Demand More for Your Auto Bailout Dollar; Oil Patch Should Bounce Back Long Term
Last week, US automakers went to Congress with their hat in hand. The auto executives were all smiles, as was Nancy Pelosi and others. As a US taxpayer, I can tell you that I was not smiling, and I resented their happy demeanor. The automakers' insistence on building non-competitive SUVs and Hummers and the like hurt the US in two major ways: first, it helped increase our reliance on foreign oil. Second, it allowed Toyota (TM) and Honda (HMC) to eat their lunch.
Of course Congress is to blame as well by not raising the CAFE standards, legislating tax-breaks to encourage business purchases of SUVs (?), and by caving to automotive lobbyists on every possible occasion. Net-net, the US imports 70% of its oil, many jobs have been lost, and the economy has suffered as a result. So, now the middle class taxpayer has yet another sector to bailout. Since no one is going to bail me out, I want to insist that Congress get something out of these auto executives for my money:
- Each of the big three must make a natural gas powered truck and car to sell in the US
- *Every* vehicle they make must get over 40 mpg
- Every vehicle they make must be natural gas, hybrid, or electric
In addition, each US automaker must make a home appliance for fueling a natural gas car in their garage. Currently, not only do we have only one natural gas vehicle on sale in the US, but only one maker of this appliance (the "Phill" by Fuelmaker). It is time for Congress to demand competition in this market to bring down the high cost of natural gas solutions and wean us off foreign oil. See my previous articles on natural gas powered transportation:
Please contact your state senators and congressional representatives and tell them what you want for YOUR tax-payers money!
Meanwhile, look at what is happening in the oil patch as a result of the current economic crisis. Investment in the Canadian oil sands is declining as projects get put on hold or are cancelled. Drilling in the lower 48 is trending down. Projects such as the joint Saudi/ConocoPhillips Yanbu refinery are being delayed. All this means the next oil spike will make this year's old spike look tame. Current low oil prices are terrible news for the long-term US economy.
In fact, I would go so far as to advise the US government to raise federal gasoline taxes to help pay for all the deficit spending our government is currently spraying into the economy. Major oil companies are on sale at current prices. I continue to advice snapping up companies such as Exxon Mobil (XOM), British Petroleum (BP), ConocoPhillips (COP), and Chevron (CVX). These companies all pay healthy dividends (except XOM's, which is pathetic), and they are safe. These companies will continue to make money as they all have low-cost oil production sources and they can cut their E&P budgets if they need to. Long term, these companies are going to skyrocket when the economy comes back in the future.
Disclosure: The author owns all of the stocks recommended in this article.
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This article has 44 comments:
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Joethecarbuyer
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3 Comments
Nov 09 09:24 AMThe immediate problem is that no one is buying a car. Why not just give taxpayers a $3000 credit to buy a car so the automakers can liquidate their inventories? The Big 3 can get the cash and give them some time to breathe. Then lay on the requirements to improve mileage etc. and loan them the funds to go forward...using their pension funds as collateral.
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Michael D.
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21 Comments
Nov 09 10:21 AMIt is not the companies which need rescuing, it is the employees. Re-training, universal healthcare, new economy investments will help increase competitiveness.
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User 13799
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1 Comment
Nov 09 10:26 AMI do agree that giving a tax credit to tax payers to buy a car would be a good way to help the industry. It would be a way that both the consumer and the companies could benefit.
You mention the UAW as one of the problems, I bet you didn't know that the labor cost represents 8% of the cost of a car??? Advertising represents the largest percentage of the cost of a vehicle at 15%. These are facts the average flunky doesn't know.
You can't use pension funds as collateral because these funds don't belong to the company. These are monies the government requires the companies to pay into that are not owned by the company.
Another thing the average "Joe" out there doesn't comprehend is "cause and effect"!! The impact of letting these industries die would be devastating to this country. First of all, if you are jealous of the auto industry workers because they make decent wages, that's fine. You would like to see these people lose their jobs because you think they make too much! Well, I hate to tell you but if these people you are jealous of, lose their jobs, so do the thousands of people who work for the many suppliers that the auto companies use!!
There are thousands of components that go into a vehicle. Nuts, bolts, glass, seats, rugs, wires, batteries, etc, etc. These people lose their jobs too!! The numbers of people that would be affected would be thousands.
Another thing your jealousy blinds you of is the ability to see is how the industries failure would impact of your own tax situation. People making decent wages pay higher income tax. If thousands of people paying a good share of taxes become unemployed, GUESS who would have to make up the void????????? Look in the mirror for the answer, BOZO!!
Well, maybe you could ask Japan to help pay your taxes!! Good luck!
On Nov 09 09:24 AM Joethecarbuyer wrote:
> Why do we keep throwing money at these relics? These cash injections
> do nothing, they'll want another in 3 months. They will never change...the
> UAW has them suffocated. Do you see the Japanese carmakers asking
> for a bailout? No, they have good engineering and no UAW.
> The immediate problem is that no one is buying a car. Why not just
> give taxpayers a $3000 credit to buy a car so the automakers can
> liquidate their inventories? The Big 3 can get the cash and give
> them some time to breathe. Then lay on the requirements to improve
> mileage etc. and loan them the funds to go forward...using their
> pension funds as collateral.
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James Wilson
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133 Comments
Nov 09 11:34 AM-
Thomas C
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3 Comments
Nov 09 11:39 AM-
Lazaris
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12 Comments
Nov 09 11:54 AM-
Thomas C
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3 Comments
Nov 09 12:05 PMOn Nov 09 11:54 AM Lazaris wrote:
> I am so sick and tired of hearing how the automakers insisted on
> making gas guzzling suv's and trucks! The Public wanted them! and
> they still do. Look down your street, every other house has a truck
> or suv as the second or third car in the driveway. People wanted
> them and GM build them for them. It was not GM's fault that gas went
> to $4 plus and people can no longer afford to drive the suv or truck
> they so badly wanted. When was the last time any of you GM and American
> Auto bashers even went and looked at a GM vehicle? GM's quality can
> stand up against any auto maker out there, including Toyota.
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SeekingTruth
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57 Comments
Nov 09 12:06 PMI don't have the full facts, but I believe that all, or most all, of the foreign auto makers that are cleaning the clocks of the domestic auto makers daily have STRONG AND VIBRANT UNIONS. I am neither anti or pro union, and I have never been in one or would want to be. I believe that the major elements of our auto/energy problems are caused by a greed motivated group of arrogant, short sighted, nepotistic, paternalistic, and totally incompetent group of auto managers, owners , and marketeers, and not primarily the unions.
The unions do contribute their share of our auto industry problems, but I suspect that a mostly nondiscerning and short sighted general public with little or no concept of energy fundamentals are an even greater factor. Overall, I believe that no bailout funds are justified and would vote against them if given the opportunity. But if it must be done, we must demand and receive MAJOR improvements similar to that suggested by the article.
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Fam62c
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28 Comments
Nov 09 01:25 PMAs much as I hate to say it I think that we went wrong as a society by not taxing gasoline more heavily after the 1970's energy crisis to encourage conservation and fuel efficient designs with new technology. The fact is that when gas is cheap people will waste it and alternative power sources will never take hold. We have allowed our economy to have massive exposure to oil price spikes and have given OPEC a lot of power over us. As painful as it would be over the short term I would suport a gas tax program to keep gas above say $3.50/gallon combined with a massive, government backed effort (partially funded by the gas tax) to promote alternative energy sources. If we let gas prices fall again we will go back to our wasteful ways and alternative energy development will stall out for lack of investment. The result will be a future fuel price spike that we will be unprepared for and maybe next time oil goes to $250/bbl and creates the next great depression. It sounds counterintuitive but cheap gas is bad for the US economy in the long run because we can't insure that it will remain cheap, in fact, we know that it won't. If we could take a highly variable cost and make it more of a fixed and known cost it would smooth out our economy. We didn't learn anything from the 1970's so I hope we learn this time, history will repeat itself. We have seen the tremors, if we don't prepare for the inevitable earthquake we deserve what we get when it happens.
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Pipo
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266 Comments
My Website
Nov 09 01:26 PMoiltradersblog.blogspo.../
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retired/tired
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1 Comment
Nov 09 01:54 PMIt has been for years, "how goes Gm, goes the United States!". The auto industry is building the type of trucks and SUVs that the people want. The other foreign auto companies are back by thier countries. The money the american people spend to by foreign autos goes back to the foreign countries.
People need to put the blame where it belongs!!!
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longoil
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181 Comments
Nov 09 02:31 PMThe problem with American auto companies is they are risk averse and merely make incremental changes to existing technology. The 1928 Ford Model "A" got 25 mpg using a primitive engine with a carburator, distributor based ignition and rear wheel differential. Why is the fuel efficency of an average Ford 80 years later only 28 to 32 mpg using more advanced modern technology like fuel injection, distributorless ignition and front wheel drive ? Toyota is making and selling Hybrid cars, GM and Ford are still talking about it.
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woodsey
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144 Comments
Nov 09 02:55 PM-
Tom the Oil Man (retired)
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1 Comment
Nov 09 03:26 PMThe last time I checked, the major method of obtaining natural gas is to DRILL, both onshore and offshore , and heaven forbid it even comes from foreign countries and is shipped to our country in tankers. It will be decades before alternative sources of environmentally friendly energy are available in this country. In the mean time "drill baby drill".
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Michael Fitzsimmons
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292 Comments
My Website
Nov 09 03:34 PMjoethecarbuyer: unfortunately, the US is in a situation where the failure of the "little 3" automakers would not only have negative far-reaching effects to the national economy, but also would deprive us of manufacturers of the natural gas, electric, and hybrid vehicles we so desparately need to wean us off of foreign oil. that is why congress must demand these solutions in exchange for middle tax-payer money.
Michael D. : in your competitive analysis, you left out the main one: manufacturing of non-oil (gasoline) based automobiles. without these solutions, not only will the US automakers not be competitive, but the US economy will simply sink into the abyss.
wilson: it is unfair to blame the oil companies for producing the energy the country so badly needs!! if you want to aim your angst at the right source, aim it at congress and the president for energy policy (or lack thereof...) which has done nothing but deepen our dependency on foreign oil and strengthen countries like saudi arabia, iran, iraq, and russia. don't blame the oil companies. you start putting windfall profits taxes on the oil company and they will simply cut back on exploration and production in order to keep their fiduciary shareholder responsibilities. windfall profits taxes on the oil companies would be a disaster as they would simply mean less oil from them.
Lazaris: the public wanted them, true - which is why this country so badly needs congress and the media to take a leadership role in explaining what the US energy situation is and craft intelligent strategic policy like this:
thefitzman.blogspot.co...
Not only that, but what does it say about the wisdom, strategy and even patriotism of GM when they don't take into account america's energy situation? what does it say when GM kills the electric car? their current economic situation speaks volumes about the intelligence and strategic planning at GM. ohh, but yeah, their execs have made millions while driving the company into the ground. you should be as angry as me.
fam62c: hell yes they can force the companies to build fuel efficient non-oil based cars - it's my damn money (and yours too) that they are handing over to them. i tell you what, they use my money to build more hummers and SUV's and you will see some pissed off middle class taxpayers the next time gas goes to $4 (and above, and it will...it's coming). 95% of the american public is completely ignorant of the country's energy crisis. they believe america is entitled to cheap gasoline and big luxurious ludicrous vehicles. this being the case, it is the job and the responsibility of the government to protect the american people from their ignorance and craft policy in the strategic long term economic interests of the country.
pipo: yes, oil is down because of the lack of demand due to the economic crisis. yet, the long-term supply demand situation has done nothing if any gotten worse since the low prices have new production projects delayed or cancelled. how soon people forget the $4.50 gasoline and the $145/barrel oil. its amazing. that is why i said current low prices are a dangerous threat to the american economy due to the vast majority of americans who feel like you do. it isnt only pickens and
rogers who believe oil will come back and skyrocket, listen to the executives of every major oil company in the world who understands the true long-term supply/demand dynamics!
retired/tired: yes, the blame needs to go where it belongs. and everyone is to blame: congress, the president, the lobbyist, the american buyer, and the US automakers. the article is about what to do now, and what to do now is build some hybrid, natural gas, electric fuel-efficient cars and trucks. this is even more so now that my tax money is going to a company that manufactures hummers, and that just pisses me off.
longoil: i am convinced GM and Ford won't make and mass distribute natural gas and electric vehicles unless congress demands it of them.
woodsey: if the US automakers go broke, we simply all keep buying toyotas, hondas, and nissans. then, in addition to our US dollars leaving the country to go to saudi, iraq, iran, russia, and venezuela for gasoline, we will also have more money leaving the country to foreign auto makers.
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Roy M.
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355 Comments
Nov 09 05:33 PMRemember, one little sneeze from the middle east or Russia, the oil price will jump up 20%. There's no such thing as forecast for oil price. Don't be fooled. Also, when the wind blows a little stronger at the Gulf of Mexico, the oil price will go 10%. History can tell you that.
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ptr44
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39 Comments
Nov 10 12:09 AMthe percentage of a car price that goes to labor is irrelevent user 13799.
the main condition of any bailout should be getting rid of the unions that are causing large numbers of jobs to be lost and sent over seas.
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baitshopbilly
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2 Comments
Nov 10 01:10 AMBill’s idea for auto makers.
The plan:
1. allow auto companies to downsize toward current demand and clear inventory. Keeping good on retirement packages and so fourth. (private sector will be more encouraged to give them loans to do so if they are showing a profit.)
2. offer a TIF(tax incentive) for the purchase and retooling of these unneeded plants, for the construction of energy sector mechanicals.(wind mills, solar, etc.). this will bring in money from the private sector for funding the projects. Avoid socialism at all costs during tough economic times like this.
3. fed’s already have budgeted money for energy. This would have great use in the need to train this enormous workforce in the new sector.(many employees will be working in the same buildings, living in the same homes that they have for years) There will knowingly need to be assistance in housing for these individuals and families during the training period. This is money well spent, as they will be paying taxes again after their jobs are restored. It shouldn’t take too long to teach someone who can build a fine piece of machinery like the Cadillac, how to build a windmill. And if the unions want to be as involved in the new sector, then they can contribute to the training costs as well.
4. business as usual…. When the energy infrastructure is reaching sufficient levels, these automakers will no doubt be expanding again. At this point they can start buying facilities back to meet their needs. and when you plug in their new car to charge for the night, you can sleep easy knowing that the power used to recharge the battery was from a renewable source built during the recession!
don't just throw money at a company losing over 2 billion a month conducting "business as usual". and I don't believe we need to have the feds own wall street either.
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Paul Killinger
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993 Comments
Nov 10 10:26 AMThat's where we are right now. Now the current Congress is going to spend hundreds of billions of taxpayer dollars in an attempt to bail them out. But markets are a funny thing. Once consumers develop a perception about the quality and utility of the products they buy, they don't change their minds quickly.
Of course, neither do the people who got us here. Auto managers are busy introducing new TRUCKS and SUV's, despite the fact that they can't unload the ones they've got. And their employees have somehow come to the delusion that the rest of us owe them a living.
So don't look for any changes in Detroit anytime soon. Regardless of how much money they're handed, they're not going to change a thing. The only way they're going to survive (IF they do) is to face the realities they are now confronted with and manufacture products people want to buy.
Once they're cut off from taxpayer gifts, maybe they will.
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Art Rimbaud
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4 Comments
Nov 10 10:32 AMthat being said, it's clear to me that President Obama will have an overwhelming incentive to implement what President Ford wanted to do in the '70's - raise gas taxes to (a) promote the fuel efficiency & energy independence agenda, (b) fund the Big 3 bail-outs, and (c) chop off Big Oil at the knees.
again, the fault is with the lazy American public (particularly the Baby Boomers) and their elected representatives who were too short-sighted to do this 30+ years ago, and would have created a healthy, globally-competitive US auto industry in the meantime.
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Mmarrkk
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274 Comments
Nov 10 11:25 AMIn my opinion, McCain lost a great opportunity to win the last election by supporting the bail out. Had he stood against it, I think he would had a much better shot at winning the election. Our gov't is headed toward a place where most of us are not comfortable: being the owners of large portions of our major industries/services including banking, automakers, healthcare, etc.
I really like the idea of loaning the automakers money with conditions and I like your NG car conditions. I'd also say they should have to reduce their capacity...shut down some plants, etc. Don't necessarily like the mandate that all vehicles get 40 mpg. I own 4 vehicles right now and none get 20 mpg (2 suburbans and 2 pick up trucks). But I'm not going to sell them and go buy something new. That's just not a good use of my money. I'll keep driving these four (or my wife, myself and my two boys will keep driving them) until repair costs are prohibitive.
I'm not a big fan of the Prius due to the carbon footprint it takes to build and assemble one. Many key components built overseas. But I'd buy a NG powered Chevy pick up truck if I could get a NG hook up for the house or the neighborhood fueling station. Of course the environmental folks will get in an uproar over fugitive emissions and the lawyers will sue the pants off anyone when the first refueling accident occurs. But we have NG in this country and could definetly fuel a lot more vehicles with it versus imports.
Also agree on your windfall profits comments. I work in this industry and I know exactly what will happen should our insane gov't slaps an insane tax on us. We will quit spending money in the US and start spending those dollars in other countries. Just the way of the world. Go XOM, Chevron, COP, etc. They are US companies. BP, Shell, Total are not but they are good investments too. Also, Devon, EOG, etc. on the NG side.
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Michael Fitzsimmons
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292 Comments
My Website
Nov 10 12:03 PMbaitshopbilly: the problem with you plan is it misses a very critical component: if the US doesn't make the alternative fueled vehicles that we need (i.e. non-gasoline powered), then either a) we won't have them or b) in addition to sending money overseas for gas, we'll now be sending even more overseas for transportation solutions. big problem.
paulk: agree with much of what you said. however, if american's can get quality, efficient transportation alternatives to gasoline powered vehicles i believe they will buy them. hell, i am looking for a good natural gas powered car right now and can't find it (or the re-fueling centers needed) in my state. that is a pathetic testament to how screwed up the automobile industry and congress are when it comes to the oil crisis.
art rimbaud: thanks for the compliment, but there is not alot of research needed in expressing an *opinion* on what to do with my tax-payer money.
Mmarrkk: thanks, however, wrt your exception: i think the market share losses that GM has suffered, and as a result of the success of toyota and honda in fuel efficient solutions means that someone has to point GM in the right direction. now that they are getting MY tax-payers dollars, yes, i do want the government to tell them what to build as their management teams obviously don't have a friggin clue. wrt mccain, mccain lost because he lost mccain: he caved on all his principles and became mini-bush (taxes, giving in to the religious freaks, etc. etc) not to mention that the american people *finally* figured out that perhaps bush style fascism isn't good for the middle class (ask the germans how it worked out over there). thanks for agreeing on NGV - it's a friggin no-brainer. if i were you, i'd sell those gas hogs now while oil and gasoline are low. in the nice oil price, which i expect to be much worse than the last, there will be no market for those vehicles whatsoever, save for scrap metal.
agree also on windfall with you. note the recent statements by chevron's CEO to the obama folks wrt energy. i have great hopes that obama will adopt a sane energy policy ... but i do fear the windfall profits tax issues. more likely, i believe he will be persuaded to merely cut back on the current tax breaks given to big oil as opposed to instituting actual profits taxes. he's too smart for that, and it was tried before and failed. wrt investments, i think you are going to see some big takeovers in the energy patch in the coming months. these temporary low energy prices, and the decimation of the energy stocks are reminiscent of 10 years ago which led to exxon buying mobil...chevron buying texaco...bp buying amoco. etc. etc. look for big deals in the natural gas market first...i think bp wants to regain its position of #1 natural gas producer in the US and buying CHK would do that...
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longoil
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181 Comments
Nov 10 12:13 PMThey problem with giving people what they want, is they will often make the wrong long term choices. When oil prices were low, people bought large vehicles and depleted the remaining global oil reserves even faster. It is only when oil scratched $150 / barrel, that everyone started changing their habits. Even GM was looking to sell the Hummer division this summer. This is very reactive behaviour. We need to be proactive and develop new oil reserves and invest in conservation and alternate energy technology NOW while there is still time.
I think the CAFE standard was in good hands with Ford, Carter, Reagan and Bush 41. It rose from 15 to 27 mpg during this 15 year period. It was when Clinton and Gore (Mr. Climate change) were pandering for UAW votes in the 1990's that they introduced the light truck exemption and killed CAFE and it stayed flat at 27 mpg.
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Midas1
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27 Comments
Nov 10 02:02 PM-
Mmarrkk
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274 Comments
Nov 10 03:14 PMAgree that the market for my 4 gas hogs will get worse when prices go up but here's the decision: spend a few dollars more per month on 4 vehicles or drop $100,000 right now to replace them! I've already factored in virtually no trade in value in the equation and it still doesn't make financial sense. Plus, I love the ride in my Suburban on vacations and I like the flexibility and work I get from the pick up!
And yes, if the taxpayers are giving them money, we should expect something in return. But I'd rather not give them my money, particularly if it ends up in union hands. or bad management's hands.
Agree about takeovers. Big shareholder of CHK and would love to see a takeover. However, look at companies with lots of cash on their balance sheet to do the buying. XOM has enough to buy everyone else, but this isn't their style. BP, CHV, etc. maybe.
Longoil: are you seriously telling me that it is GOOD for the government to tell me what is best for me?? I don't care who's running the gov't, that is never a good idea in a free country. Should they take away all of our forks because lord knows we might stab ourselves with them??? Rather, they should use incentives to get people to use more efficient cars. Tax breaks to buy more efficient cars I can live with. Mandates that tell car builders they cannot build a car? nope, Mr. Jefferson and Mr. Washington would have had a problem with that.
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Old Wizard
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143 Comments
Nov 10 03:26 PM