and other northern places.

Setting the clock ahead means the sun will rise around 8 o'clock in late November, so kids will have to go to school in the dark. A lot of parents who would be happy to let their children walk to school in daylight will end up driving them in the dark, to keep them safe.

So November DST will lead to the burning of some oil that would not be burned otherwise. I guess this is what happens when almost everybody in Congress with power comes from the South.

A minor point, perhaps, but worth mentioning.

By Mitch, at 4/08/2005 8:03 PM  

Motts, good point. I accidentally used the world consumption. I've fixed the error and the percentage. It turns out that 10,000 barrels a day is 0.05% of our daily consumption, not 0.012%.

By AD, at 4/08/2005 9:27 PM  

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