This week's Time article is very relevant. No wonder Karl Rove was demoted - he suggested to do nothing and gas prices would stabilize (lower?) this summer.

Time article (subscription-free until about May 7)

 

I guess what GM and the other US automakers are shooting for is to produce only one or two vehicles per year. They will get 1,000 gal/mile and be a very large SUV/Hybrid type of vehicle that costs about $5-10 billion each...probably a large earth moving type of application.

 

I'm not trying to pick an argument as I enjoy all your posts, but in this case I believe Karl Rove is mostly correct. The economic theory behind his point is sound because markets will do exactly as he is indicating -- if the economy survives.

Government doing something does little to encourage competition or new players in the energy sector. The way to stablize fuel prices and eventually lower it is to either increase supply or decrease demand. (or a little of both) If government stays hands off, people will be forced to choose more efficient vehicles or to drive less. (demand will come down) Also with prices high, more businesses will be attracted to the energy sector in hopes of making better profit which will increase supplies -- hopefully supplies of renewable fuels but nevertheless more supply will be brought to market because the price is just too attractive.

The converse is also true ... if government intervenes and forces price control and reduces the burden on the American citizen, we won't change as rapidly. We'll continue to drive less efficient cars due to artificial price control, auto manufacture won't rush so quickly to produce more efficient vehicles, alternatives will not be quite as attractive and demand will most likely remain high creating continued shortages and even higher crude prices.

To me the price is high at the moment because of high demand (particularly China, India, South Korea and the US) and the political instablity with Iran. Futures traders who are in the business to stablize commodities have a high risk at the moment that we could see disruption in Middle eastern oil. They can't get caught with their shorts down even though supply today is not really an issue. Its 'fear' of tomorrow that drives up that futures contract.

Back to Karl and the US Government: Anyone elected with try to look pretty and do something ... that's politics, but its not the best way to handle the high price of oil. If they were non-political, they would take care of the families that are really down to their last nickel because of fuel. Don't let the poor suffer more than the rest of us ... but they would remain as far from the free market for oil as they could ... allowing high prices to bring on alternatives, innovation, more oil supply and to force consumers to reduce their fuel consumption and select a vehicle fitting for the role it is needed.

 

No offence taken. The marketplace will make adjustments....but most people will not like it adjusting to higher prices, esp The White House. The base supporting the energy policies is shrinking. Note my snippet - the jumbo SUV market is half of what it was, yet GM is praying this limb won't snap off....

 

I've seen enough of your posts to know that you enjoy the conversations back and forth; I didn't suspect you would take my Karl Rove comments too harshly. I can easily be swayed if someone convinces me that 'lower' fuel prices will correct our petroleum addiction ... but for now I see the pain part of the cure. (but I do worry that the economy could slow and inflation occur. I lived through the last oil crisis and remember how it impacted our economy, inflation, jobs, unemployment, national confidence and interest rates. Hopefully most of those things will not come to pass again ... but we Americans didn't learn much from a doubling of oil prices last time. Detriot (or where ever what's left of American automotive) is still tooled up for pretty fuel hungry vehicles ... at least the bread and butter ones, and I'm not sure they're adjusting to the competition any faster than the last oil crisis. (1970s)

 

(Showing my age) The "boat cars" of the 1970's were the ultimate gas-guzzlers of their day, but they just don't compare to today's land barges. For a quarter of a century, Detroit had a chance to build a better car, but chose to focus on jumbo SUVs and power trucks instead.

 

Yet all they tried to do was make what consumers wanted, which made money, with no regard to possible gas price increase. It seems to me that Toyota and Honda have been playing catch-up in this Jumbo market. Their crystal ball is no better, but to finally kill off the Big 3 they have to at least provide their equivalent Jumbos to break the monopoly.

 

At least Toyota and Honda are offering a full range of excelent vehicles - Detroit does not make many compacts.

 

Well, I'm physically incapable of agreeing with Karl Rove, but he is right in that the government should not intervene to lower gas prices.

However, the government should be hitting them with a windfall profits tax and ramping up the rate at which it taxes gasoline. Hell, let's send ExxonMobil a bill for the war in Iraq, since they're the only ones it benefits. (I also believe that the gas guzzler tax should be 100% for any vehicle getting less than 15mpg. Yes, it's America, you are *free* to buy one, but it's gonna cost you.)

As long as we keep gas prices low, people are not going to conserve. And as supplies dwindle, we're going to have to use our military more and more to steal oil from the source.

It is going to affect the economy. I'm sure that the tourism industry will suffer greatly, as will other leisure activities that get dropped so people can scrape up the money for gas.

Now, if the petroleum industry sees that our demand is dropping, they're going to lower their prices to keep people from trading in the gas guzzlers. Isn't that what any good drug dealer would do to keep his customers hooked?

 

Detroit "tries" to offer a full range of vehicles, but their small cars don't seem to create sales and profit. The Neon or Focus or Aveo only appeal to die-hard "buy america" folks, the majority of small car buyers went elsewhere years ago, never to return, doesn't matter if the domestic is excellent or not. I suspect a hybrid the neon/focus/aveo would draw little sales either.

Ford hybridized what it knows with the Escape, Chrysler needs a hybrid mini-van now.