R-Squared Energy Blog

Pure Energy

Ford Awakens from a Slumber; Post Office Rejects Ethanol

It seems that the reality of our situation is sinking in at Ford:

Ford’s trouble: $4 gas is here to stay

NEW YORK (CNNMoney.com) — Ford Motor Co. executives say they believe that $4 gas is here to stay, resulting in a fundamental consumer shift away from gas-guzzling SUVs and pickups and causing continued losses at its core North American auto unit.

The company said it expects gas prices to remain in the range of $3.75 to $4.25 a gallon through the end of 2009. And that expectation prompted the nation’s No. 3 automaker to announce deep production cuts for what has been its best selling and most profitable vehicles for several decades and could lead to more plant closings and job cuts down the road.

The company plans to ramp up production of smaller cars and crossovers: Ford Focus, Fusion, Edge and Escape, the Mercury Milan and Mariner, as well as the Lincoln MKZ and Lincoln MKX. These models generally cost less and have lower profit margins than the light truck models for which Ford is cutting production, such as the F-Series pickup, still the nation’s best selling vehicle.

I think that’s good news for everyone, except Ford shareholders and some Ford employees.

And a feel-good story about the ethanol industry:

Ethanol Vehicles for Post Office Burn More Gas, Get Fewer Miles

May 21 (Bloomberg) — The U.S. Postal Service purchased more than 30,000 ethanol-capable trucks and minivans from 1999 to 2005, making it the biggest American buyer of alternative-fuel vehicles. Gasoline consumption jumped by more than 1.5 million gallons as a result.

The trucks, derived from Ford Motor Co.’s Explorer sport-utility vehicle, had bigger engines than Jeeps from the former Chrysler Corp. they replaced. A Postal Service study found the new vehicles got as much as 29 percent fewer miles to the gallon. Mail carriers used the corn-based fuel in just 1,000 of them because there weren’t enough places to buy it.

“You’re getting fewer miles per gallon, and it’s costing us more,” Walt O’Tormey, the Postal Service’s Washington-based vice president of engineering, said in an interview. The agency may buy electric vehicles instead, he said.

Perhaps I should have said, “feel-good story for me.” After all, when corn-fueled cars are traded in for electric cars, that feels pretty good to me. In fairness though, I should point out that it does say that the ethanol-fueled vehicles they bought had bigger engines. Not sure why they went that route.

May 22, 2008 Posted by | auto industry, electric cars, ethanol, Ford, fuel efficiency | 7 Comments

SUV for Sale: Cheap!

Some of the consequences of very high oil prices are pretty predictable. Homes way out in the suburbs are likely to lose value. Prices will rise across the board for goods and services. Airlines will struggle. And gas guzzlers will be much less attractive:

Gas costs deflate prices on used SUVs

High fuel prices are causing the value of used SUVs to plummet, often below what’s listed in the buying guides many shoppers use to negotiate with dealers. “The dealer is going to offer a price, and the customer is going to be ticked off,” says Tom Webb, chief economist for Manheim, operators of auctions where car dealers buy their used-vehicle inventories. “The guidebooks have not caught up to the market,” he says.

Webb’s figures show wholesale prices on big SUVs such as Chevrolet Tahoes, Ford Expeditions and Toyota Sequoias are down 17% from a year ago. Full-size pickups have fallen as much as 15%, Webb says.

Even though plunging values should make used SUVs bargains for buyers less concerned about fuel prices, that doesn’t seem to be happening. Used SUVs languished unsold an average 66.4 days last month, up from 48.6 days the year before, says CNW Marketing Research. “There are far more truck-based SUVs being traded in than customers to buy them,” says Mike Jackson, CEO of AutoNation, the largest new-car dealer chain.

Your Prius or Jetta TDI on the other hand? I may start buying up some of those as speculative investments. If people are trading in their SUVs, there is going to be a run on more fuel efficient cars – and they should hold their value, if not trade at a premium.

People have asked me for several years what I thought was going to happen with gas prices. I always tell them that the long-term trend is much higher, and you should plan accordingly. I have warned friends and family to embrace fuel efficiency, and I have tried to preach that message here. Now that gas prices are really hitting people in the pocketbook, looks like they are finally getting the message. But like many caught in the housing bubble, they waited a little too long and lost a lot of money. The lesson here? Pay attention to what I am telling you. Do you hear that, Mom? 🙂

May 10, 2008 Posted by | auto industry, Ford, fuel efficiency, General Motors, Prius | 14 Comments

Toyota Promises Plug-in Hybrid

Move over, Chevy Volt. You have some very serious competition:

Toyota Will Offer a Plug-In Hybrid by 2010

DETROIT — The Toyota Motor Corporation, which leads the world’s automakers in sales of hybrid-electric vehicles, announced Sunday night that it would build its first plug-in hybrid by 2010.

The move puts Toyota in direct competition with General Motors, which has announced plans to sell its own plug-in hybrid vehicle, the Chevrolet Volt, sometime around 2010.

Katsuaki Watanabe, the president of Toyota, announced the company’s plans at the Detroit auto show as part of a series of environmental steps.

Mr. Watanabe said Toyota, best known for its Prius hybrid car, would develop a fleet of plug-in hybrids that run on lithium-ion batteries, instead of the nickel-metal hydride batteries that power the Prius and other Toyota models.

Given Toyota’s experience, my money is on them to deliver before GM has the Volt ready for the mass market.

Despite its decision to step up its plug-in hybrid development, Toyota is not sure how much more consumers will want to pay for it, Mr. Lentz said. The Prius starts at $21,100. Some after-market companies are charging nearly that much to convert Prius models into plug-ins, he said.

Given that, it is more likely that Toyota would offer plug-in technology as an option on the Prius, at least in the short term, rather than switch all of its hybrids to plug-in models.

Ultimately, Toyota must determine “do people want to plug in their car?” Ms. Chitwood said.

Yes, I want the plug in my car! Sign me up. And as long as gas prices continue to stay high – which I think they will – a lot of others will sign up as well.

January 14, 2008 Posted by | auto industry, Chevy Volt, General Motors, phev, Toyota | 33 Comments

The Prius Tops the Explorer

Looks like people are beginning to respond to high gas prices:

Toyota Prius sales pass Ford Explorer

Americans bought more Toyota Prius hybrid gas-electric hatchbacks last year than Ford Explorer sport-utility vehicles, the top-selling SUV for more than a decade.

The change of fortune, buried in U.S. vehicle-sales data for 2007 and unthinkable a few years ago, will find an echo at this year’s Detroit auto show, which starts Sunday.

While Americans’ love for powerful gas guzzlers remains strong, a slowing economy and high gasoline prices are forcing buyers to lower their sights.

While Prius sales soared 69% last year, demand for the Explorer was less than a third of its 2000 peak.

As I have said before, we have fuel-efficient vehicles available now. Consumers just have to be convinced to buy them. High gas prices are starting to convince them. I think this is a more effective approach than forcing car makers to produce more fuel efficient vehicles via CAFE standards. I am not against higher CAFE standards, I just think addressing the demand side is more effective.

My current plan is to buy a Prius when I go back to the U.S. It doesn’t seem that any other option is even close. Is there anything else that can compete with the Prius on a fuel efficiency basis in the U.S. market?

January 13, 2008 Posted by | auto industry, CAFE, Ford, fuel efficiency, Toyota | 31 Comments

Debunking Thomas Friedman

I am in Norway at the moment, but I ran across a story that I wanted to call attention to. It is the same thing I wrote about in The Problem with CAFE:

Debunking auto industry myths

NEW YORK (Fortune) — I hesitate to pick a fight with a two-time Pulitzer Prize-winner like New York Times columnist Thomas Friedman. On the critical issue of developing a national energy policy to lessen our consumption of imported oil, he’s been early, smart, and right.

But Friedman whiffed in his Times column yesterday, called “Et Tu, Toyota,” by hauling out one of the hoariest of urban myths: That forcing higher fuel economy standards on American car buyers is what’s needed to encourage more energy-efficient vehicles and make Detroit more competitive with its import competitors.

That’s wrong…and wrong. Forcing people to buy more efficient cars by ordering car companies to make them is like forcing people to lose weight by banning food companies from selling Big Macs and pizzas. The reason Americans consume so much gasoline is that they like their big pickup trucks, SUVs, and V-8 engines. The reason the automakers make them is because people want to buy them.

That’s exactly what I have argued. Fuel efficient vehicles are not in short supply. But the demand is not there. This is not a supply-side problem; we have to work on increasing demand for efficient vehicles. Ramp up demand, and the supply of vehicles will come.

Some of the points that Friedman makes to buttress his arguments are misleading. He praises Japan and Europe for auto fleets that have much better mileage standards than the U.S. without mentioning the fact that driving conditions are different – try steering a Lincoln Navigator through a medieval village in Italy – and gasoline taxes in those countries are so high that people are willing to squeeze into small cars. Start charging American drivers $8 a gallon and they’ll switch to small cars in a New York minute.

Exactly. Friedman has entirely missed the point on why autos here in Europe are so much more fuel efficient. If gasoline was 2 bucks a gallon here, I suspect things would be a bit different. And the puzzling thing to me is that a couple of years ago, in an interview with Grist, Friedman seemed to clearly understand the issue:

Q. Besides a gas tax, what other methods for reducing energy dependence would you propose?

A. I’d focus on two other things: I would begin building more nuclear power, and I’d have a carbon tax on coal and all high-emission energies that would raise their cost and make wind and solar much more cost-efficient.

Q. What about regulatory initiatives like CAFE standards?

A. That to me is captured by the [gas] tax because that makes hybrids a necessity and forces Detroit to convert large amounts of its fleet to hybrid technology — you drive the CAFE issue using a different mechanism.

But Friedman appears to have forgotten that logic, judging from his most recent article. Back to the CNN article:

American manufacturers DO build fuel-efficient cars but Americans don’t buy them. Ford (Charts, Fortune 500) is currently offering cut-rate financing on the 2008 Escape Hybrid, while GM (Charts, Fortune 500) is subsidizing the smallest car in its lineup, the Chevy Aveo. And GM can brag all it wants about having more models – 30 of them – than any other manufacturer that get more than 30 miles per gallon on the highway, but it gets precious little credit for it in the marketplace.

It has been argued here before that if the government wants to be serious about improving fuel economy, all it has to do is boost the tax on gasoline. The revenue generated could be rebated to lower-income drivers who are truly disadvantaged or invested in mass transit. The auto companies aren’t going to argue for such a tax because it would give them a black eye with consumers. And the government won’t do it either, because of its anti-tax bias. But Friedman, using his column as a bully pulpit, could argue for such a tax with impunity. And it would be a whole lot more effective than perpetuating the old myth about the ignorant luddites in Detroit who are withholding the small, fuel-sipping cars that Americans really want to buy.

I think Friedman is a guy who is really passionate and concerned about our energy policy. But he has gotten ahead of himself at times. He was on the ethanol can save us bandwagon early on, but it looks like he now he is exclusively on the sugarcane ethanol will save us bandwagon. I agree, sugarcane ethanol is a lot better than corn ethanol, but it helps to understand the scale of our oil consumption, so one can appreciate the scale of the ethanol production that would be required to displace it.

OK, back to meetings. Now, if I can figure out how to publish. For some reason, all the instructions for my blog are in Norwegian. I am having to guess at what Innlegg, Innstillinger, Mal, and Skriv mean. This keyboard is also unfamiliar. Some of the keys are out of place, and it also has letters like æ, å, and ø. Let’s see if “Publiser Innlegg” gets this published.

October 5, 2007 Posted by | auto industry, CAFE, energy policy, fuel efficiency | Comments Off on Debunking Thomas Friedman

Debunking Thomas Friedman

I am in Norway at the moment, but I ran across a story that I wanted to call attention to. It is the same thing I wrote about in The Problem with CAFE:

Debunking auto industry myths

NEW YORK (Fortune) — I hesitate to pick a fight with a two-time Pulitzer Prize-winner like New York Times columnist Thomas Friedman. On the critical issue of developing a national energy policy to lessen our consumption of imported oil, he’s been early, smart, and right.

But Friedman whiffed in his Times column yesterday, called “Et Tu, Toyota,” by hauling out one of the hoariest of urban myths: That forcing higher fuel economy standards on American car buyers is what’s needed to encourage more energy-efficient vehicles and make Detroit more competitive with its import competitors.

That’s wrong…and wrong. Forcing people to buy more efficient cars by ordering car companies to make them is like forcing people to lose weight by banning food companies from selling Big Macs and pizzas. The reason Americans consume so much gasoline is that they like their big pickup trucks, SUVs, and V-8 engines. The reason the automakers make them is because people want to buy them.

That’s exactly what I have argued. Fuel efficient vehicles are not in short supply. But the demand is not there. This is not a supply-side problem; we have to work on increasing demand for efficient vehicles. Ramp up demand, and the supply of vehicles will come.

Some of the points that Friedman makes to buttress his arguments are misleading. He praises Japan and Europe for auto fleets that have much better mileage standards than the U.S. without mentioning the fact that driving conditions are different – try steering a Lincoln Navigator through a medieval village in Italy – and gasoline taxes in those countries are so high that people are willing to squeeze into small cars. Start charging American drivers $8 a gallon and they’ll switch to small cars in a New York minute.

Exactly. Friedman has entirely missed the point on why autos here in Europe are so much more fuel efficient. If gasoline was 2 bucks a gallon here, I suspect things would be a bit different. And the puzzling thing to me is that a couple of years ago, in an interview with Grist, Friedman seemed to clearly understand the issue:

Q. Besides a gas tax, what other methods for reducing energy dependence would you propose?

A. I’d focus on two other things: I would begin building more nuclear power, and I’d have a carbon tax on coal and all high-emission energies that would raise their cost and make wind and solar much more cost-efficient.

Q. What about regulatory initiatives like CAFE standards?

A. That to me is captured by the [gas] tax because that makes hybrids a necessity and forces Detroit to convert large amounts of its fleet to hybrid technology — you drive the CAFE issue using a different mechanism.

But Friedman appears to have forgotten that logic, judging from his most recent article. Back to the CNN article:

American manufacturers DO build fuel-efficient cars but Americans don’t buy them. Ford (Charts, Fortune 500) is currently offering cut-rate financing on the 2008 Escape Hybrid, while GM (Charts, Fortune 500) is subsidizing the smallest car in its lineup, the Chevy Aveo. And GM can brag all it wants about having more models – 30 of them – than any other manufacturer that get more than 30 miles per gallon on the highway, but it gets precious little credit for it in the marketplace.

It has been argued here before that if the government wants to be serious about improving fuel economy, all it has to do is boost the tax on gasoline. The revenue generated could be rebated to lower-income drivers who are truly disadvantaged or invested in mass transit. The auto companies aren’t going to argue for such a tax because it would give them a black eye with consumers. And the government won’t do it either, because of its anti-tax bias. But Friedman, using his column as a bully pulpit, could argue for such a tax with impunity. And it would be a whole lot more effective than perpetuating the old myth about the ignorant luddites in Detroit who are withholding the small, fuel-sipping cars that Americans really want to buy.

I think Friedman is a guy who is really passionate and concerned about our energy policy. But he has gotten ahead of himself at times. He was on the ethanol can save us bandwagon early on, but it looks like he now he is exclusively on the sugarcane ethanol will save us bandwagon. I agree, sugarcane ethanol is a lot better than corn ethanol, but it helps to understand the scale of our oil consumption, so one can appreciate the scale of the ethanol production that would be required to displace it.

OK, back to meetings. Now, if I can figure out how to publish. For some reason, all the instructions for my blog are in Norwegian. I am having to guess at what Innlegg, Innstillinger, Mal, and Skriv mean. This keyboard is also unfamiliar. Some of the keys are out of place, and it also has letters like æ, å, and ø. Let’s see if “Publiser Innlegg” gets this published.

October 5, 2007 Posted by | auto industry, CAFE, energy policy, fuel efficiency | 25 Comments

The Ultra-Light Loremo

Over the weekend, I happened onto a link for a German car that is being designed for an amazing 157 miles per gallon (1.5 l/100 km). The car is called the Loremo, an ultra-light, two-cylinder, 20-horsepower, turbo-diesel with an price tag of about $15,000 U.S.

The Ultra-Light Loremo

After poking around a bit, I found that there is a history of ultra-light vehicles, but they have not sold well:

Driving On The Light Side

In 1999, German carmaker Volkswagen launched the Lupo 3L TDI in Europe, a no-frills subcompact that got 100 km on 3 L of gas. Volkswagen built 29,500 Lupo 3Ls and then last year yanked the car from the market. “It was too frugal,” says Hartmut Hoffmann, a product spokesman for VW. “Customer interest faded.”

In 1997, Ford announced plans for what it called the P2000, which promised to be 40% lighter than conventional family sedans. And in 2002, Opel, the European subsidiary of General Motors, unveiled the Eco-Speedster, a sleek, low-riding sports car that gets 2.5 L of fuel to 100 km. But none of the manufacturers ever intended to offer their ultralight cars for sale.”

But with fuel prices at historic highs, all that may be about to change. CEO Heilmaier says 10,000 people have signaled interest in buying a Loremo since March, when a model was shown at the Geneva auto show. That’s not bad for a car that hasn’t even been driven yet. The first drivable prototype is to be built this year, and Sommer expects to go into production of the first 5,000 to 10,000 cars in 2009 and ramp up to 100,000 by 2012. If consumers are finally ready to embrace radical fuel efficiency, then Sommer and his team will have truly nailed it.

Let’s just hope it all works out per the design. Personally, I think that’s a good looking car. If fuel prices stay high, they will probably fly out of the showrooms.

August 5, 2007 Posted by | auto industry, CAFE, fuel efficiency | Comments Off on The Ultra-Light Loremo

The Ultra-Light Loremo

Over the weekend, I happened onto a link for a German car that is being designed for an amazing 157 miles per gallon (1.5 l/100 km). The car is called the Loremo, an ultra-light, two-cylinder, 20-horsepower, turbo-diesel with an price tag of about $15,000 U.S.

The Ultra-Light Loremo

After poking around a bit, I found that there is a history of ultra-light vehicles, but they have not sold well:

Driving On The Light Side

In 1999, German carmaker Volkswagen launched the Lupo 3L TDI in Europe, a no-frills subcompact that got 100 km on 3 L of gas. Volkswagen built 29,500 Lupo 3Ls and then last year yanked the car from the market. “It was too frugal,” says Hartmut Hoffmann, a product spokesman for VW. “Customer interest faded.”

In 1997, Ford announced plans for what it called the P2000, which promised to be 40% lighter than conventional family sedans. And in 2002, Opel, the European subsidiary of General Motors, unveiled the Eco-Speedster, a sleek, low-riding sports car that gets 2.5 L of fuel to 100 km. But none of the manufacturers ever intended to offer their ultralight cars for sale.”

But with fuel prices at historic highs, all that may be about to change. CEO Heilmaier says 10,000 people have signaled interest in buying a Loremo since March, when a model was shown at the Geneva auto show. That’s not bad for a car that hasn’t even been driven yet. The first drivable prototype is to be built this year, and Sommer expects to go into production of the first 5,000 to 10,000 cars in 2009 and ramp up to 100,000 by 2012. If consumers are finally ready to embrace radical fuel efficiency, then Sommer and his team will have truly nailed it.

Let’s just hope it all works out per the design. Personally, I think that’s a good looking car. If fuel prices stay high, they will probably fly out of the showrooms.

August 5, 2007 Posted by | auto industry, CAFE, fuel efficiency | 13 Comments

The Ultra-Light Loremo

Over the weekend, I happened onto a link for a German car that is being designed for an amazing 157 miles per gallon (1.5 l/100 km). The car is called the Loremo, an ultra-light, two-cylinder, 20-horsepower, turbo-diesel with an price tag of about $15,000 U.S.

The Ultra-Light Loremo

After poking around a bit, I found that there is a history of ultra-light vehicles, but they have not sold well:

Driving On The Light Side

In 1999, German carmaker Volkswagen launched the Lupo 3L TDI in Europe, a no-frills subcompact that got 100 km on 3 L of gas. Volkswagen built 29,500 Lupo 3Ls and then last year yanked the car from the market. “It was too frugal,” says Hartmut Hoffmann, a product spokesman for VW. “Customer interest faded.”

In 1997, Ford announced plans for what it called the P2000, which promised to be 40% lighter than conventional family sedans. And in 2002, Opel, the European subsidiary of General Motors, unveiled the Eco-Speedster, a sleek, low-riding sports car that gets 2.5 L of fuel to 100 km. But none of the manufacturers ever intended to offer their ultralight cars for sale.”

But with fuel prices at historic highs, all that may be about to change. CEO Heilmaier says 10,000 people have signaled interest in buying a Loremo since March, when a model was shown at the Geneva auto show. That’s not bad for a car that hasn’t even been driven yet. The first drivable prototype is to be built this year, and Sommer expects to go into production of the first 5,000 to 10,000 cars in 2009 and ramp up to 100,000 by 2012. If consumers are finally ready to embrace radical fuel efficiency, then Sommer and his team will have truly nailed it.

Let’s just hope it all works out per the design. Personally, I think that’s a good looking car. If fuel prices stay high, they will probably fly out of the showrooms.

August 5, 2007 Posted by | auto industry, CAFE, fuel efficiency | 13 Comments

The Problem with CAFE

As I have been reading reports of the current debate over the pending energy legislation, it occurred to me that there is a fundamental problem with the approach to CAFE standards. The Washington Post reported on the issue in today’s edition:

Senate, House Turn Focus to Energy Bills

Senate Majority Leader Harry M. Reid (D-Nev.) said after a speech to the Center for American Progress yesterday that the increase in auto-fuel efficiency requirements, known as the corporate average fuel efficiency (CAFE) standards, would be the most controversial part of the Senate package. It orders auto companies to hit a 35-mile-per-gallon target by 2020 and improve mileage 4 percent a year after that.

“I know that the auto industry is still wavering on this issue,” Reid said. “I met with the CEOs of the big three automakers last week, and here is what I told them: The debate on raising CAFE standards should be over. It will happen. And perhaps if they had joined us instead of fighting us these last 20 years, they might not be in the financial mess they’re in today.”

So what’s the problem? Isn’t raising CAFE standards a good idea? On the surface, yes. And I absolutely agree that our fuel efficiency in the U.S. is terrible and must improve. But the problem I see is that this attempts to address the issue in the same way that windfall profits’ proposals attempt to address the issue of high gas prices. There are plenty of high fuel efficiency cars on the market now. The problem is, people aren’t demanding them. They want their SUVs and big trucks. What people are really after here is a free lunch. They think increasing CAFE standards will make everyone else drive a fuel-efficient vehicle. Or, they think this will result in a dramatic boost in the fuel efficiency of those trucks and SUVs.

I see the point made by the auto industry, because this will force them to make vehicles that people aren’t demanding. This is incredibly inefficient legislation. There are other ways to increase the demand for fuel-efficient vehicles, rather than forcing auto makers to increase the supply (that doesn’t happen to be in demand). What this may do is restrict the supply of inefficient vehicles, thus boosting prices for them. And a secondary effect may then be that people will turn to more fuel-efficient vehicles. But it is an incredibly convoluted way to achieve that goal.

As I said, this is analogous to the windfall profits’ measures that have been debated. People see this as a free lunch. The oil companies will be punished by having some of their profits taken away, thus somehow resulting in lower prices for all (as the companies respond to this punishment?) It is legislation aimed at the wrong problem. Oil companies make big profits because there is high demand for their product. And fuel efficiency is low because there is high demand for trucks and SUVs. The current legislation being debated won’t change that.

There is no free lunch. Increasing CAFE standards is not going to increase the public’s desire to drive fuel efficient cars, nor is it going to result in a 35 mpg Ford Expedition.

June 12, 2007 Posted by | auto industry, CAFE, energy policy, fuel efficiency | 53 Comments