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Is Houston smarter than Detroit? Big Oil versus Big Auto (and a simple solution for global warming)

Posted by Pratap Chatterjee on February 17th, 2007


US car makers and the US oil industry appear to be speeding in opposite directions in what may seem like a complete paradox. Just as companies like Chevron, Exxon and Shell announce the highest profits of any company in history, Chrysler, Ford and General Motors sales are in free fall. Is the oil industry in Houston is smarter than the car industry in Detroit?

Ford announced a global loss of $12.7 billion last year. The company plans to close 16 plants and cut up to 45,000 jobs in North America. Chrysler made a $1.5 billion loss last year and just announced it will cut 13,000 jobs. General Motors cut 35,000 production jobs last year but is suggesting it might have turned a profit after losing $10.6 billion in 2005. (The company "found" $200 million in earnings previously unaccounted for between 2002 and 2006, according to a Friday filing with the Securities and Exchange Commission. But given that it has restated its results seven times in the last two years, the numbers maybe rather meaningless.)

So it may seem astonishing that the Big Three's twin brother - Big Oil - is making money hand over fist. Chevron profits totaled $17.14 billion in 2006, Exxon made $39.5 billion (the highest any company has ever made in history) and Shell made $25.4 billion.

That adds up to $82 billion, three times greater than the losses of the Big Three car companies!

What's the difference between the two industries? Those of us that live in North America know exactly why: the price of gasoline has soared since the invasion of Iraq, and the oil companies have taken advantage of the high prices to cut themselves a bigger piece of the pie. Consumers don't have a choice as the oil industry is an oligopoly.

On the other hand the car industry is much more competitive, so consumers do have some choice.

Instead of buying giant cars that consume more gasoline than the original Model T Ford made in 1908 (the energy efficiency of a Ford Explorer is 16 miles per gallon versus the 25 miles per gallon of the signature Ford car), US consumers have made the cheaper choice and bought Japanese-made cars.

Japanese car maker profits are in stark contrast with the Big Three. Toyota is expecting a $13.4 billion profit for the fiscal year ending next month while Honda is predicting 2006 profits to come in close to $5 billion.

Ten years ago, General Motors controlled about a third of the U.S. market while Toyota's share was closer to eight percent. As General Motors has lost about eight percent of the market, Toyota has gained about the same.

(Another major difference between the two companies: General Motors expects to pay $50 billion in health care costs for its retired workers, while Toyota's Japanese workers are covered by a government health care system.)

Simple, isn't it? Energy conscious vehicles could turn around the US car makers and government provided health care for workers could cut Detroit's losses.

Yet, that would not solve all our problems. Even if the Big Three are losing market share, U.S. citizens are still buying cars that emit greenhouses gases and contribute to global warming. The latest figures show that U.S. greenhouse gas emissions during 2004 increased by 1.7 percent from the previous year, according to the U.S. Environmental Protection Agency (EPA), which released the figures last April. This was the largest annual amount ever produced by any country on record.

Perhaps the price of gasoline is still far too low? If doubling the price of gas has crushed the once mighty U.S. car industry, what if prices were to double again? People might start shopping close by, taking buses and trains to work. New jobs would be created by small local businesses for all those Wal-Mart employees and out-of-work Big Three employees.

Toyota and Honda might have to give way to a bus system or railways! Gasp! How archaic! How could the U.S. pay for a new mass transit system? Well, I heard some folks in Houston just found $82 billion... and the Japanese car makers have another $17 billion. that could pay for a lot. (That's not their money, its money taken out of the pockets of consumers who had no choice)

The U.S. needs mass transportation - and it needs to stop sprawl - lessons on how to do this can be found anyway outside the borders of this country when people live, work and shop in communities and take bicycles, buses and trains to work.

If commuters in the U.S. were to stop driving altogether, we could slash global fossil fuel emissions by 25 percent. Now that would be a revolution, and it would reverberate through history. How America saved the world it might even surpass Superman as a story for ages to come! If not, there won't be much more history to write. But that final page in human history might record that the U.S. failed to act.

P.S. I hear that Richard Branson and Al Gore are offering a $25 million reward for a solution to global warming. You can write that check out to groups like Smart Growth America and Surface Transportation Policy Project. They have the answers to global warming.