Friday, February 4, 2011

Highlights From This Year's Auctions In Arizona

Supercars

2006 Ferrari FXX Evoluzione



In 2005, Ferrari began the development of one of the most innovative research projects the supercar world has ever seen. This of course, was the FXX program. Basically, Ferrari took their top line production streetcar the Enzo, converted into a racetrack car, and then pumped it full of steroids. Ferrari produced a total of 30 of these super supercars and hand picked 29 of their top clients, which they granted the rights to purchase an FXX and become a part of their unprecedented program. What about car #30? Ferrari held on to this one and gave it a custom black paint job (only one without a stripe), put red trim on the wheels, fitted it with matte exhaust tips (a regular FXX has chrome tips), and stitched the personal logo of their retiring world champion F1 driver, Michael Schumacher, whom they set aside the car for, so he could join the FXX program at the end of the 2006 season. The original 2-year R&D program (2006 - 2007) allowed the owners to participate in 14 group test sessions and 14 private ones on their approved racecourses. Thanks to readings taken over the 10,200 miles of tests carried out in 2006 and the 11,500 miles covered in 2007, the modifications made to the car have focused on honing its aerodynamics, running gear and electronics. Because of its initial success, Ferrari decided to extend their FXX program another two years (2008 – 2009) in which they called the Evolution package. With this, participants received numerous evolution upgrades boosting their car’s performance even further and the opportunity to partake in six events each year in the two-year program (two in North America, two in Europe and two in Asia). In addition, as per tradition owners were invited to partake in the prestigious end-of-season Ferrari World Finals. All this while being backed up at each event by a 15-member official team made up of engineers, electronics experts and mechanics capable of providing complete assistance to clients. One could go on for days about the specs of the FXX Evoluzione, as they are absolutely insane for being possibly, the most advanced Ferrari production car, but one does not have the time. It is no wonder why this FXX Evoluzione broke an auction world record when it was sold at Gooding & Co in Scottsdale for $2.1 million, almost double of the sale of a Bugatti Veyron, even though the FXX is five years older.


2005 Maserati MC12




The MC12 was really what allowed Maserati to be able return back to racing after a 37-year absence. Specifically, in order to compete in FIA GT Championship, Maserati would have to homologate a racecar under the FIA’s governing regulations. Basically this means that in order to be eligible to race, the automaker is required to have a road version of their racecar in production for sale to the public, 25 being the minimum. So in order for Maserati’s MC12 GT1 racecar to reach the grid, they would have to produce a street legal MC12, which is exactly what they did. In 2004, Maserati’s began its development of the MC12 at the time when Ferrari still had a full ownership stake over Maserati just before it split off leaving its stake of the company to Alfa Romeo under the Fiat’s Auto Group umbrella in 2005. Consequently, this is why the MC12 and GT1 shared many of the Ferrari Enzo attributes, including the chassis, the Ferrari Dino V12 engine with slight modifications, and the its gearbox. One could also posture that is was why the MC12 GT1 racecar had so much success on the track. Nonetheless, the 50 few road cars that Maserati produced from 2004 to 2005 have been said to have closely matched the power of an Ferrari’s Enzo, while having the greater comforts and styling of a Maserati, making it an Italian supercar with the best of both worlds.


Classic Sports Cars

1966 Lamborghini 400GT 2+2 Spyder





Ferruccio Lamborghini was a successful businessman, and initially began his career being the founder of a pair of companies. He had one that manufactured air-conditioning and heating units and another business that made tractors. Ferruccio had always loved cars growing up, and after the success of his companies he wanted to turn his attention to building cars. His objective was to create the best grand touring car (road car built more for comfort and distance, than solely performance), which would rival those of Ferrari. Ferruccio was always fond of Ferraris, but considered them too noisy and rough to be proper road cars, feeling they more suited for track use. Lamborghini’s first concept car, the 350GTV, which eventually evolved into 400GT 2+2, was well received at the Geneva Motoring Show. However, the car lacked an engine because of a conflict Lamborghini had with Giotto Bizzarrini, the company’s mechanical engineer whom at the time was building its V12 power plant. It has even been said that when GTV was unveiled at Geneva, the hood was tied down and the bay was filled with bricks to give it an appearance of being weighed down by an engine. Bizzarrini left company leaving Gian Paolo Dallara to finish the engine. The 350GT became Lamborghini’s first production car in 1964. In 1965 Dallara upgraded the Bizzarrini V12, which became fitted in the GT400 with an increased displacement to 3.9 liters, and its power output to 320 bhp at 6,500 rpm. In 1966, Lamborghini fitted two rear seats to the 400GT giving its 2+2 nameplate. This 4-seater could churn out at top speed of 155mph and 7.4 second time from 0-60. It was starting to look promising for Ferruccio Lamborghini’s initial objective of creating the ultimate grand touring car. However, due to the tremendous attention that the P400 concept car received at Geneva in 1966, Lamborghini was forced to shift its focus to creating the Miura, which featured the same transversely mounted mid-engine layout as the P400, an innovation that set the precedent for supercar design even for today’s standard. This all propelled Lamborghini to the top of the supercar realm, which it nonetheless created, regardless the founders intentions. But for once Ferrari designers were looking at Lamborghini for their model of inspiration.


1971 Lamborghini Miura P400 SV




Though a handful of manufacturers at the time had used a mid engine layout in a few of their track cars, none had used this particular layout successfully in a road car other than Lamborghini’s Miura. However, when it was first developed as the P400 prototype, the R&D team was reluctant to be up front with Ferruccio Lamborghini about the car, causing them to develop it as a side project on their own hours. This was because the car went against Lamborghini’s philosophy of a grand touring car or an everyday luxury car with some sports appeal. However, the P400 was instead, a car that could win on the track and be driven on the road by enthusiasts. After such approval at Geneva, the P400 became slated for production as the Miura. The Miura, a name that came from a type of fighting bull, was an instant superstar as it became Lamborghini’s most popular seller in addition to its flagship vehicle during its 1966–1972 run. This model the P400 SV was the most popular and was most famous of the Miuras, featuring different cam timing and altered carburetors along with some subtle body changes. There were 150 SVs produced and they each represented the game changing face of Lamborghini through its retirement before it was replaced by the notorious Countach in 1974.


1957 Aston Martin DBR2 Re-creation





Aston Martin constructed only a pair of the 3.7-liter DBR2s. They were built in an effort to pick up the slack of their 3-liter DB3S engine that was fitted to the DBR1 car in 1956. The little DB3S engine was great for sprint races where it won many victories, but lacked the power to compete on the longer, fast straight stretches of track in the GP racing series leaving the gap to be filled by DBR2. However, their racing career was short lived in the GP series because of the new regulations placed at the close of the 1957 season, which made the 3.7 ineligible to compete. Soon after, the DBR2 was upgraded to 3.9-liter and then again to a 4.2-liter engine. It went on to compete in events in the US, and even to took a victory in Governor’s Trophy Race in the Bahamas when Stirling Moss drove it in 1958. This recreation here features the big 4.2-liter engine, 4 wheel disc brakes, and is a whole lot better/cheaper of a risk for track day use then taking one of the 2 originals made.


1964 Porsche 904





What exactly one should call this beautiful automobile is often debated. This car is officially called the Carrera GTS, however, these little Porsches were originally born with the 904 nameplate before a dispute with the French automaker, Peugeot, that rendered Porsche unable to use a "0" within the middle of the 3 digits of the label on any of their road models, thus, causing the 904’s name change and in addition to that of the 901 to the traditional 911 model name that many are familiar with today. All the same, for some reason the 904 namesake tends to resonate more deeply among Porsche’s loyal fan base than that of the 901. Maybe it’s because the 904’s debut was so revolutionary and that it was arguably, one of Porsche’s best achievements. For one, this was first Porsche to use a full fiberglass body. Furthermore, its power plant was one of insane complexity and ingenuity; a four-cam flat four-cylinder engine with the roof of each cylinder's combustion chambers in a hemispherical form, an innovation referred to many in the US as the almighty “Hemi”. All this combined paired with twin Weber carburetors and quad disc brakes allowed these cars to dominate many races including the Targa Florio, Nürburgring, the LeMans, in addition to many rallies from 1964 to 1965. So whatever one chooses to call this car, they must always recognize the greatness it represents in Porsche’s long esteemed history of motoring accomplishment.


1956 Nash Rambler “Palm Beach” Coupe Speciale




This Palm Beach prototype was developed by the Italian body-maker Pinin Farina for Nash auto designer George Mason as a potential replacement production car for the Nash-Healey. However, the one-off prototype based on the design of the Jet American Age, never made its debut into the hands of the American Market. It did however, make the cover of Motor Trend magazine a year later, but it was too little too late, as AMC had already cut the production of the Nash and Hudson brand lines.


Aston Martin DB4




007 spotted in an underground parking lot! Well technically no, as this is a DB4 and many of us know that Mr. Bond drove a 64’ DB5, but it’s close enough for a passerby to mistake it for the real thing.


1963 Corvette Stingray




The 63’ Corvette is legendary on so many levels. From the very beginning Corvette established itself differently amongst their competitors as being a fiberglass bodied sports car when it first arrived on the scene in 1953. By 1955, the Corvette gained more recognition when Chevrolet dropped a V8 in their little 2-seater. By the 60’s, the Corvette was Chevrolet’s flagship line. Then in 1963, Chevrolet stunned the world once again when Corvette introduced its Stingray, which became an instant icon and very coveted collector car in the future. The 63’ Corvette is special to both die-hard Corvette enthusiasts and collectors alike for it being the first Stingray and being the only year to ever have a split rear window. The icing on the cake, this particular Stingray has the ultra rare fuel injected motor beneath its hood.


1954 Kaiser Darrin





The Kaiser Darrin was definitely different even in its day from the very moment its designer Howard ‘Dutch’ Darrin first conceived it. However, it took some persuading on the part of Mrs. Kaiser to convince her husband to produce these cars, as he wasn’t enthusiastic about Howard Darrin or his designs at the time. Even though Kaiser was right about the car, as it flopped due to its costly build expenses that fell on the consumer, it was still an achievement in its construction. That’s why Howard Darrin deserves some credit, as he built America’s first production sports car out of fiberglass, beating Corvette by only a month. Furthermore, its pocket doors were a “one of a kind” design, allowing its passengers to shut them by sliding them into the fender of the car. Maybe, the automotive world just isn’t ready for “pocket doors” as even a minivan’s doors today slide around the outside the car, leaving the Darrin as the only car to ever utilized this type of design.


1958 Pontiac Bonneville Tri-Power Convertible




Many say that the 50’s were the greatest era in automotive styling. The brilliant aesthetics of this stunning turquoise Bonneville convertible sitting on white walls can help make this argument. The wide body stance complimented by a large grille surrounded by its huge chrome bumper gives the Bonneville a pretty face, but keeps it masculine at the same time. The trim accents the white arrow striping that flows across the each side, which all come together connecting the body to the face to complete the whole dazzling look of this piece of automotive art. Did one mention the power this vehicle sports under the hood? Power as is “tri-power” meaning that this car has not one, not two, but three 2-barrel Rochester carburetors that sits upon the top of its 370 cubic inch V8. Of all its beauty and power it’s no wonder this gorgeous ride fetched a $126,500 at Gooding and Co.


Unrestored or Preservation Cars

Tucker Pics:
1948 Tucker Torpedo





The Dilemma; to restore or not to restore? On one hand, you have this incredibly rare “barn find,” a Tucker that has remained untouched for fifty years. On the other, you could be the Dr. Frankenstein that brings the beast back to life, but at the cost of making it a “barn find” no longer. Nonetheless, its new owner, whom paid a nice $750K, will be the deciding factor in choosing how this special part of automotive history will be portrayed to the world. That is, unless they decide to hide it in a barn again for next 50 years. Decisions… Decisions…


Tucker From a Californian Collection (Note: Not Seen in Scottsdale)




While we’re on subject of Tuckers, if the new owner of the Tucker that was recently purchased in Scottsdale were do the “before and after” makeover to their new car, this one would be a good role model to follow. However, this Tucker isn’t a restoration either. The car being shown here is a fine exhibition of a “preservation” car, an unrestored original car or “barn find” that doesn’t necessarily require a restoration to keep it in operation, unlike the Scottsdale car, which would need much attention to get it back on the road again. Likewise, this car is also a recent acquisition, and is shown here being treasured at its new home in a private collection in Woodland Hills, CA. All the same, both of these Tuckers represent the legacy of Preston Tucker, and the amazing story of the 51 few vehicles that made it into the hands of the American public before they were shut down.


1964 Shelby 289 Cobra



This is not just any ordinary Shelby Cobra; this is an untouched original that is thought to be the only unrestored example of its kind to exist in this type of color scheme. Now it is finally back on the road after 33 years of storage. The “patina” or worn style of classic motoring has been gaining steam lately in the US, following the patterns of many European countries. In fact, this Cobra was recently one of the featured marquees in Postwar Preservation Class at the 2010 Pebble Beach Concour d’ Elegance.


1953 Fiat 8V Supersonic





Applause roared after the hammer dropped at $1.55 million when this very special car rolled off the block at the Gooding & Co. Auction. What was it that made this car this car the “gotta have” little darling in Scottsdale on this day? Perhaps, it was its scarcity, as Ghia only built twelve Supersonic bodies; eight of which on Fiat’s 8V chassis, three on a Jaguar chassis and one on an Aston Martins. The 8V or “Otto Vu” as it was called in Italian, denominated the V8 engine, but was written in this untraditional form because Fiat feared a potential conflict with Ford whom Fiat automakers at the time believed had the rights to the V8 tag. Another reason why this 8V Supersonic is so special among others is because it is one that is unrestored and all original with only 18,000 miles since new. One can easily recognize the excellent condition, which was preserved since being new as little car gleamed while its original owner of 55 years drove it across the block to the praise of the crowd watching below.


Miscellaneous

Ford M151






Some of the cars at Barrett Jackson this year were both armed and dangerous, like this Ford M151 for instance. The M, which stood for MUTT, and MUTT standing for Military Utility Tactical Truck, as these trucks were sworn into duty to serve their country in times of need. In fact the 151 series served in Vietnam and held a longer run of service then any of its three WWII predecessors.


Hand Grenade Shifter





As said before, these cars are to be considered to be “armed and dangerous” here in Scottsdale. A hand grenade shifter is always an interesting touch, and compliments the rebellious exterior of this 1923 Dodge Roadster Hot Rod very nicely.


Duesenberg Taillight





If you can read the word, “STOP,” on this car’s taillight while you are driving then you probably should stop, considering your about to crash into a multimillion dollar Duesenberg.


Kiddie Car




Children should never be forgotten when it comes to the collector car hobby, and this beautifully constructed kiddie car would be a dream come true for almost any child. Built by the company that creates the wind tunnels for Ferrari’s F1 team, this little go-kart accurately replicates Ferrari’s F40 while keeping scale in mind, including everything from its headlights, tail wing, and red leather seats. Fitted with an 80cc Honda engine, this little car would be easily heard cornering any neighborhood’s cul-de-sac, and would surely grab some attention by both the kids and their parents living on the block.


1936 Bowlus Trailer






There were 200 Bowlus Road Chief produced and the one here is among approximately fifteen surviving examples. It is made of panels of riveted alclad aluminum that is screwed to a galvanized steel tubing that is acetylene welded together; a construction method similar to how aircrafts are made. This is not a coincidence as Hawley Bowlus the designer of the Road Chief was a legendary glider pilot and builder, whom built many famous aircraft during his lifelong career of innovation.

Saturday, May 2, 2009

Fixing the Auto Industry (Updated)

I wrote this article in February when the struggling American automakers, General Motors and Chrysler LLC, were getting close to submitting their viability plans to Washington for additional federal aid. The deadline was until the end of March and their proposals in my opinion were far from what they actually needed to survive and remain healthy. This bothered me very much and I wanted to express some well researched recommendations to the public sphere. Some time has passed and there have been many developments in this saga. Some of the changes in the automotive industry (with and without the governments push) were what I was hoping for, while others were not what I would have predicted.

As expected, President Obama rejected both GM’s and Chrysler’s viability plans for additional aid. To my surprise, Obama granted them some extra time to make suggested changes while giving them enough working capital to keep them afloat for the meantime. GM was granted 60 days or till the end of May to shed some more of their costs while continuing their negotiations with bondholders. On the other hand, Chrysler was only granted an extra 30 days or till the end of April to complete their partnership with Fiat. Having this short extension and the support of their partnership by the US government, Chrysler was put into overdrive.

During the last month much has happened. To answer a large portion of the public’s call along with my own, some of the head management leading these failing industries has been removed. First, Rick Wagoner along with some of the board members at General Motors was asked to step down by the US government. Fritz Henderson was put in charge as CEO to fill the void. Also as expected, Chrysler just recently announce that it filed for chapter 11 bankruptcy and that its CEO Robert Nardelli will step down after this process is complete. Chrysler’s President Thomas LaSorda will also be leaving as well. Chrysler has been given 3.5 billion of aid during its bankruptcy and another 4.5 billion upon its exit.

The new forms of these auto companies are already starting to take shape. As wished for, automakers are starting to reduce their capacity of production and are beginning to shed the brands which are weighing them down. General Motors will discontinue the production of Saab, Saturn, and Hummer by the end of the year. They will also phase out Pontiac by 2010.

GM. has taken some risks and is considering some others. It has partnered up with Segway to begin the production of its concept electric two-seater city commuter, the Puma, to catch up in the push toward the next generation of green technology. They are also considering splitting its company into two parts. One would include its viable assets that would remain in business while the other one would include its struggling assets that would go through a bankruptcy in order to restructure itself.
The new ownership of GM will be divided by 50% to the US government, 39% to the UAW to cover some of their retirement fund, 10% to its bondholders, and the remaining 1% falling under the other category of private shareholders. As far as the bankrupt Chrysler goes, Daimler AG has forfeited its shares, and its current owner Cerberus, the private equity firm, has also relinquished its shares. The new Chrysler will consist of Fiat owning 20-35% being able to become a majority owner once the bankruptcy process is over, the UAW having 55% (using it also for their retirement fund), and the US/Canadian government taking over the remaining 10%.

Now given the recommendations in my statement and the developments to date one gather an idea for where our auto industry is heading. Much of what I have discussed is being considered and some of it even being implemented at this very moment. Nonetheless, some of the more innovative ideas which I explained have not yet to be touched. Time will only tell what will happen next and all we can do is try our best to make a difference. Through information and public discussion we can determine the fate of the automotive industry. Enjoy!

Source: Automotive News


Introduction:

In the wake of their worst financial crisis to date, the automotive industries of Detroit’s Big Three are up to their necks in debt with creditors nipping at their toes. Facing imminent bankruptcy, their destiny rests in the hands of Washington to decide whether or not they are worthy of being rescued and should be thrown another lifeline yet again. This is not a little handout either. What these companies are proposing will cost the government billions of dollars at the expense of the taxpayer. In case one is not up to date with these current affairs and was wondering what these numbers look like; US News and World Report affirms that General Motors has already accepted $17.4 billion in federal aid and has requested another $16.6 billion more in new loans. Meanwhile, Chrysler LLC requested an additional $5 billion on top of their previous $4 billion dollar advance. The last of the three, Ford Motor Co. has not asked for aid yet. However, it is likely that they could require assistance if the other two go under.

In an urgent attempt to manage these considerable requests President Obama assembled the Auto Task Force headed by the new Treasury Secretary Timothy Geithner and the National Economic Council Director Lawrence Summers. The 10 member committee’s mission is to review the restructuring proposals by the two American auto giants and report their findings and recommendations to the president. Through their collaboration they will decide whether the plans which General Motors and Chrysler submitted to Washington are viable for another bailout of the Troubled Asset Relief Program. That being said, one has to wonder what exactly qualifies a plan as viable or not? The current plans mainly consist of job cutting, brand discontinuation, the liquidation of assets, and the negotiation of concessions with the United Auto Workers labor union (UAW) and bondholders. All the same, these measures alone do not seem to be justified for these auto manufactures to receive billions in taxpayer bailout money. Though some of these actions are necessary, the restructuring plans fail to address the fundamental flaws of automotive industry as well as hold those accountable responsible for their errors in judgment. Instead it only appears to be a temporary fix that will inevitably result in another fatal crash down the road.

The Plan and Thesis:

Determining the proper course of action is both necessary and vital for the survival of these automakers and the millions American jobs that depend on this industry. That being said, shouldn’t we be ensured that our money will be well invested? After researching public opinion and studying the innovative ideas from many intellectuals within the automotive fields and beyond I’ve synthesized their visions and molded them into a plan that will be best solution for this crisis. Thus, the automakers will become viable by facing the accountability of their problems through a mandate of new management and by the dissolution of its current structure directed by a stringent government intervention. The manufacturers will become competitive again by reducing its size, eliminating their rebadged duplicates, and through the production of primarily core brands and fuel efficient technology. This will give them the necessary adjustment they need to bring them into perspective with the real market capacity. Addressing the declining enthusiasm for new car buying, the auto industry will become redefined by using open source forums to design its models giving the people truly what they want. This will generate excitement and a new found loyalty between the consumer and their car brands. The unused remainder of plants will go towards new manufacturing endeavors such as building new energy efficient technologies and public works projects to stimulate economic expansion. Unlike the current restructuring plan, this plan allows the American automotive industry to become a consumer driven beast that will innovate efficiency in both how cars are developed and are powered. It will create a growing job market which will not only sustain the economy but will contribute to the greater good of the American people for future generations to come.

Facing Accountability, Mistakes, and Removing Poor Management:

One of the biggest problems today with the automotive industry is that no one is taking responsibility for the current state that it is in. There is a persistent circle of blame ranging [in no particular direction] from the management to the UAW to the economy to even public disloyalty as to why they’ve gone broke. The fact of the matter is blaming does not get one anywhere. In order to solve this problem everyone has to take some responsibility aside from the public. They have to freedom to purchase whatever they choose. If American brands aren’t cutting it for them then it’s their right to find something that is. However, this problem is one of the many oversights which fall under what the leadership should be held accountable for.

When controlling an industry this massive, leaders must do many things in order to direct it successfully. Their job is not only to accrue profit but to ensure their industry is heading in the right direction. This means they must plan for future accordingly with good and bad times in mind. “Critics say leaders over the years at Ford Motor Co., General Motors Corp. and what is now Chrysler LLC were slow to take on unions, failed to invest enough in new products, ceded the car market to the Japanese and were ill-prepared for the inevitable rise in gas prices that would make their trucks and SUVs obsolete (The Associated Press, 2008).” Though a majority of this holds truth, there are a few things which need more clarification. For instance, it wasn’t that the automakers didn’t invest enough in new products; it was that they invested in the wrong products, discontinued good products, and created many disappointments. Eric Peters the automotive columnist for the American Spectator describes these mistakes throughout a number of his works:

GM actually expanded its roster of brands (Hummer) and pumped money into perpetually money-losing Saturn.

It poured R&D money into a retro muscle car -- the pending Chevy Camaro -- when it should have been pouring the coals to a Chevy competitor for the Camry and Corolla. Then there's the Aztek fiasco; the GTO, the SSR, Hummer, and Six full line divisions divvying up a 22 percent market share (Note: General Motors has 8 lines if you count Saab, and Hummer)

Want another? How about Chrysler sitting on its hands, allowing its once dominant position as seller of minivans to fade away into near-nothingness. Or its failure to build a successor for the Dodge Neon -- in the 1990s, one of the best-selling economy compacts on the road. Instead, Chrysler threw development money at the pretty but pretty useless Challenger muscle car -- a 12 mpg gas guzzler… Ditto the crop of Commanders and Calibers, Aspens and Patriots -- models that Chrysler can't get rid of even with "two for one" desperation tactics deployed

Toyota has been selling its Prius hybrid for a full ten years now -- anticipating the gas crunch by, oh, eight years. Not one of the domestics had a hybrid in production until after the gas crisis hit -- and even then, their versions were (and still are) primitive in comparison. GM's Volt hybrid electric car won't get here for another year, at least
Honda Civic and Toyota Corolla are perennial big-sellers and have been for years, in good gas times and bad. They gave Toyota and Honda not just a fallback if and when the big trucks and SUVs went sour. They also created an enduring buyer base -- composed almost entirely of former GM (and Ford/Chrysler) customers

How the heads of the industry directed their resources is one the most fundamental mistakes they made. When the companies should have been downsizing and simplifying themselves, they instead were expanding, trying to develop niches that wouldn’t account for nearly as many sales as their base brands. Specifically, these bases are passenger cars and trucks. As Eric Peters pointed out; what the Big Three had covered in trucks and SUVs they lacked in passenger vehicles that were high in quality and practicality. Consequently, none of what they produced was substantial enough to depend on when gas prices rose and truck sales slumped. An excerpt from Time Magazine in 2006 describes this process as it unfolded:

“The problem was a long time coming, as Japanese and later Korean automakers scored annual gains in quality, profitability and market share. But U.S. automakers were lulled into complacency in the 1990s by the SUV (light trucks, technically), which decades ago earned profit margins as high as 25%...Meanwhile, the Japanese started making good SUVs too, and the competition made the profit margins shrink. When the prices of gas soared, SUVs sales tanked, and the U.S. companies were caught without money spinners.”

The fact management didn’t have the foresight to plan for the challenges ahead does not say much for them being the ones responsible for billions of our tax dollars and whether they should be trusted to make the industry’s next life or death decisions. Is it fair that these CEOs behind the industry’s fatal mistakes are still getting paid millions while their employees are losing their jobs at their expense? Many agree including Wall Street Journal’s Paul Ingrassia that the board and management have to go. There is no argument here that this must to be done with both Chrysler and GM. Ford’s management is safe for now, but if they request any aid then they too should also be subjected to critical scrutiny and judgment. The culture cannot change with these people running the industry. I’ll add another thing too; new management’s pay will be based on their success. That way they can no longer get paid millions while their company is losing billions and their employees are out of jobs. That’s capitalism right? It is apparent that it is not just the industry that needs restructuring but the removal of the management is just as necessary. By investigating the decisions made by those in charge and breaking the dominant regime of over the auto industry, we can begin to change the persisting cycle of bad direction.

Dissolving Structure by Considering Bankruptcy


If the government really wants to help the American auto industry they need to do more than hand Detroit a check. All the same, there is much debate whether bankruptcy should be considered as better option than the current bailout proposition that’s on the table. Former Massachusetts’s governor and Republican presidential nominee candidate Mitt Romney advocates that a “managed bankruptcy may be the only path to the fundamental restructuring the industry needs. It would permit the companies to shed excess labor, pension and real estate costs.” The New York Time’s chief mergers and acquisitions reporter and columnist Andrew Ross Sorkin explains a similar scenario which he refers to as a Government Sponsored Bankruptcy or G.S.B. and makes his case for it;

“Bankruptcy would give G.M. enormous leverage with its debt holders — and, perhaps more important, with the U.A.W., whose gold-plated benefits are one reason G.M. is no longer competitive. A bankruptcy filing would also give G.M. the cover to close plants, rid itself of unprofitable brands and shed dealerships. In fact, unless G.M. files for bankruptcy, state laws would make it prohibitively expensive to shut dealerships… The goal should not be to keep these companies from filing Chapter 11, but from filing for Chapter 7 — which would mean liquidation.”

Both Romney and Sorkin have good points but they are a little too rough on the U.A.W. Poor management has more responsibility for this mess than the worker who does only what he/she is asked to do. It is true that benefits such as healthcare are factored in the price of the car. However, if the government took on some of this, such as what they promised do with their universal healthcare plans than these costs would fall less on the employers and would help make them more competitive with foreign markets. Everyone has some accountability. Bankruptcy could actually help automakers restructure and may allow them to keep their distance from creditors, although it is not as simple as some make it out to be.

Bankruptcy is a tough call for many reasons. For one, it is long arduous process that has no guarantee of making the auto industry healthy again. Joe Nocera writer of the New York Time’s Talking Business Column weighs in with these difficulties;
“Under the current rules of the road, only bankruptcy will allow G.M. to cram down a new contract on the U.A.W., or get out from under its dealership agreements. But it can only do so after proving to the bankruptcy judge that it has tried to negotiate a new contract, which takes a very long time, and creates immense enmity. In addition, there would be so many moving parts in a General Motors bankruptcy, so many creditors who would have a seat at the table, so many stakeholders looking for every tiny advantage, that it would be impossibly complicated”

This is why there are so many who are trying to adapt or form their own types of bankruptcy. All of these simulations try to parallel the special circumstances of the automotive industry. Mitt Romney’s “Managed Bankruptcy” and Andrew Sorkin’s “Government Sponsored Bankruptcy” are just a few of these examples. One thing is certain though. There must be tough government invention to manage this substantially complex operation with both quickness and authority. This must be done judicially to ensure the best interest of the American people. The government must use bankruptcy to make parties cooperate and contribute their aid only where and when it is necessary. Joe Nocera does the best at wrapping his fingers around a middle-ground alternative;

Someone in the Obama administration, with both business savvy and a suitably tough-minded approach, could bring together the parties, including the dealers, the union and the company. He (or she) could force the union and the company to renegotiate their contracts. With his input, Congress could perhaps pass a law that dealt with the state laws governing dealerships. (Or the government could pay off the dealers itself, instead of having G.M. do it.) He could sign off on plant closings. He could force the companies to come up with real plans that would return them to profitability. And in return, the government would make federal loans that would give them the breathing room they need.

In addition to this resolution, the government should add the clause to likes of what Romney suggested in his op-ed of guaranteeing warranty protection. This would give consumers confidence with car no matter if the auto industry goes into a bankruptcy or not. The newly appointed Auto Task Force will do more than approve or reject loans. They will take an active hand in remodeling this industry and will act as legal arbitrators to ensure that these tough changes are made and enforced. Bankruptcy is an option that would allow real substantial transformations to take place. If any government aid is used then shareholders should lose their paltry equity. Union pay should also be scaled down through a mediated negotiation to accommodate the industry through these difficult times. Their pay should be somewhat equivalent to the foreign owned plants here in the US till the automakers get back on their feet and can afford to renegotiate. The US Honda plant is an example for a competitive way for how to handle wages and benefits. However, these difficult choices are the ones which government appointed task force will have to mediate. In addition, benefit contracts will have to be reasonably assessed and should be honored to the best of their ability to those which they were promised to. This must all be done in an ethical manner. The UAW shouldn’t have to suffer because of upper management’s mistakes but they must also understand the reality of the times and that old practices which they were accustomed to are not always healthy to the industry. The industry must change as a whole. Everyone from upper management to the factory worker has a different role and responsibility which they must face.

Dissolving Structure by Reducing Brands and Models:

In continuing this transformation, fat must also be trimmed in production to suit the market’s capacity. This problem of over production has been an unacknowledged flaw that has plagued the automotive industry’s business model for quite some time now. It is only now, in this crisis, that automakers are beginning to realize the consequences of their actions. Eric Peters describes this toxic practice in his work, Too Many Cars, Not Enough Market;

What's "overcapacity"? Simply put, too many vehicles chasing not enough market. The industry (that's all the carmakers put together) tries to sell on the order of 11-12 million new cars every year because that's how many cars they build (modest estimate in my opinion). The problem is it's hard to sell that many cars, even in the best of times -- and it's even harder to sell them at any kind of decent profit…Within each model segment -- mid-size family sedans, for example -- there were typically three or four major contenders circa 1970. Today, there are more than a dozen contenders in this same segment -- and it's similar in virtually every other segment… Meanwhile, the buyer pool has not increased in parallel with the increase in the number and types of vehicles being offered…Also, modern cars, once built, have an extremely long shelf life compared with the cars of the past. With decent care, they can last 15-plus years and more than 200,000 miles. But the auto industry continues to churn out new cars on the 1960s-era assumption that the entire fleet gets recycled every 5-7 years or so. Result? The inventory (new and used) stacks up.
How does one undo all this mess?

As Eric Peters suggested and probably many of those who believe in the free market might agree, one should just the natural market forces act accordingly. This conservative approach is similar to the bankruptcy school of thought. However, our goal here is to keep as much the manufacturing sector as American as possible and support the US economy instead of surrendering to foreign markets. Therefore, similar to customizing a bankruptcy plan that helps American automakers survive, a custom market transformation is necessary for them to regain a competitive edge. That way automakers work within market forces instead of against them. Throwing the automakers an uncontrolled bailout would pollute this process and would negate the free market. In result, this solution of propping up of the industry would only lead to a more devastating collapse in the future.

Eric Peters would refer to this next fix as the thinning of the herd. As far as General Motors goes, their herd is way too big for its own good. In fact, it is what is killing them. By reducing GM brands they would be better equipped to handle their market share. For example, GM runs a total of 6 six full line divisions- Chevrolet, GMC, Pontiac, Buick, Cadillac, and Saturn—(8 if you include Saab and Hummer). This is way too costly for such a little market share (est. 22- 26%). Decades ago this worked because there was less competition, more market share (est. 50%) and less over capacity. Nowadays it is a waste of vital resources to have this much baggage. The reason why Ford is not nearly in a much trouble is because they are about a third less in size as General Motors. In order to begin fix to this GM must cut its divisions by at least half. That means the strong will survive and the rest will die off. This effect is already starting to take place in fact. Saturn will be phased out by 2010, Saab is looking at bankruptcy protection after being denied aid from the Swedes, and GM is searching for a buyer for Hummer. This is the just the beginning of the natural selection taking place for the auto industry. More will have to happen for it to survive. GM must stick to its core keeping about two to three of most successful divisions. In this case Chevrolet and Cadillac would definitely stay. This would be similar to the Asian business model such those of Honda-Acura, Toyota-Lexus, and Nissan-Infiniti. This allows them to generally comprise of one standard division and one luxury division. For General Motors, Pontiac and Buick would battle it out for the third spot. This could be like Toyota’s Scion division, a one-off place for bolder concepts. There are those who believe Pontiac should remain as GM’s specialty brand. At the same time, there those that think Buick should stay because of their success in China (Andrew Sorkin). Nonetheless, one of them will have to go.

Chrysler’s situation is a little more complicated. In midst of this crisis, their company is the worst shape of the three with all of their divisions struggling to say the least. These January 2009 sales numbers reflect their predicament.

It is most important to note the far right column of volume percent change. This is how one judges the health/trend of the divisions and its models. For instance, Chrysler is failing miserably. What used to be their most popular models the PT Cruiser and the 300, have peaked and are now plummeting drastically in sales. Jeep, the smallest of the three are hanging in there the best with their star, the Wrangler actually reporting gains. The largest, Dodge, is also hanging in there somewhat, only because the success of their trucks - the Ram pickup series and Dakota line. Dodge’s Viper is a surprise but sources say that because they have a solid resale value and have been recently adopted as both a solid investment and toy for wealthy consumers. So what should Chrysler LLC do? They will have to put most of their fleet to rest or as Andrew Ross Sorkin suggested, they could consolidate themselves under GM:

As an inducement, the government would allow the merger with Chrysler to go forward… We need to look at the industry as a whole…The merger should reduce costs by as much as $7billion. But that’s not the tough stuff. The harder decisions are these: Both companies would have to jettison brands — lots of them… That means Saturn, Pontiac, GMC and Saab would all disappear. Deutsche Bank estimates that reducing G.M.’s brands from eight to three would bring down the company’s cost base by $5 billion annually. If you’re able to shut the dealerships too, lop off another $4 billion. Chrysler is an even sadder situation: the only brand with any value is Jeep. Its Dodge Ram truck lineup could be merged with Chevy, which would also pick up pieces of the GMC business. And Chrysler’s minivan business could be combined into the Chevy brand as well.

That is just one idea. Another may be to package Jeep along with Hummer for an independent buyer. It could keep these two alive by forming its own smaller niche for an off road/outdoor market. It is unnecessary to have the two running as full scale production lines especially because of where trends are heading with more practical vehicles. How Fiat fits into this picture, I’m not sure. Nonetheless, the only way Chrysler can get out of this is to downsize itself by 60% or more and take up arms with either a similarly downsized GM or continue forming their foreign alliance with Fiat. From the looks of things it does not appear that they are capable of surviving on their own.

After the American automakers rid themselves of their weak links they will have to change their practices quite a bit to keep themselves from repeating their mistakes again. It is not just about changing the structure that is necessary. For the automotive industry to succeed for the betterment of itself and society, its culture must change as well. As for new practices, everything will be about standing alone, eliminating the industry’s perpetual manufacturing monotony. This means no more producing the exact same vehicle under one to two other brand names or badges. Eric Peters points out how this practice runs rampant at General Motors;

The Aveo-G3 thing is by no means a unique or unusual practice for GM, either. GM re-sells the same basic minivan at least two different ways (Chevy Venture, Pontiac Montana), the same "crossover" wagon at least three ways (Saturn Outlook, GMC Acadia, Buick Enclave) and the same basic SUV three ways (Chevy Tahoe, GMC Yukon, Cadillac Escalade). These are just a few examples. Divide and conquer is a great idea in politics; in the auto business, it is a recipe for confusion, needless waste of resources -- and bankruptcy.

They’re not fooling anybody here. This neither excites anyone nor does it help sell cars any better. All it really does is flood the market with an abundance of look-a-likes reducing any demand which they may have once had. Stopping this practice is another way that automakers can start to thin their herds. Automakers must become more creative in satisfying their consumer’s wants and needs.

Innovation: The Open Source Car:

One of the biggest complaints today, which many have for the Detroit Three, is that they are out of touch with their consumers. Specifically, they are not producing the cars which people really desire nor are they producing anything that is superior in quality and in fuel efficiency. Again, this is where that culture disparity comes into play. This has to be fixed. In order to make these changes the automakers must take some radical steps in how they develop their cars. One of the best articles I’ve read lately is Jeff Jarvis’s: How Google could save the Auto Industry. Here Jeff states what I just mentioned.

“The huge declines in sales reflect a fundamental disconnect between drivers and Detroit. It's time for a radical rethinking of the way U.S. automakers do business.”

Next Jeff tells how he was ignored when suggested that Detroit should open their doors to the public and make them a part of communicating their ideas in their vehicle’s development,

“I sat in Detroit some time ago and suggested heresy: I urged the car people to open up their design process and make it both transparent and collaborative. Car companies have no good way to listen to customers' ideas. If they had opened up, years before, I would have been among the legions who'd have gladly told them to invest 39 cents for a plug-in car radio so we could connect our iPods”

Then Jarvis explains why the automakers were opposed to his ideas,

“My suggestion was sacrilegious because automakers have long been secretive about design. Design and surprise, they think, are their special sauce. That's why they cloak new models like classified weapons, setting off games of cat-and-car with photographers who try to scoop the secrets. Apart from the most fanatical car fan, do the rest of us still care? The excitement I remember about a new year's cars -- like a new season's TV shows -- is gone.”

This where Jarvis begins to argue his point,

“How could a car company again win our affection for its products and brands? By opening up, by making the process of producing cars transparent so it could involve customers, by turning out cars customers want because they had a chance to say what they want.”

He explains how this should be by using a collaborative business model similar to the likes of what Google uses,

“Google listens to us and trusts us when it releases unfinished products as "betas" so we can tell them what to do next. That's the approach behind Google News, Gmail, and the new Chrome browser.”

Afterwards Jarvis links the two together to form what would be one of the greatest innovations in the automobile industry- “The Open Source Car”

“But shouldn't design at least be a conversation? Designers can put their ideas on the Web. Customers can make suggestions and discuss them. Designers can take the best ideas and adapt them, giving credit where it is due. I don't imagine customers would collaborate on transmission design -- though a few might have good suggestions if given a chance. But they would have a lot to contribute on the passenger compartment, the look of the car, the features, and the options. They could even get involved in economic decisions: Would you be willing to give up power windows if it got you a lower price or a nicer radio? This collaboration would invest customers in the product. It would build excitement. It would get the product talked about on the Web and linked to and boost its popularity in Google searches. The approach could change the relationship of customers to the brand and that would change the brand itself. Imagine that, the collaborative community car: our car…

What an opportunity the industry has to bring humanity and personality back to cars. If so many of us like to express ourselves in blogs, YouTube videos, Facebook, Bebo, MySpace, and Flickr -- if, as Google understands, many of us want to have a strong identity online through self-expression -- why wouldn't we want to express ourselves through our cars? Companies have turned their products into commodities by imposing such sameness on them. I know, it's about efficiency: four models built under four brands on the same body with the same parts, making them cheaper. But the joy of customizing our own cars was taken away by factory efficiencies and dealer economics: We buy off the lot, not out of the factory, and we buy cars that are often loaded, like cable subscriptions, with things we don't want…

Now take the next step and imagine I could take an unpainted car to any of those designers on Facebook or my student the graffiti artist and have my car painted so that it looks like no other. It'll cost me. But I'll bond with that car and love it because it's mine, an expression of me. That unpainted car would be the beginning of an auto company thinking open-source…”

Jeff Jarvis’s article is beautiful, articulate and innovative on so many levels. Though I tried to paraphrase much of its material, it is still a must read. He goes on to explain in greater detail how social networks are critical in collaborating automobile designs and how smaller companies are beginning the open source car process. Lastly, he discusses how the automotive industry could take a hand in all levels of transportation facilitating how people choose to get around. Though it might not be practical to have open source design for every car built, the automakers can begin to adapt this strategy to business model in ways that are both profitable for themselves and are constructive to the public. The point that Jarvis is trying to make is that Detroit has been missing or has been too slow to make the mark for quite some time now. If they can develop a way to connect to themselves with their consumers they can begin to turn their industry around. It is this type of innovative thinking that is imperative to change the failing culture within the automotive industry.

Innovation: Technology and Alternative Energy

Innovation must take place in every facet. Bringing the public on board with the automaker is just the beginning. The next evolution in the industry’s culture will come from a push to evolve its technology. For too long now the American auto industry has been complacently behind the Japanese with energy efficient progress. Now is the time that they must become the leaders in this push towards the next generation of green technology. This is where the government must make a stand to form strict regulations to keep these automakers moving in the right direction toward specific goals. For example, laws need to be formed mandating that automakers must actively fuse green technology throughout their core brands. Makes and models must include technology that should incorporate the following alternatives;

More hybrid technology that uses both electricity and gas – more flex-fuel powering, such as cars that can run on either ethanol, gasoline, or liquefied petroleum – compressed gas converters which use natural gasses such as methane or another CNGs to power vehicles – diesel engines and systems which run on Ultra-Low Sulfur Diesel (ULSD) or biodiesel – full scale electric propulsion that either uses advanced lithium ion batteries or hydrogen fuel cells – or any other alternative energy sources.

The government has set aside billions of dollars for advanced energy research. Now is time to update our energy policies and tap into this money so we can secure our auto industry and our environment.

Innovation: Retooling Closed Plants for Public Works Projects and Manufacturing

As time passes with this economic crisis more and more automotive factories and plants are being shut down. Some of them are being closed permanently and will never open again. Many are losing their jobs and struggling to find ways to provide for themselves and their families. Though I don’t always agree with Michael Moore’s philosophies or the entirety of his article, “Let’s Buy the Big Three,” he does however make some valid suggestions on what could be done to help save the auto industry and the livelihood of those affected by it. As previously mentioned, Moore talks about the growing demand for jobs as the auto plants start to close. He also discusses the necessity of the government to help the country at this point in time. No, I do not agree with him that the US government should buy the auto industry. However, I do believe that Moore is right when he says that we could transform failing plants into new manufacturing endeavors. I also like that he talks about it in both a public transportation and energy efficient sense. During the next 2 to 5 years the demand for more public transportation is going to increase significantly. So I don’t see any reason why it would be a problem to retool closed auto plants with the equipment needed to complement manufacturing demand for public transportation purposes. Whether it is for trains, planes, subways, busses or for something else, I feel that it could only help create jobs for our struggling economy. The government could play a vital role in both the survival of the car industry and in how we choose to commute.

Conclusion:

The American auto industry is at crucial turning point. It could go in many different ways either positive or negative. We don’t want to spend all this money and time for it to continue its harmful practices or for it to survive only long enough for it to crash again. Action must be taken and we have an obligation to do it right in a way that is beneficial to both the economy and the environment. By exhaustively examining the research and opinions of experts, innovators, leaders, public officials, journalists, employees, intellectuals, and civilians inside and outside the automotive world, I’ve synthesize a better viability plan that takes everyone’s side into account. I feel that what I have presented is the best way forward for this industry and this country. All the same the discussion is never complete or finished. There are still so many elements that I have yet to touch on, beginning with the suppliers and financiers. With that being said, please look out for more updates and posts, because discourse is only way to bring all of our ideas and thoughts to the table. By constantly raising debates and discussions I know that we can fix the auto industry and face the rest of the world’s challenges with a strong engine.

Monday, March 30, 2009

Wagoner, Panic, & the Carpocalypse


Many feel it was almost as if the almighty god, Zeus, perched atop Mount Olympus had casted his angry hand upon the automotive industry on Sunday. The news, like a flash of lightening, shocked many here and around the world. How could General Motor’s 32 year veteran and CEO Rick Wagoner be stricken down without any warning? The even more shocking question, why was this done by our president? As the news of the Obama administration’s request for Wagoner’s resignation began to spread, so did these exaggerated allegations and analogies.

For instance, Michigan’s governor, Jennifer Granholm, called Wagoner a “sacrificial lamb,” a symbolic concession to public rage ordered by a president who had to look tough after being blindsided by the A.I.G. bonuses. All of the crisis aside, I’m finding its encompassing rhetoric to be very amusing. Many are completely lost and are looking at this in the wrong light. Instead of acknowledging the gravity of Wagoner’s mistakes and the necessity to remove him from his reign over GM, many are too caught up in flaming the president for his administration’s decision to request that a CEO should step down from a company, which it, nonetheless, almost destroyed.

Of the many things which bother me the most, none compares to the sympathy which Rick Wagoner has been receiving lately. After going through 17.4 billion dollars of federal aid approved by the Bush Administration, Wagoner came back to Washington and requested another 16.6 billion more. Though many thought the Obama Administration should refuse this second request, the president decided to hear them out. Pledging his allegiance to the auto industry, the president made it clear that he would do everything in his power to help them because he felt it was in America’s best interest that they survive.

After witnessing the lack of direction of both General Motors’ and Chrysler’s with the spending of their previous loan, along with their inability to adapt with foreign competitors, the president decided to be cautious with any new loan to the auto industry. Rightfully so, he decided to have the automakers present a viability plan that any new loan would be contingent on. The president gave them the deadline- the end of March, and appointed an auto task force to oversee that they restructure. This was Wagoner’s chance to prove that he still could turn things around.

Of all of Wagoner’s flaws, his biggest is his lack in tough leadership. After his ineffectiveness to negotiate any worthy concessions with the United Auto Worker’s union (UAW) in the past, it was prudent that he did so this time around. However, Wagoner refused to accept this problem. One expert told CBS News correspondent Tony Guida, that Wagoner, as recently as January, did not agree that the UAW contract was too rich. Ford on the other hand, understanding the necessity of these concessions was able to reach an agreement with the UAW in February. Wagoner justification, “Ford’s agreement wouldn’t have met GM’s needs.” Agreed, but why are GM’s needs greater than Fords’? This question can be answered by understanding the mistakes of GM management under Wagoner’s leadership.

Many of GM of problems went unaddressed. Although some of them were inherited by Wagoner, he never did much to correct it. In contrast to Ford, which only has 3 full line divisions, GM has 8. Ford understood its market share and refused to become a bloated company unlike GM, which poured its money into developing brands that destructively duplicated already existing models. Nothing changed under Wagoner’s term. Instead Wagoner became known as the guy who killed GMs electric car the EV1. He was also was known as the guy who became dependent on gas guzzling trucks and SUVs, surrendering its once profitable car market to the Japanese.

Where’s the leadership? Since 2004, GM under Wagoner has lost $84 billion, has seen its stock plummet from $70 to under $3, and has dropped its market share from 33% to 18%. Nonetheless, it still cannot come up with an acceptable viability plan for its future. President Obama said, “He will not tolerate failure,” and means it. And another thing, he himself did not fire Rick Wagoner; his administration requested that he resign. It was Wagoner himself who made the choice to step down not before negotiating a $20 million severance package from the company which he helped bring to its knees.

Change in such a substantial industry is very tough to accomplish. General Motors would not have been able to make these decisions on their own. The status quo and the bureaucracy in place would not have allowed for it. The auto task force knew this and was justified in removing GM’s CEO and some of its board members. I have always believed that a change of corporate culture is necessary for the auto industry. Please do not spite the government’s attempt to do what it needs to do to ensure our investment of auto industry is protected. For those who believe that Wall Street is off the hook, I would pay close attention in the future, because this administration hears what you are saying. Lastly, put your fears to rest and have faith in the American auto industry. It is clear that the Obama administration is committed to it. Through bankruptcy or not, consumers and suppliers will be protected, and automakers will emerge better and stronger.


http://www.nytimes.com/2009/04/05/opinion/05rich.html

http://www.nationalpost.com/cars/story.html?id=1486200&p=1

http://www.news.com.au/heraldsun/story/0,21985,25295720-664,00.html

http://www.nationalpost.com/cars/story.html?id=1486200


http://www.cbsnews.com/stories/2009/03/29/business/main4901201.shtml

http://www.autonews.com/article/20090330/COPY/303309918/1178

http://online.wsj.com/article/SB123540074568747921.html

http://www.nashvillecitypaper.com/news.php?viewStory=66893

Thursday, March 26, 2009

Gas Survey


What is the most you would pay for gas? For instance, what if gas prices rose to $5, to $7, or even $10+ a gallon? Would you still use your car as much as you do now or would you look for any other alternative possible for transportation?

I’ve always wondered what would be the breaking point for Americans to start abandoning their cars. No, I am not wishing this or advocating this on our country. However, I do want entertain this idea for a variety of reasons.

For example, it is interesting to note that the US finds its ranking in the least expensive bracket for their average of gas prices. “Out of 155 countries surveyed, U.S. gas prices were the 45th cheapest, according to a recent study from AIRINC, a research firm that tracks cost of living data- CNN.” Nonetheless, the US is ranked number 1 in oil consumption, consuming 20,680,000 barrels of oil a day (Nationmaster-2007 statistics).

These shocking numbers drive one to seek for more answers. The main one being, “what is reasoning behind the disparity of gas prices from country to country? Specifically, why does a country such as Venezuela charge 12 cents for a gallon opposed to the Netherlands which charges up to an all time high of $10 a gallon?

Differing gasoline prices are a reflection crude oil prices, processing and distribution costs, local demand, the strength of local currencies, local taxation, and the availability of local sources of gasoline (supply)-Wikipedia. Particularly, the variation in prices often comes from whether or not gas is taxed or subsidized by ones government.

Typically, gas is heavily taxed in places where it is less abundant or nonexistent as a natural resource. Furthermore, heavy gas taxes are also frequently levied to support strong social programs such as those which are plentiful among many nations of throughout the European Union. For instance, unlike the US many of these countries use funds acquired from gas taxes to help finance education and health care for their citizens.

On the other hand, countries which subsidize gas are usually those which have a large surplus due to it being among some of their primary resources. Oil rich countries such as Venezuela, Iran, Saudi Arabia, Indonesia, Egypt, Malaysia, and Mexico are among the few which subsidize the price of gasoline. Their cheap prices are a reflection of this. However, subsidizing gas has often been argued that it cripples its citizens and nevertheless, is not helping the environment in any fashion. Venezuela for example, is facing a rising cost in its national debt due to the money it loses on subsidizing its gas. “Venezuela is paying a price for cheap gasoline. State oil company Petróleos de Venezuela is footing an $11 billion a year bill for underwriting and subsidizing the fuel. That's nearly double its 2007 net income of $6.27 billion-Business Week.” Furthermore, now that Venezuela is moving toward socialism, how else are they going to afford any social programs to help their citizens? Many think that they should start subsidizing less and start exporting more.

Still, the question remains. How is the US getting away with such low gasoline prices? No, they don’t have national health care but this new administration wants one. They also don’t pay as much as Europe for their education, but still are continuing to cut it around the country. Even though the US has some oil reserves of its own they are starting to import it more and more as time goes by. Finally and most importantly, the US is largest consumer of oil in the world. So what gives?

One thing is certain; these prices are going to change in the future, whether you like it not. As the number one consumer of fuel, the US cannot remain out of balance with the rest of the world for very long. Besides, this amount of consumption is no good for the environment. Eventually, the cheap price we pay for is going to hurt us in the long run.

For the moment, we are already starting to see some of its effects. For one, with cheap gas prices automakers have no motivation to producing anything that is fuel efficient or environmentally friendly. Consumers also have no motivation to stay away from big hunky gas chugging polluting SUVs and trucks. March’s Motor Trend Magazine’s article describes this trend in its article, Prius or Pickups. They say that with gas prices down consumers are going back in full force to purchasing SUVs again.

So, what do you think? My last post described how a strong national policy with emission standards is one way of starting a change toward the development and purchasing of better cars. Is raising gas taxes or Europeanizing the US another solution? Proponents such as Democrats Al Gore and House Representative John Dingell suggest that higher gas taxes should be enforced through a carbon tax:

“A carbon tax is a form of pollution tax. It levies a fee on the production, distribution or use of fossil fuels based on how much carbon their combustion emits. The government sets a price per ton on carbon, then translates it into a tax on electricity, natural gas or oil. Because the tax makes using dirty fuels more expensive, it encourages utilities, businesses and individuals to reduce consumption and increase energy efficiency. Carbon tax also makes alternative energy more cost-competitive with cheaper, polluting fuels like coal, natural gas and oil- Howstuffworks.”

This wouldn’t raise gas prices to a European standard overnight. According to Dingell’s plan, it would be progressive, slowly raising taxes in little increments annually. Another solution that is favored by politicians is a cap and trade scheme:

“Cap-and-trade schemes are the most popular way to regulate carbon dioxide (CO2) and other emissions. The scheme's governing body begins by setting a cap on allowable emissions. It then distributes or auctions off emissions allowances that total the cap. Member firms that do not have enough allowances to cover their emissions must either make reductions or buy another firm's spare credits. Members with extra allowances can sell them or bank them for future use. Cap-and-trade schemes can be either mandatory or voluntary- Howstuffworks.”

Again, what do you think? Are either of these resolutions viable for you and the automotive industry? Will it be what the US needs to push itself toward the next generation of technology and a clean environment? Or do you have another answer? Unlike many of my views on US policy and the automotive industry I cannot make up my mind on this one. For the moment, I am enjoying gas prices too much at what they are right now to be able decide the next move on this one. I need your help, because I know sooner or later this way of living will not last.

US. Gas Prices Vs. Europe



US. Gas Prices and Tax Differentials Vs. the World (Click to enlarge)



Wikipedia
Numbers:

Country/Territory
US$/gal

Venezuela (Caracas)
0.19
Turkmenistan
0.3
Nigeria (Lagos)
0.38
Iran
0.42
Saudi Arabia (Riyadh)
0.45
Kuwait (Kuwait City)
0.79
Qatar (Doha)
0.83
Bahrain (Manama)
1.02
Egypt (Cairo)
1.21
UAE
1.4
Brunei
1.48
Trinidad and Tobago
1.82
Mexico (Mexico City)
2.35
Indonesia
2.46
North Korea
2.69
Malaysia
3.18
China
3.94
Russia (Moscow)
3.97
Pakistan
4.01
Colombia
4.05
Honduras
4.05
United States
4.06
Thailand
4.58
Philippines (Cebu)
4.62
South Africa
4.66
Chile
4.81
Ukraine
5.03
India (NOIDA)
5.15
Canada
5.49
Sri Lanka
5.53
Australia
5.6
Dominican Republic
5.72
Brazil (São Paulo)
6.02
Japan
6.06
Singapore
6.06
Uruguay (Montevideo)
6.06
New Zealand
6.13
Estonia
6.78
Romania (Bucharest)
7.0
Cyprus
7.08
Slovenia
7.08
Switzerland (Zurich)
7.12
Croatia
7.38
Greece
7.38
Guatemala
7.38
South Korea
7.38
Hungary
7.51
Poland (Krakow)
7.8
Israel
7.95
France
8.06
Spain (Madrid)
8.1
Hong Kong
8.33
Monaco
8.33
Belgium (Brussels)
8.44
Iceland
8.52
Sweden
8.71
United Kingdom
8.74
Italy
8.78
Portugal
8.78
Finland
8.9
Germany
9.2
Denmark (Copenhagen)
9.31
Eritrea
9.58
Netherlands
10.11
Turkey
10.14
Norway (Oslo)
10.37
Sierra Leone
18.43



For a very comprehensive look at world numbers check this out Also look at each map to see which countries subsidize or tax gasoline

(Note to convert to gallon price- Multiply liter price by .03785412)

Saturday, March 14, 2009

California Secedes from the Union

Hey California I have idea… Why don’t you become the capital of the United States? Or even better, why don’t we change our country’s name to the United States of California? That way when you impose your own emissions regime over the rest the country, you won’t look so bad. Though regulating your state’s auto emission standards may look like a good idea on paper, it will not make the changes you are hoping for and it will further damage the economy of the rest of the country.

In case one is unfamiliar with these developments, this whole debate erupted when the Bush administration initially rejected California’s waiver to become exempt from the federal emissions standard in 2007. After this happened democrats began rallying back, calling for Bush’s head. During Obama’s campaign he pledged to overturn the decision that denied the state’s waiver. However, Obama hasn’t quite lived up to his promise yet, but nonetheless has brought the issue back on the table.

On January 26, 2009 President Obama signed a Presidential Memorandum directing EPA to assess whether denial of the waiver based on California's application was appropriate in light of the Clear Air Act. On March 5th a public hearing was held to begin this discussion.

The stage is set, but the plot still has not to be determined. The hearing was just the beginning. The public has until April 6th to continue to submit their views in writing to the EPA. The EPA will consider written comments submitted during the comment period with the same weight as oral comments presented during the public hearing.

All the same, I along with the public am confused of how this type of state regulation is going to do any good for our country at this time. Yes, I understand the message that California is trying to send. However, a message of this nature should not be divided amongst states. If we really want to push for an environmental change than we must do it as a nation united not divided. During the public hearing, Democratic Senator Carl Levin argued the need for a single national standard.

“If we take advantage of the unique opportunity to bring these efforts together, we can have a strong national policy that incorporates technology innovation into the vehicles sold in the U.S. and that contributes to reducing our greenhouse gas emissions globally. The standard should be based on science and technological feasibility, and it should be written in a way that is non-discriminatory, i.e., by applying the same standard for similar size and weight vehicles regardless of manufacturer. This approach would take advantage of significant new advanced technologies that have the potential to transform the way in which people drive and that offer enormous potential to increase fuel efficiency and reduce greenhouse gas emissions”

Yes, we should get tougher on the automotive companies to produce more energy efficient cars. In many ways we are starting to. Consequently, state regulation is going to have very ill effects on the industry as a whole. It will split up auto production by the state’s differing policies and will complicate manufacturing at a time when they cannot afford any more problems. Senator Levin explains, “Auto manufacturers need predictability, stability, and adequate lead-time to meet new standards.” So, why should we further jeopardize the tax dollars that were already invested in the auto industry? If we want to combat global warming and green house gasses then we should do it in a way that is going to push automakers toward innovation but not break their backs at the same time.

If this waiver is passed it will create a fascist auto market in California. Dealers will have to pay a larger premium for their specialty cars, which will fall on to the consumer. Sales will drop even further and consumers will have less of a demand to purchase a new car. Though today’s cars are already improving in their emission technology, Californians will not want to pay the price of a state regulated car. It will have a counter-effect on pollution because California’s population will be tempted to keep their older cars longer because they will be exempted from the new laws.

In addition, California’s admission of the uniqueness of their situation brings up another interesting point. This shows that it is not just the automaker’s fault for the troubles they face. Transportation, infrastructure, and population density problems are among the many city flaws that contribute to California’s diminishing air quality. Thus, it is not right that they mandate changes that others have to make excluding while themselves away from responsibility. California needs to step up and contribute their own funds and planning to begin this resolution. For example, they could invest in the production of their own efficient cars or invest in research for the automakers. They could also fund more public transportation works that alleviate the demand for as many cars in California cities. Nevertheless, it is not their job to decide how cars are made. This is up to the government.

So what does the future hold for California and its cars? Luckily, the government is examining the opinions of the public. Hopefully, both realize the implications of these decisions. As Eric Peters of the American Spectator put it best, this will only “slam shut and nail down the coffin lid on the U.S. auto industry.”