GM and Chysler Bankruptcies

[kandrathe]

All this would do would establish a *very* expensive subsidy on cars. Why would the government want that? They'd lose money on the deal hand over fist, and car prices would drop, increasing consumption. And if they ever stopped with the subsidy, to actually try and get people to stop using them (the whole original idea!), foreign competition would immediately fill the gap. To drive every last competitor out of business, and prevent re-entry, they'd have to do what I said earlier: corner the global auto market. That's just not feasible, not even for the US government.

Since the industry is already heavily regulated, they can continue to raise the bar on the requirements of what a car should look like until we mere consumers cannot afford one. That is, except the government subsidized and supplied vehicles from Government Motors. Why? To wean the US from using automobiles, or at least ones with an internal combustion engine. This solves the foreign oil problem, and the green house gas problem in a fell swoop.

Also, what is wrong with losing money hand over fist? That is how government programs work as far as I can tell. They can just keep borrowing a Trillion a year, right?

[--Pete]

Hi,

This solves the foreign oil problem, and the green house gas problem in a fell swoop.

Probably not the first (don't forget the plastics industry and lubrication) and definitely not the second unless they change how electricity is generated. While smaller, more efficient cars will be part of the solution, as long as most electricity is generated burning fossil fuels, all we're really doing is passing the problem up the (power) line.

-Pete

[Jester]

Since the industry is already heavily regulated, they can continue to raise the bar on the requirements of what a car should look like until we mere consumers cannot afford one. That is, except the government subsidized and supplied vehicles from Government Motors. Why? To wean the US from using automobiles, or at least ones with an internal combustion engine. This solves the foreign oil problem, and the green house gas problem in a fell swoop.

These things go in opposite directions. Putting expensive regulations on cars raises their price, and lowers consumption. That's good, according to the objective.

But selling government made cars from GM at discount prices lowers their price, thereby increasing consumption. That's bad, according to the objective. I still do not understand why you would do this. If you want to raise prices, like I said, tariffs and taxes. Shutter GM, don't sell discount cars!

Also, what is wrong with losing money hand over fist? That is how government programs work as far as I can tell. They can just keep borrowing a Trillion a year, right?

Spending money on ideas that literally cannot work is not something I would endorse no matter what I thought of government spending.

-Jester

[eppie]

Well, I don't agree.

The quality of cars is such that they last between 12 and 20 years if they are driven regularly (they last much longer if they never leave the garage). Yes, some people buy a new car every 3 to 5 years, but those used cars do not just get scrapped. The used cars are sold and bought by poorer (or smarter) people who care for them and try to get the most lifespan from them. While I certainly could buy a new car every year, I don't. I look at a vehicle as a rapidly depreciating asset, so I try to find one that has been used for 2 or 3 years. Then, I take very good care of them. I've only ever bought two new cars in my life, and only one of them was a huge mistake. It was foreign, and was very expensive to maintain. I owned it for 10 years, but it still cost me over $10K per year to own it. The other was a car my wife drove for almost 15 years, had driven it over 300,000 miles, and she wrecked it three times too. She still misses that car.

The way to affect the demand for automobiles would be to reduce the number of miles people need to drive. This can be done by the Government if they 1) required people to live closer to their work, 2) implement a massive transit system, 3) tax gasoline at much higher levels, 4) take over GM to control the quantity of vehicles produced.

In many european countries people get an incentive for bringing their old car to the junkyard. 2500 euro I believe is what people in Holland get if they trash their old car. Many people are driving around in perfectly fine cars that are worth less the 2500....so many good cars are just destroyed. This incentive helps car industry a little (but they are probably not smart enough to safe their company with it) but is capital destruction and bad for the environment. Why don't these government just directly give the money away to the car industry?? (which we by the way don't even have anymore in Holland)


Your 4 points; point 3 is the best.....only most people tend to get more aggresive when petrol prices go up a quarter then when our oil producing friends whip people or cut of their hands so it is very difficult to do this.
I think when there are two presidential candidates and one wants to invade Canada and the other wants to add a dollar to petrol prices the first one wins.

[kandrathe]

In many European countries people get an incentive for bringing their old car to the junkyard. 2500 euro I believe is what people in Holland get if they trash their old car. Many people are driving around in perfectly fine cars that are worth less the 2500....so many good cars are just destroyed. This incentive helps car industry a little (but they are probably not smart enough to safe their company with it) but is capital destruction and bad for the environment. Why don't these government just directly give the money away to the car industry?? (which we by the way don't even have anymore in Holland)

The only significant issue I see is waste from end of life vehicle recycling. <blockquote>"About 75 percent of end-of- life vehicles, mainly metals, are recyclable in the European Union. The rest (~25%) of the vehicle is considered waste and generally goes to landfills. Environmental legislation of the European Union requires the reduction of this waste to a maximum of 5 percent by 2015."</blockquote>

Your 4 points; point 3 is the best.....only most people tend to get more aggressive when petrol prices go up a quarter then when our oil producing friends whip people or cut of their hands so it is very difficult to do this.

Ah, no blood for oil. Although, rendered fat could be used to make bio-diesel. Seriously, it would be irresponsible for the US to raise fuel taxes without leading the nation first to an alternative source of energy. Otherwise, in essence they are leading their population to deprivation. Taxes are a big stick, and therefore, we need an equally big carrot to wean the population from oil.

I think when there are two presidential candidates and one wants to invade Canada and the other wants to add a dollar to petrol prices the first one wins.

I dunno. What's in Canada? Oil? Hmmm.... And with the clearing of the ice from the Arctic Ocean... We could make a fortune!!!

[sarcasm]First we need to be clear though, the Lomonosov Ridge is really named the Cook/Peary Ridge and I believe the US flag was there first, even though it was on top of the ice sheet. "The US Senate has not ratified the treaty, despite years of urging from Presidents Clinton and Bush. So it doesn't have a seat at the table as critical decisions are made on how to divvy up the ocean bottom, explains a senior US State Department official." Argh! Slackers! [/sarcasm]

[kandrathe]

But selling government made cars from GM at discount prices lowers their price, thereby increasing consumption. That's bad, according to the objective. I still do not understand why you would do this. If you want to raise prices, like I said, tariffs and taxes. Shutter GM, don't sell discount cars!

Well, they can't sell discount cars either. They would sell "green" cars at outrageously high prices (compared to the current price).

The premise here is that to control the entire transportation system, you need to control the vehicle, the roadways, and the energy source. Through regulation, a certain progressive, environmentalist faction of our nation has been trying to force the automobile industry to transform off of oil for 30 years with CAFE, safety, etc. But, somehow, the automakers keep wiggling through the cracks and still produce items like the H2 Hummer, which give any environmentalist CO2 inspired nightmares. Suddenly, that same faction now owns a controlling 60% share of one of the largest automobile companies in the world. I ask myself what might be their intentions? To promote capitalism? It's like Greenpeace, just bought up all of Japan's whaling fleet.

[Jester]

Well, they can't sell discount cars either. They would sell "green" cars at outrageously high prices (compared to the current price).

I... don't know what to say here. I think I've made my point. If the government wants to establish an auto monopoly, that's within their power, and about as likely as the Washington Generals beating the Harlem Globetrotters in a best-of-three. But nothing short of an enforced monopoly could make GM competitive producing overcosted cars. There's no way to do it through the market.

Suddenly, that same faction now owns a controlling 60% share of one of the largest automobile companies in the world.

What are they going to do? Try to compete by making cars nobody wants? (Oh, sorry, that's what the *old* GM was doing.)

I ask myself what might be their intentions? To promote capitalism? It's like Greenpeace, just bought up all of Japan's whaling fleet.

If Greenpeace bought the Japanese whaling fleet, it would presumably be to scuttle it. (Also useless: giving whalers a sweet deal on their boats would just lead to them buying more and better boats.) Incidentally, this is exactly what I said your hypothetical green-conspiracy Al Gore-verment should do with GM.

-Jester

[kandrathe]

Incidentally, this is exactly what I said your hypothetical green-conspiracy Al Gore-verment should do with GM.

And, the jury is still out on GM's fate. In fact, with the new CAFE standards, and looming Cap In Trade Programs, I'm not sure many companies in the energy chain (related to Oil, Coal, or NG) will survive without government takeovers.

Greenpeace ostensibly would do the ecologically responsible thing, and recycle Japan's fleet. Is GM merely being allowed to die with dignity?

[Jester]

And, the jury is still out on GM's fate. In fact, with the new CAFE standards, and looming Cap In Trade Programs, I'm not sure many companies in the energy chain (related to Oil, Coal, or NG) will survive without government takeovers.

Just pass along the costs to the consumer. If the society is addicted to fossil fuels (and it is), then just crank up the prices. People will use less, but a market-clearing price will still exist. Poor people might be priced out of the market, but rebates and progressive taxation can compensate. Energy consumption goes down, efficiency goes up, greenhouse gases go down... sounds like a win to me.

-Jester

Afterthought: Why would you rescue a dying company, only to kill it? Is GM's 'dignity' really worth billions of dollars? To anyone?

[kandrathe]

Just pass along the costs to the consumer. If the society is addicted to fossil fuels (and it is), then just crank up the prices. People will use less, but a market-clearing price will still exist. Poor people might be priced out of the market, but rebates and progressive taxation can compensate. Energy consumption goes down, efficiency goes up, greenhouse gases go down... sounds like a win to me.

Ah, but energy prices are multiplicative in the supply chain. Part of what has destabilized this latest economy has also been the summer 2008 period when oil peaked over $145/barrel. What hurts an economy is not necessarily raising the price, but the shock of raising it so quickly. This is also what I'm forecasting with GM and the supply of vehicles. Also, it's not just drivers that suffer, it is also travel, and destinations. If people drive less, or fly less, then hotels, resorts, rental car companies, restaurants, and etc. will also suffer from a lack of business. This kind of a change has ripple effects in causing unemployment, and depresses the entire world economy. Then, we can talk about the price of fertilizer, and therefore food. Then, there is the cost of plastics, and other petroleum based products that are not used for fuel.

Maybe it has to happen to satisfy the "greens", but it still is going to *really* hurt, and trust me, when Joe average American is hurting, Africa and parts of Asia will be bleeding.

Afterthought: Why would you rescue a dying company, only to kill it? Is GM's 'dignity' really worth billions of dollars? To anyone?

The problem is... politics. You already have many grumpy congressmen who face dealership and plant closings in their districts. Spending a few hundred billions in borrowed money is better than a full fledged uprising. You need to promise the Unions that they might get some of those high paying manufacturing jobs back some day. You know, because its about *HOPE*.

[Jester]

Ah, but energy prices are multiplicative in the supply chain. Part of what has destabilized this latest economy has also been the summer 2008 period when oil peaked over $145/barrel. What hurts an economy is not necessarily raising the price, but the shock of raising it so quickly. This is also what I'm forecasting with GM and the supply of vehicles. Also, it's not just drivers that suffer, it is also travel, and destinations. If people drive less, or fly less, then hotels, resorts, rental car companies, restaurants, and etc. will also suffer from a lack of business. This kind of a change has ripple effects in causing unemployment, and depresses the entire world economy. Then, we can talk about the price of fertilizer, and therefore food. Then, there is the cost of plastics, and other petroleum based products that are not used for fuel.

This is all well and good, but it contradicts the original point. If you are an oil company, you produce an increasingly expensive commodity. You are in good shape, not bad shape. Everyone else might need a government bailout, but you'd be sitting pretty.

-Jester

[--Pete]

Hi,

If you are an oil company, you produce an increasingly expensive commodity. You are in good shape, not bad shape.

True, until some major change comes along. Remember, our 'throw away' aluminum was once a precious metal.

--Pete

[kandrathe]

This is all well and good, but it contradicts the original point. If you are an oil company, you produce an increasingly expensive commodity. You are in good shape, not bad shape. Everyone else might need a government bailout, but you'd be sitting pretty.

No, not really. You would now have a commodity that is priced beyond what people can pay, thus (over time) driving them out of consuming your product (or at least to consume as little as possible). Demand can never outstrip supply (Robert Smithson, the economics of Oil, Part I), but there is a price at which the market clears. That was the original point, that we drive oil companies out of business *last*, but first we drive more companies out of business that produce products that rely on oil. The canary in the coal mine, as it were, are energy sensitive companies such as automobiles, airlines, trucking, railroads, and some electricity production, as well as others. Profits will rise to a point, then crash as the economy crashes, all while the consumer price index rises (baring governments printing money to curb inflation). <blockquote>"The market for oil is unusual, because – in the short-term – both demand and supply are highly inelastic. Irrespective of what petrol costs, your car cannot easily switch to another fuel. Ships and airplanes cannot move from diesel oil and kerosene for their propulsion. If it’s freezing cold, and you need to heat your house, the only option may be to pay more for heating oil. Likewise, if the price of petrol was to halve, you would not drive twice as far, or turn the thermostat up from 22 to 44. In other words, a large change in price only has a small impact on demand."</blockquote><!--fontc--><!--/fontc-->It seems to me, that the world has traded the gold standard for the oil standard, where currency is related most frequently to the price of oil. One problem with gold as a standard was that modern industrialization vastly increased the supply of gold, further deflating the value of money. I think we are facing a future of seesaw economics due to peak oil. Demand will continue to accelerate as the economy recovers, only to again drive the price of oil to an economically unsustainable price resulting in another crash.

If you want to transition from oil (and thus from the internal combustion engine), in my opinion, you need to present a ready alternative. Just as automobiles eventually obsoleted the horse drawn carriage, it was a more expensive (less time consuming) alternative that people moved toward once the production and price were readily available. For awhile, people even had the old means of transport as back up. The carriage companies that survived, were the ones that redesigned their products to have rubber tires and engines.

In a way, intentionally trying to drive up fuel prices to reduce consumption would be like raising the price of food to combat obesity. I think the down sides are draconian.

Net Oil Profit compared to Gasoline prices. But, what is missing in that graph is oil consumption (or global energy consumption) whereby you might be able to calculate demand being more of a spline curve somewhat above the line during the rise, and then falling below the line during the crash.

Robert Smithson, the economics of Oil, Part II -- Peak Oil and the Energy Supply Curve

[Kevin]

Hi,
True, until some major change comes along. Remember, our 'throw away' aluminum was once a precious metal.

--Pete

Valid point, but slightly off argument. It was known that aluminum was common, it was just not easy to extract. Once the electrolysis methods were discovered and refined that changed. So it was precious due to scarcity in pure form, but even while it was valued so highly it was known that there was a lot more of it. Oil, is slightly different in that it's significantly more finite and has been known to be very finite for a long time.

But there are still plenty of unknown on unknowns that could crop up (not sure if there is a known unknown involved in oil like with aluminum where it was know that if you could extract it more readily from bauxite that you would be able to get a lot of it, but it was unknown how to do that).

[kandrathe]

But there are still plenty of unknown on unknowns that could crop up (not sure if there is a known unknown involved in oil like with aluminum where it was know that if you could extract it more readily from bauxite that you would be able to get a lot of it, but it was unknown how to do that).

Oil, considering its uses for complex hydrocarbons is really wasted as fuel. We would be better off devoting "A Trillion Dollars A Year" towards clean fission, or push towards fusion and perfect energy storage devices. In the end, the bauxite of oil, is energy in its purest form. In a way, by pumping the stored potential of fossil fuels from the earth, and releasing them back into the ecosystem as heat and gases, we are undoing the process of eons of photosynthesis. Conservation of energy suggests, that it was always either geothermal or solar energy captured by plants and animals trapped under silt. If we don't want to mess up the environment by releasing gases, wastes, and energy, then we need to consider the natural (or otherwise) systems in place for maintaining an equilibrium.


Edit: Pete more clearly says what I was thinking below...

[--Pete]

Hi,

Valid point, but slightly off argument. . . . Oil, is slightly different in that it's significantly more finite and has been known to be very finite for a long time.

Actually, the aluminum/oil comparison is a lot closer than you imply. Consider that it was a new and cheap form of energy (electricity) that made aluminum cheap. Now consider oil by its uses. As a form of portable energy, it could be replaced by batteries, hydrogen fuel cells, or something yet undeveloped. As a raw material for the plastics industry, it can be replaced by any hydrocarbon (say, corn) if there's enough cheap energy to power the process. The same is true for lubricants. So, like aluminum, oil can be marginalized by cheap energy, possibly from a new source or a more efficient use of an existing source (or sources). That was the analogy that was skittering around my brain when I posted.

--Pete

[Kevin]

Hi,
Actually, the aluminum/oil comparison is a lot closer than you imply. Consider that it was a new and cheap form of energy (electricity) that made aluminum cheap. Now consider oil by its uses. As a form of portable energy, it could be replaced by batteries, hydrogen fuel cells, or something yet undeveloped. As a raw material for the plastics industry, it can be replaced by any hydrocarbon (say, corn) if there's enough cheap energy to power the process. The same is true for lubricants. So, like aluminum, oil can be marginalized by cheap energy, possibly from a new source or a more efficient use of an existing source (or sources). That was the analogy that was skittering around my brain when I posted.

--Pete

Which is why I said it was still valid. But the difference is that aluminum was marginalized because supply was able to skyrocket (and actually demand skyrocketed too but with aluminum being something like 8% of the total weight of earth and the 3rd most abundant element on the planet the supply is huge). Also aluminum is 100% recyclable in that you can recycle it and it doesn't lose any of it's properties (and it takes about 5% of the energy to recycle it than it does to extract it). You do lose some usable quantity because the process produces dross (though you can get the aluminum out of that it's just difficult).

Oil as you just pointed out, will be marginalized because supply could run out, or demand could go away based on something we can't predict. It's not a fully invalid argument, but it's really still coming from the other side.

I was just following the time honored lounge tradition of nitpicking. :) I don't disagree with the parts of the analogy you mention, it still has a lot of strong correlation, but like I said it stuck out at me a bit because it's still an opposite type of deal.


@Kandrathe

Oil, considering its uses for complex hydrocarbons is really wasted as fuel. ....

I have no real disagreement with anything you state in this post either. Oil (and coal) was very easy to use for energy, and lubrication. It was found that many other things could be done with it as well. I would love to see us find better sources of energy and allow what oil we do use to be used for other things.

However, even if super uber energy source was discovered tomorrow it would still be YEARS before we were off oil because our entire infrastructure is still based on it so Jesters original point that oil companies are still going to be producing an increasingly expensive product for the foreseeable future. Demand will not vanish overnight and even if the companies know that it will be diminishing, they also know that supply will still diminish, especially without any push to try and increase it by tapping known reserves. Depending on those rates, they are still producing a product that is potentially increasing in value (if supply falls faster than demand falls).

[--Pete]

Hi,

Oil as you just pointed out, will be marginalized because supply could run out, or demand could go away based on something we can't predict. It's not a fully invalid argument, but it's really still coming from the other side.

I was just following the time honored lounge tradition of nitpicking. :)

Fair enough, and true enough:)

Your statement about demand reminded me of a quote I like: "The stone age didn't end because we ran out of stones." -- Sheik Ahmed Zaki Yamani - former Saudi oil minister.

--Pete

[Jester]

That was the original point, that we drive oil companies out of business *last*, but first we drive more companies out of business that produce products that rely on oil. The canary in the coal mine, as it were, are energy sensitive companies such as automobiles, airlines, trucking, railroads, and some electricity production, as well as others.

Ahhh. I see. When you said "related to" coal/oil/gas, you meant the *consumers* of those products, not the *producers*. That would be the source of the confusion. I assumed, wrongly, that you meant that the other way around.

Profits will rise to a point, then crash as the economy crashes, all while the consumer price index rises (baring governments printing money to curb inflation).

How do you print money to curb inflation? That would be like immersing yourself in water to prevent drowning.

-Jester

[kandrathe]

How do you print money to curb inflation? That would be like immersing yourself in water to prevent drowning.

Ooops, yes, I meant deflation. I'm worried about what happens when the current money supply meets the upturn in the economy.