is $4.00/gallon gas changing the US auto industry?
October 6, 2008
Lets face it, none of us like when the price of gas goes up. If it’s at $0.70 a litre, we cringe when it goes to $0.80. When it broke the $1.00/liter mark during hurricane Katrina in 2005, we all thought it signalled the arrival of the apocalypse. Today though, we’d drive halfway across the city to get a fillup at a buck a liter.
The gas companies know how to play this game. They use world events and natural catastophes as an excuse to raise gas prices to new heights (even though the gas sitting in your local filling stations tank was purchased last month). We are initially shocked when prices reach a new high water mark, but after the hurricane passes and the gulf coast oil refineries aren’t damaged we breath a sigh of relief as prices are reduced (though not back to pre-hurricane levels). Then the next time a storm brews in the Caribbean or a rebel russian province threatens the european pipeline, gas prices go up again but now it doesn’t seem quite so shocking as the first time. We’ve become acclimatized, and after all we still need to fill the tank so we can drive to work and get the kids to hockey practice.
But this discussion isn’t really about the oil industry. They’ve been playing this game and raking in huge profits for decades. The fact is that while the rising cost of a barrel of oil results in higher gas prices for everyone, its the taxes, tariffs, and subsidies a country applies which can have a bigger impact than the cost of producing and refining that barrel of oil. You can buy gas in Saudi Arabia and Venezuela, two major oil producing countries, at $0.47 and $0.12 per gallon, respectively. In contrast Europe, which introduced carbon taxes back in the ’90s, pays $8.00 per gallon. Here in North America we’ve been relatively unfazed by the cost of gas over the past 20 years, but the arrival of $4.00/gallon gas appears to have finally intruded on our consciousness. I don’t mean to suggest we haven’t been annoyed and upset when gas passed $2 and $3 a gallon, but a 2004 survey of new car buyers found that only 4% listed fuel economy as their most important priority. However it seems that$4/gallon gas has finally caused us to DO something more than complain.
It may surprise you to know that one vehicle has been at the top of the US bestseller lists for 26 straight years. And its not the Honda Accord, or Toyota Camry… its the Ford F-series pickup. Yes, a truck has been the best selling vehicle in America, right up until May of this year. Co-incidentally, May was also the month that gas prices in California finally topped $4/gallon. And when the F150 fell out of the top spot for the first time in 26 years, it didn’t fall to number 2… or number 3. It fell all the way to 5th place. And the Chevy Silverado which was just behind the F150 fell all the way to 6th. The Dodge Ram fell right out of the top 10, Toyota Tundra sales dropped 30% and the Nissan Titan dropped by more than half. It appears that in May and June of this year all those peope driving around in big, heavy 4WD pickups with a few tools and a tarp rattling around in the otherwise empty truck bed realized that perhaps they could get down to the local honky tonk on Friday night in a car. In the interest of full disclosure I must admit that up until Feb of this year I too (a born and raised Canadian with the smelly hockey gloves to prove it) was driving a Dodge Ram 4×4. However when I discovered that I could no longer even fill my tank due to a $100 credit card cutoff limit, I saw the light. And I can fit two hockey bags in the back of a VW GTI, and take 5 people to the rink while getting better than twice the gas mileage of the Dodge.
Automobile executives are discovering what it finally took to get us North Americans out of the over-sized SUV’s and pickups that we’ve loved for so long. And it is $4/gallon gas. Who could have known? Certainly not those aforementioned auto execs. One month after signing a new 3 year contract with the CAW to build trucks at the Oshawa plant, GM announced that the truck plant will be closing. In May they reach an agreement with a committment to build trucks til 2011, in June they decide they have to close the plant down. There doesn’t appear to have been a lot of foresight in the boardrooms of Ford, GM and Chrysler.
Add in the fact that it takes several years for new product to go from the design and engineering phase to the showroom, and its clear that the US auto industry is in for a rough ride. It seems that the last few years of Chrysler being bought (and sold and bought again), and speculation of GM and Ford going under, may soon be looked on as the good old days.
