October 3, 2005

That '70s Show

With High Gas Prices Offering Bad Flashbacks,
Auto Makers Look for Help From 2006 Models
October 3, 2005

Hey, folks! It's time for that '70s show!

Admit it. If you are old enough to remember the 1970s, the past week has brought bad flashbacks. The president of the United States glumly calling on Americans to drive less and conserve energy? Check. Renewed demands for tougher vehicle fuel-economy standards? Check. Oil companies urging Americans to carpool and drive 55?

For the auto industry, this back-to-the-future stuff isn't funny. In the 1970s, oil embargoes and gas lines left Detroit's gas-guzzling land yachts rusting in storage yards as consumers scrambled to buy small, fuel-efficient Japanese cars.

Fast-forward, and once again General Motors and Ford are dependent for their financial well-being on heavy, comparatively fuel-thirsty, V-8 powered land yachts, now known as "full size" sport utility vehicles (as if anything smaller was somehow not the proper size.) Too bad that some consumers looking to trade in large SUVs on a more fuel-efficient ride are being told no thanks by some dealers.

Large SUV trade-in values "are tanking," says Jed Connelly, senior vice president for sales and marketing at Nissan's U.S. sales arm. "Dealers are getting intimidated to trade large SUVs."

But it's worth remembering that many of the same Americans who grabbed up tiny Japanese cars and VW Rabbits in the 1970s are now trying to unload the Explorers and Tahoes they got when cheap gas made a tiny ride seem like a needless sacrifice.


Katrina's Wake-Up Call

About 98% of U.S. automobiles are dependent on oil, he says. Over time, oil prices could stabilize, or even go down. Even so, "It's the volatility that's the concern," he says.

That's for sure. GM product development cycles are measured in years. The models GM will roll out over the next year were, in many instances, planned and locked in to place when gasoline was still relatively cheap, and American consumers were still eagerly buying large sport utility vehicles. So it's unfortunate for GM that events conspired to push gasoline above $3 a gallon -- still less than Canadians pay but a meaningful pain threshold for many Americans -- just as the company is gearing up to roll out up to three factories' worth of new, large SUVs.

It's not just GM that has a problem. The entire auto industry, with relatively few exceptions, has responded to market demand in recent years by using technology to make cars heavier, more powerful and relatively less fuel efficient.


High Oil Prices Met With Anger Worldwide

If 1/3 of all the tax payers money was going to subsidize fuel for the poor, there is somebody who is benefitting from the other side. Saudi Arabia, Iran, Venezuela, Brunei, Nigeria(atleast those in the govt). Last year oil producing countries(companies) earned a windfall of more than 300 billion because of higher oil prices. This year in Saudi Arabia. its the 70's show all over again. 


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