By David L. Brown
Here is an unusual opportunity to see a photograph that illustrates the maxim about “too little, too late.” It is a picture of the Chevrolet Volt all-electric car which is now under development and will be officially announced in about a week by General Motors.
Well, why is this less than wonderful news? There’s nothing wrong with economical, electric powered cars, and I support them fully. But as I stated, Detroit is promising “too little,” and “too late.”
“Too late” because the time to have begun the transformation of our national fleet away from big-engined cars, SUVs and pickups was about 30 years ago. Back in the 1970s the handwriting was already on the wall, thanks to two oil shocks. The first, in 1973, resulted from President Nixon’s devaluation of the dollar and breaking the currency from the gold standard. OPEC responded by cutting supplies and creating a shortage that led to long lines at filling stations. That pushed oil prices up to compensate for the devalued dollar.
The second oil shock, in 1979, apparently resulted from no particular reason but panic that led buyers to rush to top off their tanks, thus creating a short-term supply problem, which led to more panic, rinse and repeat. That one didn’t last long, and I remember at that time taking a driving business trip from Chicago to as far East as New Hampshire without any problem finding fuel.
But the seed was planted and at that time people were aware of the need for more economical automobiles. Unfortunately, memory is short and history is long and the American love of “big iron” soon was in full bloom once more, with the enthusiastic backing of the auto makers. The oil shock of 1973 did result in Congressional action, to wit passage two years later of the legislation to create the CAFE (Corporate Average Fuel Economy) standards for fuel efficiency. That law set goals for auto makers to reach and maintain average fuel economy over the total number of autos they sold.
Unfortunately, Congress left a loophole in the CAFE program, a loophole that they left wide open and through which the automakers launched a three decade program of deceitful behavior. The “out” that Detroit exploited was that “light trucks” were waived from the CAFE standards. At that time, the term applied to pickups and slightly larger vehicles such as delivery vans and box trucks. It didn’t take Detroit long to “invent” the useless SUVs, which they claimed were “light trucks,” as well as to upgrade pickup trucks with comfortable seats, extended cabs, fancy accessories, and everything it took to entice people who had no practical use for a pickup truck to buy them by the millions just for basic transportation and to project a “macho” image.
All right, here we are in 2008, 35 years after the first oil shock, and we are just now, in the past few months, learning that we need to have a completely different kind of private automobile fleet. So, case made for “too late.” But there is one more point. GM vice chairman Bob Lutz has stated that no Volts will actually be delivered to dealers until November, 2009 and buyers will not get their hands on them until 2010. Full production will not be reached until later that year and will probably come with the 2011 model. Too late indeed, as GM runs through billions of dollars of capital trying to keep its sinking ship from diving to the bottom of the sea.
So now let’s talk about “too little”. According to preliminary specs I have seen, the Volt will only travel about 40 miles on a single charge. Then, it has a small gasoline generator that will kick in to recharge the batteries. It is implied that the generator will provide enough juice to keep the car moving, and advanced claims state that the car can travel another 400 miles on 6-7 gallons of gasoline. My instincts say that unless that is one whale of a generator, I would feel nervous driving such a car with depleted batteries, especially in heavy traffic or on high speed Interstates. We will have to wait and see how the final specs look before deciding on that.
Now I don’t know how many Volts GM plans to be churning out by the year 2011, but if it is going to make a big impact on America’s fuel economy it would need to be a lot. There are about a quarter billion automobiles and “light trucks” registered in the U.S., and to replace even a fraction of those will take a tremendous number of Volts. Meanwhile, what are those buyers supposed to do who are eager to get something more efficient right now, in 2008? Can they wait for nearly three years to get a Volt (and there are apparently already waiting lists)? Well, probably not if they are truly in a bind from bad decisions about where they live and what they have chosen to drive. If they have a big SUV and have to drive 75, 100 or more miles a day, they have a problem. In fact, they would have a problem if gas was going for $2, which it probably was when they bought the gas guzzling beasts (thus my mention of “bad decision”).
Well, there are other options available, such as the Toyota Prius or the new Honda Insight hybrid vehicle, as well as the Smart Car and others. (For more on this, read my essay “Innovative New Vehicles Showcase the Future,” posted June 4, 2008.) But let’s say you have bought a SUV with all the trimmings for $40,000, and taken the dealer’s offer of six or seven year financing for the whole amount. Let’s further assume that the loan was interest free, has been in effect for just two years and has five more years to go. Hmm, even with those generous terms you will still owe nearly $30,000 on that vehicle. So when you go to the Toyota or Honda or Smart Car dealer to talk about purchasing a new vehicle, you would need to get that much as trade-in for your old vehicle, right? And guess what? Those gas guzzlers are an absolute drug on the market. The salespersons with the economical cars to sell will just laugh at you.
You’ll either have to suck it up and eat the loss, or keep driving the gas hog. Not a good set of alternatives. Or, and this is just a suggestion, you could just let the auto company repossess the thing. Um, might not be good for your credit rating, but desperate times call for desperate measures. [Disclaimer: I am neither an attorney nor a CPA and have never even played one on television. I am not advocating any action that may be illegal or harm your credit rating. Check with your attorney or financial adviser before making any decisions to abandon your vehicle. That is all.]
The trade-in value of recent low-economy vehicles has sunk to almost unbelievably low levels, in part because people have stopped buying new ones, and secondly because GM, Ford and Chrysler have kept on making more of them that they can’t even sell. They are stuck with labor contracts and parts orders and huge capital investments in the factories where the monstrosities are manufactured so that it is not practical to turn off production. The country is awash in unsold new product, and so are used car lots overflowing with pre-owned vehicles. The small, efficient ones are sold, and the mass of inefficient ones continues to grow, forcing their value down and down in a continuing spiral.
There is even more trouble coming for Detroit, and that is because many of the vehicles they have “sold” in recent years were not really sold at all, they were leased, usually through the auto company finance arms. The auto companies still own them! A lease is based on the projected resale value of the vehicle at the end of the lease, when the customer has the option to simply turn in the car or to purchase it at a pre-set price. With the bottom falling out of the used vehicle market, how many lessees do you think are going to exercise the purchase options on big SUVs and other gas guzzlers that are not worth far less? Probably about as close to zero as you can get. That means that auto dealers and the Big Three are going to see a steady flow of late model used vehicles entering their unsold inventories. On top of the existing backlog of unsold new and used vehicles, that will add even more stress to the system.
It is true that those lucky drivers who have leases that will expire in the near future will be free to start over again with a Volt or something else. But the auto company leasing subsidiaries are going to be taking a huge financial hit from the flood of off-lease vehicles that will be difficult if not impossible to sell except at huge loss. And that, my friends, raises the question of whether, in that distant and perhaps mythical future time of the year 2011, there will actually be a General Motors Corp. around from which to purchase a Volt? Problematic, I would say. And that uncertainty applies to Ford and Chrysler, too. Too little, too late — it might as well be the motto of the American auto industry.
Let’s face it, we cannot replace a quarter billion vehicles with the wave of Harry Potter’s wand. It will take years, decades even, to make the transition to a significantly more efficient fleet using renewable energy. The long term nature of this challenge makes it clear that simply planning to build cars such as the Volt is not enough by half. We need other strategies, and much of the needed change is already taking place as people adapt to higher fuel prices. For example, they are driving less by planning shopping for greater efficiency, sharing rides to work, arranging to work from home, riding a bike instead of driving, and planning vacation trips close to home. Those who have older and more inefficient vehicles will tend to retire them and buy more efficient transportation if they can afford it, and that will help but is no quick fix.
These factors are already having an effect. I predict we will see more movement in this direction, which will help us get through the current “crisis” and begin the long, slow transition to greater reliance on renewable resources. High oil prices due to diminishing supplies will continue to provide the incentive for development of alternative energy sources and the gradual replacement of our private fleet. And after all, the present oil “crisis,” and I use the quotation marks for a reason, is really not the complete disaster that many seem to believe. It is, however, a clear wake-up call to America that it is time to make the changes that should have been undertaken more than three decades ago.
Hello, David,
And, of course, we can’t forget that our entire distribution system relies on diesel-powered trucks, big ones, and we’ve just about dismantled our short-haul rail system. It will take decades to fix this problem too, decades and a whole lot of money.
But where will that money come from considering the current financial disasters we’re seeing here in the United States? Just the other day it was announced that the Federal Highway Trust Fund was something like $200 million short, due to the decline in American driving. What a revolting development that is — we save energy but break the highway fund!
Yes, indeed, we seem to be hip deep in problems with very few viable solutions in sight. Not good.