What "sea change"? - GM will still produce 1 million SUVs by 2012

It seems that the auto industry is slowly responding to the changing reality of fossil fuel driven motion. The long lasting state of denial is nevertheless surprising taking the close ties between the Big3 in Detroit and Washington into account. The search for an explanation leaves us with three alternative possibilities. One, the state of denial is not restricted to Detroit but reaches out to Washington as well. Oil production in the United States has peaked in the 1970s, since then the country depends on other energy sources. In certain circles in Washington the ties to energy producers in particular from the Middle East are very close. Maybe they are not. Two, Washington is basically cut out of the loop with Middle Eastern producers and therefore has no clue what is really going on. The third possibility, one that I favor, is the falsely over-hyped theory of peak oil production.

Domestic auto sales have plunged in recent years. Annual auto sales are now forecast to come in below 15 million units, which by some estimate brings General Motors and its peers closer to bankruptcy.


What is the godfather of the domestic auto industry doing that as some say constitutes as a "sea change"? GM engineers are considering to shift away from large SUVs like the Tahoe to a more car-like construction by 2012. Annual production of SUVs and pickup trucks would be reduced by 40 percent to 1 million vehicles from 1.7 million. Still a very high number given the high price of oil. A barrel of WTI closed above $123 on May 7th. GM also tries to meet a government requirement to cut fuel use 40 percent by 2020. That again is a very long time.

The fact that the industry is in no real hurry to change its ill advised habits is clearly at odds with the pressing nature of today's energy markets. Why else would GM still produce 1.7 million SUVs and postpone an increase of fuel efficiency by another 12 years to a level already seen in European and Japanese cars today? Detroit and Washington are either out of the loop (their minds) or this "energy problem" will reverse itself at least to a certain degree.

One hint towards the latter comes from OPEC Secretary General who in a press release emphasizes that in recent months oil prices have been mainly driven by financial market developments and the increased flow of speculative funds into oil futures.

Here is the original press statement:
There is clearly no shortage of oil in the market. OECD commercial oil stocks remain above the five-year average, with days of forward cover at a comfortable level of more than 53 days. US crude inventories, meanwhile, rose by almost six million barrels last week, which is a further indication that oil supplies are plentiful. OPEC Member Countries continue to produce at more than 32 million barrels a day (mb/d). In addition, a number of new OPEC crude oil projects have started to come on-stream and OPEC spare capacity continues to increase, with the figure currently standing above 3 mb/d. At the same time, crude oil movements indicate that some Member Countries are unable to find buyers for their additional supply.

El-Badri reiterates that OPEC stands ready to act if the market shows a need for any further measures. If we believe that we are not surrounded entirely by liars and the power brokers in Washington are not cut out of the loop just yet than we must consider the possibility of plenty of oil in the future. Consider also the news coming out of the American Trucking Associations with such heavy weights like FedEx, UPS and Con-way as members.

The American Trucking Associations says adherence to a handful of new proposals will reduce fuel consumption by 86 billion gallons and carbon dioxide emissions -- the main culprit of climate change -- by 900 million tons for all vehicles over the next 10 years.

According to the US Department of Transportation buses and trucks consumed about 100 billion gallons of fuel per year in 2005 . A few simple recommendations like speed limits for trucks at 68 mph, reduced engine idling, increase of fuel efficiency, or easing of congestion by improving the nation's highways can help to reduce consumption by almost 10 percent.



source: GM May Break Up SUV-Truck Marriage to Cut Fuel Use, Emissions
Bloomberg, Thu May 8, 2008
http://www.bloomberg.com/apps/news?pid=20601109&sid=ak87hDNumPjU&refer=news

source: Press statement by HE Abdalla Salem El-Badri, OPEC Secretary General
No 7/2008
Vienna, Austria - 8 May 2008
http://www.opec.org/opecna/Press%20Releases/2008/pr072008.htm

source: Truckers introduce plan to slow fuel consumption, emissions
Thu, May 8 2008, 16:29 GMT
http://www.fxstreet.com/news/forex-news/article.aspx?StoryId=a990ee42-3a12-4ea5-b787-56dbe3cac120

source: Motor Vehicle Fuel Consumption and Travel in the U.S., 1960–2005
http://www.infoplease.com/ipa/A0004727.html