One of the biggest challenges facing the management team of any of the US "big three" automakers, as I write this....irregardless of the financial solvency issue, is what type of vehicles to invest in the design and manufacture of, given the new uncertainty of the trend in fuel price levels, and the duration of the period of low priced fuel availability.

This same uncertainty suddenly plagues those making the investment decisions in alternative fuels and energy, and those responsible at the major oil corps. for the allocation of funds for exploration and development of new or expanding petroleum producing properties and technologies.

Letting "the free market" take care of pricing of petroleum sourced fuels in the US, much more so than in almost all other industrialized countries where national policy of highly taxed petroleum products has set a floor for consumer prices and for patterns of consumption, has resulted in the sudden price fluctuation we in the US have experienced since 2005, and guarantees more of this:

Science / Medicine ANALYSIS US May Pay Dearly for Cutting Back on...
Pay-Per-View - Los Angeles Times - ProQuest Archiver - Aug 13, 1990

>"...The evisceration of the government's energy-research programs was one of the proudest achievements of the Reagan administration, which took the cheery view that the marketplace is the infallible governor of energy production, use, and innovations. Upon taking office, Reagan sought to reverse the big energy-research buildup started by Richard Nixon in response to the 1973 oil crisis and accelerated by Jimmy Carter as his domestic centerpiece.</h3> They aimed to mobilize science to squeeze more power from common fuels and guide the transition to new ones. In the hierarchy of tough research problems, these rank high, and require a lot of time and money.

When Congress thwarted Reagan's pledge to abolish the Department of Energy (DOE), <b>he responded with budget cuts that severely reduced or even eliminated the Department's various civilian energy-research programs. Congress again balked and kept them alive, but for energy research, it was the beginning of a decade of drought that has only partially lifted. The science and engineering grapevine naturally reverberates with news of hot and cold professional opportunities-with the scale invariably linked to the flow of federal money. There's still relatively little money, and therefore no stampede to energy research.

In 1980, the year before Reagan took office, DOE was budgeted for $560 million for solar-energy research and development, in its own laboratories and in universities and industry. When Reagan left office, the solar program was down to $90 million-thanks only to Congress preventing a complete wipeout. Among the items rescued from elimination was the Solar Energy Research Institute, the main federal laboratory for research in that field. The Bush budget for next year calls for a 30 percent boost in solar research, awesome by Gramm-Rudman standards, but the sum is still far below pre-Reagan levels....

....After a decade of plentiful petroleum, with real prices actually lower than they were 15 years ago, the zip is long gone from America's determination to use its scientific smarts for protection against oil disruptions.

This is evident in the hardpressed, financially shortsighted auto industry, which has persistently resisted higher fuel economy standards. In fact, the current average performance has declined from 28.6 miles per gallon in 1988 to 27.8 in the current model year, according to the Environmental Protection Agency.

European and Japanese manufacturers, in well-financed anticipation of the next oil crisis, have demonstrated conventional-style, gasoline-powered cars that get around 100 miles per gallon.

It's a well-kept secret if any American manufacturer can match that. Japanese auto manufacturers have also concentrated on packing six cylinders worth of power into economical and smooth-running four-cylinder engines, thus positioning themselves for what may well be a new era of high-priced fuel.

The Reagan-era contention that the marketplace is best for setting research priorities fails to account for the fiscal timidity of many American industries, particularly in financing long-term research. Governments can provide that endurance. That was the purpose of the energy-research programs that the Reagan administration trampled to near-oblivion...."<

THE RESULT OF LETTING THE "FREE MARKET" GUIDE THE OUTCOME, 25 years ago, was this:

SOLAR RESEARCH NOW LEANS ON BIG OIL MONEY - Free Preview - The New...
New York Times - Oct 16, 1983 

>"....But some of the people working to develop the cells that generate electricity from sunlight are concerned that the oil business is controlling more and more of the solar industry.

This trend was highlighted last month when the Standard Oil Company of Indiana purchased Solarex, a Rockville, Md., company that last year ranked as the second largest United States manufacturer of photovoltaic cells. Arco Solar, a wholly owned subsidiary of the Atlantic Richfield Company, was the largest. Ranking third was the Solar Power Corporation, owned by Exxon.

''Virtually all of the photovoltaics industry is owned by Big Oil,'' said Scott Sklar, political director for the Solar Lobby, an organization that advocates expanding development of solar technology. ''And the problem with that is these huge corporations don't have the kind of commitment you find in small innovative companies.'' Some consumer groups profess even greater worries about the oil industry's motives. ''The major oils see solar power as a competing source of energy, and they want to control it and slow it down,'' said Edwin Rothchild, a spokesman for the Citizen Energy Labor Coalition, another lobbying organization.....

Throughout most of the 1970's, the Federal Government functioned as one of the largest sources of photovoltaic research money. Those funds have been sharply reduced. In 1980, the Department of Energy administered $797 million in research and development grants for renewable energy projects. This year, those grants have fallen to $262 million.

Several major corporations outside the oil industry have either withdrawn from photovoltaic research or put it on the back burner. The RCA Corporation, which was a leader in research aimed at the most advanced forms of photovoltaic cells, sold its technology to Solarex earlier this year for an undisclosed price. Texas Instruments Corporation, which spent $20 million of its own and Federal money on a major photovoltaics research project for which many experts held high hopes, suspended work in the area two weeks ago...."<

MY POINT IS THAT THE US IS TRAPPED IN A CYCLE OF PETROLEUM PRICE BOOM AND BUST, AND NOW A RESULT IS THE LOOMING DEMISE OF ALL THREE MAJOR US AUTOMAKERS....

The rest of the industrialized world long ago recognized the utility of energy price stability, and thus the automakers in other countries and investors in alternative energy R&D operated in a much less uncertain playing field than the business environment in the US. Our government set a course of commitment to private-public invesment in solar and other alternative energy R&D in 1979, and a change in late 1980 to governance by the rival political party resulted in the major oil companies buying up the fledgling publicly-privately financed alternative energy ventures, the price of petroleum products was completely deregulated at the same time, and US business and cosumers began a new binge of buying high petroleum consuming vehicles, huge energy dependent homes, recreational vehicles, reacting only to the present and near term price and availability of petroleum fuels.

MY POINT ALSO IS THAT THE GOVERNMENTS IN COMPETING INDUSTRIALIZED NATIONS ARE NOT INFLUENCED BY THE RESTRICTIVE DOGMA SO EVIDENT IN THE DISCOURSE LEADING UP TO OUR RECENT ELECTION. The automobile manufacturers in those competing nations are universally relieved of the burdens of the high costs of employee health insurance and of anticipating and timing just what size and type vehicles the consumer will clamor for by the time they are ready to roll off the assembly lines.

PLEASE CONSIDER THAT THE AUTOMOBILE INDUSTRIES AND OTHER SECTORS IN THE REST OF THE WORLD ARE KICKING OUR *SSES NOW, precisely BECAUSE OF sentiments so prevalently expressed in this blog and throughout much of the rest of the discussion at ActiveRain....... The populations in competing nations are conditioned to living in an environment of higher but steadier petroleum prices. Thus, there is popular support for public investment for mass transit infrastructure, and it is financed by the taxes they pay that establish a higher but predictable floor in petroleum prices. They are accustomed to living in smaller, less energy consumptive homes with smaller applicances, and buying and driving small, efficient vehciles, ALWAYS....and using the ubiquitous mass transit network available to large parts of their populations. They have also avoided energy inefficient, suburban sprawl development.

The current "crisis" is not an auto industry exclusive problem. It represents a challenge to us Americans to look outward....why do the French enjoy "model" universal healthcare, at only 60 percent of the per capita cost of US medical expeditures.... why would anyone invest in alternative energy or auto manufacturing in the US, where "free market pricing" of petroleum is locked in a repetitive cycle that guarantees the financial collapse of all investment in alternative energy or in energy consuming products, except in carefully timed investments in the major oil corps, and in the oil service corps.?

If "free markets" are the "only answer", why is the US uniquely helpless in the face of petroleum price fluctuation, and...unique to the US and it's three major automakers, the imminent demise of these jobs?:

• 1.1 Big Three bankruptcy scenario

>"Bankruptcy of the Big Three would be very expensive to the American economy as a whole and the government, and shows just how important the auto industry is to the entire U.S. economy. Economists estimate closing the Big Three would mean loss of 240,000 very high paying jobs at the Big Three,^[4] a loss of 980,000 high-paying jobs at the suppliers and local dealers, plus the loss of 1.7 million additional jobs throughout the economy--a loss of 3 million jobs. It would cause a decline in personal income of $151 billion the first year, and $398 billion over three years. The federal, state and local governments would lose tax revenue and spend on welfare programs a total of $156 billion over three years.^{[5] "<}

Just as the predominant thinking at work in most of the posts in this blog discussion got us where we are... the world's highest per capita cosumers of petroluem products, but dramatically lacking in progress in alternative energy use, investment in R&D....thinking that eliminated the initiatives begun in the late 1970's and resulted in "cheap oil" sometimes....and actually shaped attitudes and behavior that kept us using petroelum as extravagantly as if most of it was still domestically sourced in the 1960's, we now risk that the same thinking will result in the failure of the big three automakers, and result in the losses of jobs and revenue outlined above.

A "fix" to consider would be a quick passage of a $1.00 per gallon federal motor fuel tax, paid at the pump, to at least establish a $3.00 per gal. "floor" price on gasoline. I paid $1.94 per gallon today, and I would be pleased to see a tax that could be adjusted to keep gasoline no lower or higher than $3.00, by lowering or eliminating the tax as necessary to "peg" the price at $3.00. US per capita consumption would drop, a credit could be rebated to low income households, the fuel tax proceeds could back bonds issued to the automakers, investment in alternative fuels would be safer if price was certain to stay above $2.99, and the automakers, as their counterparts in other countries do...would know to focus their commitment to designing, making, and selling more fuel efficient (smaller, lighter....) vehicles.

Sorry, John ! The quotes from the 1990 and 1983 articles in my last post are there because they are not currently publicly available, but were when I originally posted them in a discussion several years ago. I felt the information in the quotes was the foundation of my argument, otherwise I would simply have provided links to the two news articles.

My core point stands.... "free market" political philosophy doesn't work, when it comes to petroleum products pricing policy, as the results of the only major country to pursue this as national policy, clearly shows. Neither does being the sole major nation to put the problem of distribution of medical care primarily on private business and or it's employees. The results are in...these are practices unique to the US, and the resulting plight of the big three US automakers is the canary in the coal mine, not an isolated aberration. We've failed to observe what the rest of the major world governments have all done to keep their major manufactureres competitive in a global market, and to react and make necessary changes that might have avoided our present circumstances.

If you were an auto corp. CEO in the US....would you shift to manufacturing small, fuel efficient, low priced vehciles, now that gasoline sells for less than $2.00/gal. and may, if past price cycles are any indicator, stay at depressed levels for several years? How would you justify building vehicles in your US plants when your production costs of the same vehicles assembled in Canada are more than $1000 less per vehicle, because of labor market effect of Canada's government financed and regulated health care system?

When I read responses to my post that indicate a preference to respond about me, instead of to the points I've raised, I wonder if anyone actually wants a discussion about the failing big three US automakers, and what our federal government's options are now, and what response, if it comes in the form of direct federal financial aid, is best for the country, going forward.

I asked what kind of vehicles any one of you would plan to design and build, if you were a big three auto corp. executive responsible for making that kind of decision, in the environment of US "free market", floorless (and ceilngless) gasoline prices. No one answered the question.

Now I'll ask you to consider the fact that management at Toyota, arguably the most successful of the world's auto makers, seems no more nimble in the present US climated of crashing gasoline prices and a deterioration in the overall economy:

American-built Prius may be on hold

>"....Then, as gas prices plummeted and the credit crisis took hold, Prius sales began to suffer along with those of other models and almost certainly will fall well short of Toyota's goal of selling at least 175,000 units in the U.S. this year.

U.S. dealers now have a 21-day supply of Priuses, up from one or two days back in the frenzied days of June and July. That’s still better than Toyota’s 64-day average supply of passenger cars, but shows that even the Prius is at the mercy of the economics.

"What we’ve seen in the past is that when gas prices go up, interest in the Prius goes up," said Jack Nerad, market analyst for automotive data tracker Kelley Blue Book. "And as gas prices go down, interest in hybrids overall, and the Prius in particular, lessens."....<

I spent some time in California, six months ago, and it seemed as if every tenth car was a hybrid Toyota Prius. I rented one from Alamo and drove it for a week, and it averaged high 40's mpg and I was questioned by other customers at the few gas stations I had to stop and buy fuel at. I've owned several new cars and I've never experienced such interest from strangers in a new model, before.

My impression was that the 2008 Prius was a $15,000, spartan compact car, with a $25,000 price tag. I calculated there would be no savings paying that extra $10,000 to buy one, because driving 15,000 miles annually in a Prius requires 300 gal. of fuel, and 600 gal. for a vehicle consuming an average gallon every 25 miles. If fuels cost $4.00 per gallon, the savings is only $1,200 per year.

With $1.90/gal gasoline, there is no economic justification to purchase a Prius. So, again....if the US government will not set a minimum price for motorfuels, what should a big three auto executive, or an investor in the US auto industry or in alternative energy R&D...sources and products, do next, hold, fold, or continue to invest in fuel saving or alternative energy initiatives?

In response to your question, John.... I believe that the issue of a big three auto makers bailout is vital to the preservation of what is remaining of the economic, manufacturing, and employment base of the US, especially in the mid-west, but also to a lesser but still significant extent in the rest of the country, as well. There are thousands of auto dealerships and the impact of there footprint in local economies to consider....employment and broadcast and newspaper advertising they do, and the liquidity they provide to the potential sellers of the huge number of used vehicles these dealerships re-purchase and resell. Most new car dealers experience larger profit centers from their used car sales than from new car sales.

I believe using federal funds to extend the number of months the big three automakers can avoid filing for bankruptcy protection without swift, major changes in the environment they must operate in, would be a waste of new taxpayer obligated debt creation. Fund the auto maker bailout with selling of bonds backed by a rapidly passed law authorizing a tax on motor fuels that fluctuates to maintain a $3.00 per gallon floor on the pump price of regular gasoline, and the motoring public, so recently faced with $4.15/gal. fuel prices, will not be phased by the measure.....much!

At the current, $1.90 retail price, the added tax would generate revenue of $1.10 per gallon sold. If gasoline prices stay at depressed levels, as I think they will....for at least several years, the incoming tax revenue could result in a pool of funds that not only could be borrowed by the automakers as the take advantage of the $3.00/gal. floor in the fuel price to stop gambling on whether fuel will be cheap enough to make the large, fuel inefficent vehicles that America loves to drive and are sold at high profit margins, but they and other investors in fuel efficient and alternative fuel R&D, will gain the confidence to commit to one investment direction and set of goals for the longer term. Fuel conservation trends and public attitude will head back to the higher level of awareness they were at this past summer, even as they are being cast aside as a major concern as fuel prices plummet this month!

The tax at the pump, if it averages $1.00/gal. will result in receipts of $500 million per month.

All US employers, but especially US automakers, need the relief of a swift and dramatic reorganization of how healthcare in the US is distributed and paid for.

Rationed by price, health care in US becoming a luxury

>"....From the Organization for Economic Cooperation and Development we learn that the French spent $3,374 per capita in 2005, the Canadians $3,326, the U.K. $2,724 and the U.S. $6,401...."<

Without both a government $3.00 min./gal. regulated floor in fuel prices, and the dramatic reduction in costs that say....France experiences via it's model, single payer healthcare system, vs. the per capita cost of healthcare experienced in the US non-system, I see no long term benefit in commiting one dime in federally provided loans, funds for R&D, or loan guarantees to the big three automakers.

The, "I believe in "the free market", mantra, so nearly universal in the opinion of almost every participant in this discussion, is disconnected from consideration of how most of you got where you are, as far as the financial success you've experienced. It came as a result of the US congress's creation of an ever expanding, debt based, fiat money system, along with federal insurance of bank deposits, the home mortgage interest deduction from income tax, (not permitted in France....) the federal reserve low interest rate bias, well into 2004, the deregulation of financial entities which resulted in the overleveraging that made the funds for cheap mortgage lending available at ever lower interest rates to ever riskier loan applicants, and the public touting of the availability of these mortgage lending programs and opportunities by president Bush and Fed chairman Greenspan, even into the final days of the housing price bubble peak! If you had the economic, taxation, and lending environment you claim you want, most of you would not have ended up thriving in the "free market" realty sales environment that would have actually existed without government influence, manipulation, and subsidy!