One of the worst hurricanes to hit the United States in recorded history has slammed straight into the middle of the Gulf of Mexico’s prime energy production zone, halting 95% of oil production and 88% of natural gas production. Refineries, shipping terminals, drilling rigs and even parts of the national strategic petroleum reserve have all gone offline. The governor of Florida has urged people to not use gasoline, and the state of Hawaii has instituted gasoline price caps. Oh yeah, the storm also made one of the country’s most unique and historic cities uninhabitable, making refugees out of more than 600,000 people. It would seem that this is a tough time for our country, particularly those who buy gasoline, which is to say, most everyone.
Gasoline prices were at all-time nominal highs even before the storm, and they are poised to skyrocket and stay high for the foreseeable future. Everyone who thinks about our geopolitical vulnerabilities for more than a minute and 30 seconds realizes that we cannot continue to throw our national wealth at Saudi Arabia indefinitely. Imagine if General Motors took this precarious moment in our nation’s history to announce a new strategy toward building fuel efficient hybrid cars. “Our nation is facing troubling times these days because of rising energy prices, and what’s good for America is good for General Motors,” Rick Wagoner could say in a reversal of a predecessor’s famous phrase.
Actually, what GM did today was breathtaking:
General Motors Corp. (GM) plans to continue to build its U.S. market strategy on the large truck segment, despite high gasoline prices and what appears to be softening demand for large SUVs.
“The category for us has been essential to our success in the late 1990s and the early part of this decade,” Paul Ballew, executive director global market and industry analysis, said Tuesday during a meeting with investors and industry analysts.
This move is bad for the country because it will increase consumer debt and make our precarious consumer debt bubble closer to bursting; it will also add to the already high level of greenhouse gas emissions and will funnel more money to the middle east. So it’s bad for the country for a number of reasons, but it even seems bad for the company. I suppose GM knows its business better than I do, but who’d buy an SUV when it costs $100 to fill up the tank? (I’m not the only one who wants to know.) SUV resale values are low and sinking and new SUV sales are weakening because of expensive gasoline (expensive, that is, in part because of high demand from all the existing SUV owners). How is this even a good business decision? I’ve been baffled by GM’s moves before, but this one is just beyond belief. I wonder if GM junk-bondholders feel they are any more likely to be repaid because of GM’s new strategy.
- Hurricane Katrina’s Impact on the U.S. Oil and Natural Gas Markets [U.S. Energy Information Administration]
- GM Betting Future on Big Trucks [Dow Jones via SmartMoney.com]
- SUV Sales and Expensive Gasoline [S&F]
- A Lose-Lose Proposition for the Automakers [S&F]