The Auto Industry And The New Energy Bill

The Detroit News has an article highlighting the effects of slowing auto sales. Many fail to consider the tentacles the auto industry has into all aspects of the economy. From banking to suppliers to rails to trucking to real estate to suppliers to basic materials to semiconductors to retail and on and on. The secondary and tertiary jobs and associated economic impact are still quite staggering. Even after decades of job losses. The old adage "What's good for GM is good for America" still holds true. Although, we might now consider what is good for America is good for GM. That being transformational change in energy and transportation technology that could play very constructively into the economics of a refocused U.S. auto industry. An industry that is finally bottoming after forty years of gawd-awful management failures that caused a massive loss of company and employee wealth. These companies would have gone bankrupt long ago were they not monopolies or relative oligopolies.

Now we get a new energy bill in the U.S. There are many pieces to the bill but there are two primary objectives in scope. One, it raises the requirements on auto mileage requirements by about 40% over a period of time and two raises biofuel production to about 25% of today's total gasoline consumption in the U.S. Both are a tax on society. Each person needs to decide if the impact of that tax is worthwhile. Of course, the U.S. auto industry has become the pariah of environmental advocates. There is a plausible argument to be made, as Daniel Howes points out, they are unfairly being targeted to carry the burden of change. Personally I support these changes because the auto industry is still comparatively oligopolistic and stifles competition. Or put another way, the American government has shielded these companies with policies of corporatism. That may be bad and that may be good. But, given millions of Americans have lost their jobs over the decades due to what is likely the worst, most insular management outside of communism, I'm not sure that shielding had the intended consequences. (I find it ironic that the above article by Howes quotes Nancy Pelosi for blaming the auto industry for being major polluters when it has been her party's support of corporatism that has substantially created this very fact. And, as Howes points out, her state disproportionately contributes their share of greenhouse emissions. This is not a political statement of support or lack thereof for any political party. I actually like Nancy Pelosi. I'm simply pointing out an irony of political pandering that takes place every day by all politicians.) Plus the barriers to entry in this business are quite large on many fronts including massive capital requirements. In fact, Japan's auto business has really only succeeded in this space because of their government's protection and investment over the years as has been the case with American auto manufacturers. But everyone needs to realize there will be both intended and unintended consequences to each government mandate. Intended consequences of higher mileage requirements are obvious. What are the unintended consequences? They might not all be negative.

Companies, universities, inventors and government labs are working feverishly on energy solutions for biofuels and auto efficiciency as are other research institutions across the globe. Many alternative energy research projects are really quite amazing in their scope and attempted solutions. There are major technical hurdles but there are always major hurdles in the fields of research. And, research is often an ugly process whereby mistakes, miscalculations and surprises actually lead to discoveries more beneficial than the work intended. So, not only will we likely see advances in areas of focus, but energy research may yield surprising discoveries yet to even be considered. I'll continue to infrequently post some energy related topics on here but my rationale for the last handful of energy posts is more to dampen general opinions of fear that we are running out of oil and going to hell in a hand basket because of it. I don't intend to turn this into an energy or green blog as it's not my focus and there are many out there much more capable than I could ever be.

Re the energy bill auto mileage changes, I saw former Senator and generally brilliant Bill Bradley talk some time ago. I have no desire to calculate the accuracy of his statements but as I recollect, he opined that if the U.S. had mileage standards similar to Europe or Japan, we would not need to import any foreign oil. Does anyone have any more specifics to share? Regardless, the spirit of the comment is that we are far from doomed in our energy requirements. (Has anyone read Bradley's most recent book?) It's of no relevance but I find it rather ironic that the current incarnation of politics in the U.S. has had what I would presume is the most aggressive energy policy of any in history even before the passage of this bill. Yet no one seems to realize how much the U.S. government is underwriting alternative energy projects and research. I think someone needs a new press secretary.

While not a major component of the energy bill, it also phases out incandescent light bulbs. Right now, that means replacement with fluorescent light bulbs. The government Energy Star web site says if every American replaced one light bulb with a fluorescent, we'd save the world. There is a minor problem with that statement since fluorescents contain mercury. There needs to be a recycling program if this is the case or we'll be dealing with more unintended consequences than this being a tax on society. But, in any event, I believe this is a transitional technologyand we will probably end up with LED lighting of some sorts which has the potential for even higher efficiencies. A recent study showed that over a twenty year time frame, the adoption of LED lighting could save the U.S. $115 billion in energy costs and reduce atmospheric waste by 278 million metric tons. That's no small feat for a lightbulb and it is only representative of U.S. savings.

The point to the above remarks is not the precision of any numbers but the significant savings that could be achieved with minor advancements in efficiency and technology. As I've said so many times, it is extremely likely oil is a bubble and most certainly there is no scientific basis for peak oil. Even if there were, it isn't going to mean the end of civilization as some would have us believe.

Finally, re the Detroit News article above, the link to the Detroit News main automotive page is on the right side of my blog. The site has recently had a redesign with the addition of significant new content. Under the "Autos" tab there are now eight pages of automotive content. Much of it is updated daily. I believe the Detroit News auto journalists are some of the best in the world covering wide ranging topics impacting the auto industry. Nice site and cogent commentary. And, you get the side benefit of reading about the depressing state of finances in Michigan's government and their awful job job market. How much fun is that? As I've said before, if I were a billionaire, I'd be sopping up downtown Detroit real estate at brutally low prices. Detroit is a city with great recovery potential and there is no reason to believe Motown is down for the count.