White House Has New Plan For Auto Industry
The issue of the big three auto makers has become partisan. While this may not be a surprise, it does throw into a tailspin what many are seeing as a dire situation in Detroit. Many Americans are against a bail out, citing that the company’s will use the money to survive, but not reform their ways.
It has been widely reported that President Elect Obama has desires to see a bail-out package happen sooner rather than later. The Bush administration feels that something needs to happen, but it should not be part of the $700,000,000,000 bailout that passed in the weeks leading up to the election.
Some have argued that the Bush administration is not supportive of protective measures for the auto industry. The White House pointed out today that this is not the case. The Bush plan would call for $25 billion (the amount sought by democrats) should come from a Department of Energy program previously approved and funded to develop fuel-efficient vehicles. The White House opposes the idea of automakers getting an additional $25 billion.
In my opinion, I would tend to agree with the White House on this issue. The simple step of getting cars to flex fuel will carry a ripple effect throughout the economy. For about $100 per car, the existing power plants of cars can become flex fuel capable. This, more than anything else can carry impacts that go beyond the auto industry. It could spurn the farming industry, as well as see job creation through flex fuel pumps. It can give Americans the chance to thing in MPPG (miles per petroleum gallon) rather than simply MPG (miles per gallon). A car that gets 25 MPG on gasoline may get 50 MPPG on a 50/50 mix of gas and alcohol. GM and Ford are already selling 100% flex fuel vehicles in many nations around the world.
Senate Democrats plan to introduce legislation Monday attaching an auto bailout to a House-passed bill extending unemployment benefits. A vote was expected as early as Wednesday.
The situation is dire, and GM is perhaps the company that is in the biggest trouble. GM sold off their remaining stake in Suzuki for $230,000,000 over the weekend. While action is needed quickly to avert a crisis, the government needs to be aware that this is the one occasion where they can leverage real change in the industry.
President-elect Barack Obama said he believes aid for the auto industry is needed but that it should be provided as part of a long-term plan. In my opinion, part of that plan should be to entice change that will carry a broader impact than simply “great financing deals”
The crisis in the auto sector involves many parties, and already it appears that the various factions are staking their claims. Late last week, the UAW said that no concessions will be made by the unions. If the bickering continues, there may be nothing left to lay claim to. For success, cuts across the board need to be made, and the industry needs to take on a new vision. If there is a bail out, consideration needs to be given to how the big three can differentiate themselves from other manufacturers.
The issue is not cut and dry even within the industry. Of the three automakers, Ford seems to be on the best footing. Any bail-out may come with stipulations that may work for one company, but be too expensive for another. It will be interesting to see how all of this plays out.
The longer the issue festers, the longer consumers will avoid buying new cars. What happens in Detroit will resonate through many communities, as there are a lot of businesses that rely on the auto industry. For SiriusBuzz readers, satellite radio may come to mind.
Position – Long SIRI, No Position OEM’s
Flex Fuel is a complete waste of money and effort. From the beginning flex fuel was simply a band-aid solution, and a cheap way for the American auto companies to ‘pretend’ to be innovative.
The era of fossil fuels is coming to an end, and the only way for these companies to actually advance is for them to introduce truly innovative products (like the volt), and at reduced prices. (Example: a small 2 seater Volt that can get over 100 miles on a charge).
We need a game changer to reinvigorate the brands, and not simply a $100 flex alternative.
Flex Fuel in the 21st century would have been the same as trying to invigorate the 19th century horse and buggy by substituting the horse with a faster, smaller animal that eats less food…(Maybe a Gazelle)
I think you hit the nail on the head. Reduced Pricing. To me its common sense but to the auto industry they dont seem to get it.
Just about everything revolves around supply and demand. If you have a higher demand for cars you might be able to sell cars for a higher price. When youre supplies are great and the demand isnt then you have to lower those prices to sell your cars. I know that some makers are getting more aggressive with their pricing but lets be honest for people to go buy a new auto in todays economy they are going to have to see some real savings or people will just keep what they have and the auto industry will just keep bleeding until its dry.
mario…
I beg to differ. We need to see wholesale change in an immediate timeframe. Fuel cell, electric cars, and hybrids are all wonderful, but they can not be implemented on a scale that makes a meaningful difference. Fuel cells are years away from being as efficient as we need.
Flex Fuel capabilities are here NOW. While a few flex fuel cars have been manufactured and sold in the U.S., it was only done as a way to gain favor with other US law. I am speaking of a wholesale change here that will deliver something across the board.
If everyone had electric cars, how taxing would that be on our power grid? We already suffer brownouts on hot summer days. If evey Tom, Dick, and Harry was plugging in a car, imagine the problems that would arise. Additionally, you could never use bail-out money to initiate an electric conversion. It would put US automakers at a distinct disadvantage (as if that didn’t already exist) vs. the imports, whereas flex fuel gives anyone the capability to be 100% gas if they desire.
In what other universe could a $25 billion bailout enact what would be such a stark blow to OPEC?
I feel strongly that we need to continue with other technologies, but we also need an immediate solution. Flex fuel, and not an electric car can deliver this.
Look at Brazil, which requires flex fuel. You will see a nation that has decreased dependence on oil with a viable alternative in sugar cane
Tyler, my vehicle is FLEX fuel capable. FLEX is a complete joke.
Flex fuel, because it is 95% ethanol, burns much cleaner, but also burns much faster. Because of it burning much faster, you tend to get about 30-40% LESS miles per gallon, but you only save about 30 cents per gallon by buying FLEX fuel. The cost vs the savings do not add up, and thus will not make any differences at all in the usage of gas. I, myself, will not be using E95 anytime soon, unless the price comes down to match the fuel economy you get with it.
Gas is $2 a gallon. What is needed is a campaign to say cars and SUV’s are a good deal. The run up in Oil was driven by speculators who are now gone. You can still put EPA standards on the Auto’s later. Bear Stearns and Lehman are toast. Now we just need for GS to go away.
It is unfair to compare ethanol in the U.S. to Brazil. Brazil has been very successful because their ethanol is a byproduct of their sugar manufacturing, and is Brazil is the largest manufacturer in the world. I personally dont see that happening here. I do think it would be the easiest to implement like tyler said, but i dont see it having the best gains.
Long time reader/First time poster. Great site. I have been long siri for a while now but averaged down to .57 a share from 2.75.
The answer is not in flex fuels . . . . for now.
Corn-based ethanol is difficult to store and transport (corrosive) and the increased demand for farm based fuel sources causes commensurate inflation in agri-based food prices.
The flex fuel industry relies on heavy government subsidies which it is not financially feasible without and is essentially a pork-barrel for farmers.
I don’t ever recall seeing a single flex-fueling station anywhere here in the northeast . . .
New technologies are needed and the feds will need some pretty long purse strings to get the automakers to make good on any bailout funds.
Tyler . . . do you have an opinion on CNG (compressed natural gas) as an alternative?
The technology is already here
There are already 130k CNG vehicles on the road in the US and more than 1mm such vehicles on the road in many other countries
There are ample supplies of domestic gas reserves right here or, alternatively, in Canada
And for Newman . . . CNG has a higher Octane rating, superior compression and burns more efficiently.
Retro-fit of existing gas stations is not prohibitive.
Anybody here driven a CNG fueled vehicle?
And Tyler . . . I agree with you on electric. Electric is often generated by burning coal or oil anyway . . .
Electric vechicles in mass scale is not feasible unless Americans are ready to begin a serious program of building nuclear reactors . . . which nobody wants in their backyard.
Plus, talk about infrastructure requirements . . . ooh-fah. Tony Soprano will be on all those union jobs with his lawn chairs and sunscreen; might only take about 10-15 years after clearing DEP permitting hurdles . . .
CNG is huge in utah. companies are producing them at a much higher rate, and gas stations have pumps more often than not.
roadkill…..
I like the idea of CNG vehicles. I do see a demand side problem. Here in the Northeast most of our gas comes through the Tennessee pipleline (it actually connects in texas).
One issue I have with natural gas is that we as a nation are forced to export it because of laws. Why are we exporting natural gas products? Because the Longshoremans union has an issue with a ship leaving one U.S port to go to another. Thus, ships leave the gulf of Mexico from Texas all of the time bringing our natural resources to other coutries, rather than redistributing it to another U.S. Port.
Too many antiquated laws are on the books that should be taken out.
I haven’t bought a car from “The BIg Three” in the last 34 years. Their products suck, they are overpriced, and they have made horrible decisions for years. They saw Toyota and Honda grabbing market share many years ago, and did absolutely nothing. There isn’t ONE decent fuel efficient small car made in this country! They all suck. Too many models that don’t appeal to the public, especially in this economic environment. They were greedy bastards, motivated by nothing but profit. They can all go to hell as far as I’m concerned. People driving around in 6000 pound vehicles, getting 13 miles to the gallon! They convinced us that bigger was better. Now they are paying for this deception that they tried to con the American public with. No sympathy, boys. You got what you asked for! If you do buy one of these pieces of shit, by all means make sure it is equipped with satellite radio! At least something in the car will be good!
Was our country founded on anything other than capatilism? Why do you think our country is in the position it is now? Haven’t we created too many socialistic and entitlement programs?
If everyone is okay with the continuous burdening of our children and grandchildren until the inevitable happens, well that’s your deal. I don’t like it.
I feel bad for those that may lose their job. I feel bad for this country.
You reap what you sow.