Thursday, June 02, 2005

Suburban Sales Down

There's an brief article in today's Wall Street Journal saying that GM's SUV sales were down in the month of May. GM's overall sales were down 12% for the month; sales of the Suburban were down 15%, those of the Yukon 23% and sales of the Cadillac Escalade were down 41%. GM has big inventories of these vehicles and is now offering discounts to the general public like those offered to employees to try and move these vehicles. One local dealer is even giving away a free car (a Chevy Aveo, starting at $9,995) with the purchase of a new Suburban. Maybe you can toss it in back. Separately, GM's debt ratings were reduced to junk status during May. Also, they lost either $1.1 or $1.3 billion in the first quarter, I've read both figures.

What's this got to do with bicycles? Part of the reason I like Practical Cycling and am trying to incorporate it more into my daily routine is to do my little bit to reduce oil consumption. As a country, our oil consumption has climbed in recent years in part because of a reduction in the aggregate fleet fuel efficiency since the 1980s. Part of this has been driven by the big popularity of SUVs since the mid-1990s. This popularity has been helped by cheap gasoline.

A recent survey on the Oil Industry in the The Economist magazine made the point that the oil producing nations learned in the 1980s that if you raise the price of oil too much, the countries that get hurt the worst aren't the industrialized consuming nations of the West, who adjust consumption patterns and efficiencies to adapt as we did in the late 1970s/early 1980s, but the producing nations, who saw oil prices collapse in the mid 1980s and stay low for the following fifteen years, resulting in a dramatic drop in revenues for countries with burgeoning populations and little other productive outlet. The trick for the oil producers is to try and hit a price point that extracts maximum revenue from the customers without driving them to consider alternative fuel or technologies. (actually, this is the trick for a lot of businesses)

Cheap gas (at least in the U.S., where gasoline is not heavily taxed as it is in Europe) has eased the need to increase fuel efficiency and encouraged a fairly profligate use of fuel. SUVs exemplify this, big, heavy, low-tech vehicles with lousy mileage. The auto companies love these things, as they're cheap to produce, have commanded premium prices and are exempt from many of the safety and efficiency regulations imposed on passenger automobiles.

The oil markets are complex, nobody has the ability to manipulate them completely, and for a variety of reasons (increased overseas demand, terrorism premiums, refinining capacities) prices have increased to a point where some people are beginning to make adjustments to consumption patterns. For me, it was riding my bicycle to the grocery store this morning to buy milk, bread, muffins and strawberries; for 88,000 people in the last year and a half, it has been buying Toyota Priuses (Priii?); for a lot of people, it is apparently not buying SUVs. Hence GM's sales problems.

Is this the dawn of a New Age? Hard to say. Cars aren't going away. The Saudis could open the spigots and drive the price of oil down again to discourage structural adjustments that would reduce demand. When gas costs $2.20 a gallon, it seems really expensive (and you can argue until you're blue in the face that it is still cheaper in real terms than it was in 1981, but $2.20 now still feels more expensive than $1.50 24 years ago) but if the price moderates to $1.89 maybe that doesn't feel so bad anymore, Prius sales ease, Suburban sales pick up and we're back to increasing demand and effective maximization of revenue by the oil producing nations. GM is apparently betting on this, introducing new upgraded models of the Suburban and Yukon next year.

This makes me sad. I wish that the domestic auto makers had some appealing technology to offer, I wish it wasn't just Toyota and Honda with the hybrid vehicles for sales, vehicles which, by the way, have six-month waiting lists and sell above list prices. I know, I know, Ford has the Escape hybrid, but guess what? They had to license the drivetrain technology from Toyota. I also worry about the long-term impact of the weakness of the domestic auto producers. We have just seen United Airlines dump its pension obligations on the Pension Benefit Guaranty Corporation; other airlines must see this as a savvy move, a way to escape having to fund their employee pensions. GM and Ford have huge pension and retiree medical benefit liabilities that put them at a cost disadvantage to foreign competitors. You don't think we (as in the PBGC) will own those pensions before too long? You don't think it will be very tempting for these firms to declare bankruptcy to escape retiree medical benefit obligations?

Like I said, cars aren't going away. I'm keeping mine, for one. But there's no reason that cars can't get more efficient and that bicycles can't supplant some car trips. It's this last bit that this blog is really about; it's not bike touring, which I enjoy but don't have the time for at this stage of life; it's not bike racing, which I think is a great spectator sport but which I've never had a prayer of being a competitive participant in; rather, it's the half-mile jaunt to the grocery store or the five-mile run to work, a ride to the local bar, a run to the library. This summer, with only one church service, I hope it's the 13-mile run to church. These trips add up and they constitute a major percentage of auto trips taken. I'm trying to substitute the bike for the car for some of mine, and that's what I'll be writing about.

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