Sunday, November 12, 2006

Automotive Musings

After repeated snubs, the president finally consented to meet with Detroit's automakers next week. Several topics are on the agenda according to the press.
Health care: Perhaps the single greatest threat to the automakers' finances, health care adds $900 to $1,400 to the cost of every vehicle GM, Ford and Chrysler make. [...]

Trade and currency: A chronic complaint of the domestic automakers -- the unfair advantage of a weak Japanese yen -- has grown in Detroit's executive suites as Toyota, Honda and Nissan rack up impressive profits.

Energy: [...] The Detroit automakers pledged earlier this year to double the number of vehicles they build annually that can run on 85% ethanol fuel, and have pushed for more incentives to spread E85 fueling stations.
Automakers are not opposed to unreasonable increases in fuel economy according to the DetNews, but "the Corporate Average Fuel Economy (CAFE) standards have failed to reduce greenhouse gas emissions, encourage mass transit or increase conservation. Drivers have responded to each improvement in fuel economy by driving bigger cars and trucks and driving them farther than ever before."

I'm hopeful something good will come out of this meeting with respect to health care, trade and currency issues, but I'm less optimistic about energy and the environment. CAFE standards are just one piece of the puzzle. As Eric Baerren says:
To the extent that environmental laws have been ignored or treated -- in the least -- as an annoyance or -- at most -- as an obstacle the last six years, some of the real damage has gone on behind the scenes ... appointments of industry hacks to watchdog positions, lax enforcement of laws on the books, politicizing science..., ruining our national parks, and just plain not wanting to spend the money.
And consumers haven't helped the problem either. We're a fickle bunch, as the results of those CAFE standards show. Increase the fuel economy and we drive more or buy bigger vehicles. Government, business and consumers all have to be on the same page if we truly want to clean up the environment and reduce our dependency on oil.

Consumers are finding more environmentally friendly choices in the marketplace though. Black Bear Speaks has a post about this cool car:
American Electric Vehicle Company in Ferndale, Michigan, will soon begin selling an all-electric car dubbed the "Kurrent" for $9,800 (with a $3,000 federal tax rebate). The car costs about 1-cent per mile to drive, compared to 14- to 16-cents per mile for an SUV.
And the DetNews recently reported the following:
General Motors Corp. is likely to unveil a prototype plug-in hybrid at the North American International Auto Show in Detroit as part of its company-wide focus on "electrifying" the car, GM officials said Thursday.

The advanced technology vehicle would have an extended driving range on battery power alone and would also have a diesel or gasoline engine that could power the car when the battery was low.
Of course, there are other vehicles out there, but I think we should all consider this sage advice:
Signing off on Thursday night's cable show, satirist Stephen Colbert read from a sheet of paper, as if to make a public-service announcement for someone who left his or her headlights on: "If anyone here is driving a black Ford Explorer ... thank you for buying American."
Hmm... Colbert advocates buying American and Consumer Reports touts, "The quality of [American] cars has improved dramatically." I have to admit I didn't need convincing though. My husband and I have always bought American-made vehicles. We believe in supporting the industries that helped build this country.

Besides, as General Motors Vice Chairman Bob Lutz recently said: Foreign automakers that build cars in the United States help the economy, "but it's not the same as a fully integrated American auto company that retains the intellectual property in the United States, has primarily American shareholders... so the wealth gets reinvested in the U.S."

That additional wealth could go a long way toward developing alternative fuel vehicles here in this country.


Anonymous said...

It'll be interesting to see how CAFE standards play out in the new Congress, what with John Dingell in charge of the Energy and Commerce Committee. In the Senate, Carl Levin has traditionally been against raising them, too.

Kathy said...

Eric, I've noticed other bloggers have raised the same question. Hopefully the automakers and politicians will make some kind of a deal on CAFE standards that will satisfy both sides.

Anonymous said...

CAFE itself is a stupid setup. Making it so that automakers are encouraged to make hybrids, and cheap cars that no one wants, just so car makers can sell more gas guzzlers?! That's how CAFE works (or doesn't work, in this case). Meanwhile, we subsidize big oil to the tune of billions and an Iraq war or two -- heaven forbid we tax the gas!

Kathy said...

Anonymous, I hear you, and I'd like to see the government end those oil subsidies. I'd also be in favor of a tax on gasoline that gets earmarked specifically for alternative fuel research and development.

Praguetwin said...

Weak Yen?

I don't get that at all. The Yen is trading at about 117.35 today, an it has traded at that level in 1993, in 1997, 1999,2003, 2004, and 2005. In 1990 it traded at 160 to the dollar which is significantly weaker.

The market controls rates, and carry trades are keeping the Yen from appreciating, but as their economy gets back on track, rate hikes from the BOJ should support the Yen.

I love it when people think they know something about exchange rates or better yet think the government can do something about it.

Having said that, putting our trade deficit in order would help stregthen the dollar, but would weigh on exports.

No easy answers here.

Kathy said...

PT, people have the impression the yen is low based on recent reports like this one from Bloomberg:

Central banks in Russia, Switzerland and New Zealand are increasing holdings of yen, anticipating the currency will rebound from a 20-year low on rising interest rates and the longest economic expansion since World War II. [...]

Central banks are buying more yen as Japan, the world's second-largest economy, emerges from more than seven years of deflation. The yen has fallen about 6 percent against the dollar and euro in the past six months and is at its lowest against the currencies of the country's biggest trading partners since 1985, according to a Bank of Japan index.

Anonymous said...

Yeah, it'd be nice to see a gallon of gas better reflect its true price, which I think I heard is closer to maybe five or six dollars. And, that would drive demand for higher mileage cars better than government action ... but I don't know that it's going to happen.

So, CAFE might suck, and it might not address ignorant choices by consumers, but it's the game that's in town. It's like complaining about Superfund because polluters are no longer compelled to pay into it to clean up their own messes.

Praguetwin said...

Sounds like some spin to me. I watch the issuance and I'm not seeing a significant change in Yen holdings. There was a lot of talk about the BOJ raising rates and the Yen making a comeback, but it never materialized.

Yea, it has lost 6 percent in 6 months, but it is at exactly the same place as it was against the dollar 7 months ago.

It just depends where you pick your point of reference. I could also say that the yen has strengthened by 2% in the last month, which is also true, or that it is 30 percent stronger against the dollar than it was 15 years ago. Take your pick.

Against the euro, ok. We are at record levels, but against the dollar (which is what the people in the article were focusing on) it is see-sawing.

Thanks for the link.