Farley: Low fuel prices hurt Ford's small car plan
Click above for a high-res gallery of the Ford Fiesta sedan
Need proof that today's volatile fuel prices are having a direct impact on the world's top automakers? Look no further than Dearborn, Michigan, where Ford's product planners are having a tough time forecasting sales for its upcoming Fiesta subcompact. Back in June and July, when gas prices were hovering around $4 a gallon and U.S. citizen's pocketbooks were hurting, a small car like the Fiesta seemed like a slam dunk proposition. Today, gas is well under $2 a gallon, and while that's a great thing for all the Americans that could barely afford to drive their cars, it's a bad thing for automakers that are mortgaging their future on fuel efficient automobiles.
Where will fuel prices be in six months or a year? What about in three years? These are the questions that are facing Detroit's execs as they struggle to decide what cars will be sold in which markets. It ain't easy, but thankfully, Ford says it is committed to offering a full line of small cars in its home country, regardless of whether that means 30,000 Fiestas or 70,000.
Gallery: Ford Fiesta sedan
[Source: Automotive News - sub. req'd]
Reader Comments (Page 1 of 2)
jharlan 10:48AM (1/13/2009)
Prospective small efficient car owners are smart enough to realize that if the government can right the economic ship, fuel demand will increase again resulting in higher fuel prices. Even if fuel were to remain in the buck seventy five region responsible people want to use as little fuel as possible. Since we are concerned about importing oil from terrorist sympathizers and the degradation of our environment, it is just irresponsible to use more fuel than is necessary. I think car makers are responding to this market demand in a rational, responsible, and expeditious manner, because in the final analysis, they who provide what the market wants will prosper, and the unintuitive will perish. The market works.
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Carney 11:01AM (1/13/2009)
"Prospective small efficient car owners are smart enough to realize that if the government can right the economic ship, fuel demand will increase again resulting in higher fuel prices."
There's another source of higher fuel prices: OPEC. The cartel has recently put in place huge production cuts to jack the price back up again, and sure enough it has begun to rise recently.
"Even if fuel were to remain in the buck seventy five region responsible people want to use as little fuel as possible. Since we are concerned about importing oil from terrorist sympathizers and the degradation of our environment, it is just irresponsible to use more fuel than is necessary."
You equate fuel with gasoline. However, there is another inexpensive fuel that does not fund terror or environmental damage: alcohol.
It's not irresponsible to have a big, heavy, powerful fuel-guzzler and drive it a lot IF it's burning alcohol.
We need to liberate ourselves from this unnecessary cramped mentality of constriction, restriction, austerity, guilt, and limited movement, freedom, and activity. It might make sense if the only possible fuel were oil, but human ingenuity and creativity has already found an alternative.
harlanx6 11:28AM (1/13/2009)
Carney I agree with your points on alternate fuels, but disagree with your assessment of the importance of OPEC because they are always trying to increase their market share at the expense of each other. They just can't trust each other. They have cut back production because they can't store any more petroleum that isn't selling. They have been largely ineffective in controlling prices. Oil prices have recently fallen again. These minor fluctuations in price probably aren't relevant.
I'll admit the case for man caused global warming is weak, but if you believe it, burning alcohol does release CO2. Even so, burning alcohol is superior to importing oil. If one wants to have a big heavy fuel guzzling form of transportation, I believe they have every right to do so, but they will certainly pay for it. II also believe wasting any fuel is irresponsible. Use what you can afford. That's the way the market works.
Our economy runs on energy, and any cheaper source of energy is a beneficial stimulant.
Transportation is undergoing a revolution, but it is happening incrementally. Never the less I am optimistic.
I think we agree on the importance of freeing ourselves from importing oil and if alcohol can do that for us, who would not be in favor?
Carney 11:58AM (1/13/2009)
harlanx6 said,
"Carney I agree with your points on alternate fuels, but disagree with your assessment of the importance of OPEC because they are always trying to increase their market share at the expense of each other. They just can't trust each other. They have cut back production because they can't store any more petroleum that isn't selling. They have been largely ineffective in controlling prices. Oil prices have recently fallen again. These minor fluctuations in price probably aren't relevant."
Actually, oil price fluctuations are nearly always the result of OPEC decisions. They jack the price up, then cash in, then jack it up again. A good contrast by comparision is to track OPEC vs. non-OPEC oil production. Non-OPEC production closely tracks world population and economic growth, which have grown steadily over the long run and are now double what they were in the late 70s. OPEC production varies wildly in accordance with the cartel's arbitrary decisions; currently it is just where it was in the late 70s despite the world population and economy being double what they were then.
You're also wrong in your portrayal of OPEC as being chaotic. In fact the Saudis exercise tight control of it. They have the cheapest and deepest reserves of any member (or any other country for that matter). Their all inclusive cost of production ($1.50 a barrel) is far below anyone else, so if someone else cheats on their quota and over-produces to make extra money, the Saudis can punish the whole cartel collectively by flooding the market, making oil so cheap only Saudis can produce and sell it profitably. The other members occasionally grumble and act out but in the long run they all accept Saudi leadership and discipline because they realize it is in their interest to collaborate to keep production low and prices high; the whole reason for OPEC in the first place.
"I'll admit the case for man caused global warming is weak, but if you believe it, burning alcohol does release CO2."
The CO2 from petroleum would have remained sequestered deep underground more or less indefinitely had it not been drilled up, refined, burned, and released into the atmosphere. Gasoline CO2 thus ADDS carbon dioxide to the atmosophere that would not otherwise have been there.
By contrast, the CO2 from burning ethanol (which is entirely made from starchy or sugary plants) is already part of the carbon cycle in the biosphere. It adds nothing to the total CO2 to burn it. No NET gain of carbon dioxide. In other words, carbon neutral, a HUGE improvement over gasoline.
With methanol, it depends. If you're dealing with methanol from biomass (crop residues, weeds, other plant material, trash, sewage, etc.), you're carbon neutral. A lot of natural gas comes from oil wells and is just flared off (burned on the spot) because gas is expensive to transport. But if there's a worldwide alcohol economy in which methanol is in high demand, it pays to capture and turn it into methanol and transport it. Since it would have been burned anyway, carbon neutral.
But natural gas that would NOT have otherwise been flared off, and is being specifically pursued for its own sake rather than being a heretofore unwanted byproduct of oil drilling is NOT carbon neutral, since you're adding more CO2 to the atmosphere than would otherwise have been there. Same thing for methanol made from coal.
Thus, overall, alcohol fuels are a big improvement in CO2 terms. Ethanol always, methanol a lot of the time.
But CO2 is not the end of the story, and global warming skeptics take note with all other greens.
Alcohols produce far fewer emissions that cause acid rain and ozone smog. They burn clean with NO soot, smoke, or particulate matter, so no conventional smog, a HUGE deal. Unlike gasoline, they do not persist in the environment when spilled but rather biodegrade readily within a day if not hours into safe components. (No more Exxon Valdez still killing wildlife, no more aquifiers ruined by leaks from gas stations, no more recreational waterways fouled by rainbow colored floating stains).
I've outlined the economic and geostrategic benefits of switching elsewhere in this article's comments.
Carney 11:59AM (1/13/2009)
Oh, I almost forgot - alcohol is also non-mutagenic and non-carcinogenic.
Epyx 1:42PM (1/13/2009)
Smart people also know that $1.50 gas or $4.00 it always costs less to drive the small efficient car than the big less efficient car. Even if the difference is $10 or less I would rather have the $10 for something else other than fuel.
Rich people think this way. Sudo-rich do not. Its what is in the bank account that matters, not what is in the garage.
Oh and all the other reasons are fine as well but nothing trumps savings.
harlanx6 6:44PM (1/13/2009)
Thanks Epic.
Finally someone who uses some original thought and makes sense. Old alcohol head there must be grinding his own axe some way. Not that I'm against alcohol, but there is a lot of skepticism about it and I just don't know enough about it.
It's the rich by inheiritance, know everything elitest do gooders that always mess with the market. It was likely them who were using the hedge funds to speculate the price of oil sky high and if they do it this time, I'm going to make dam sure everyone knows who screwed it up!
Carney 11:13AM (1/13/2009)
This article is a great example of how uncertainty over oil prices harms the economy. Automakers don't know whether and when OPEC will suddenly jack oil prices back up again, and thus can't predict where the market demand will be. Put out a lot of tiny weak frail gas-sippers in a low-price fuel situation, and you lose billions. Crank out big honking SUVs in a high price situation and you lose billions.
The solution is to get off the oil rollercoaster. Alcohol fuels offer a low price that is not only low now, but low indefinitely into the future. Unlike oil, which is available only in a very select few geographical locations, much of which are under the control of the OPEC cartel, alcohol's resource base is extremely wide.
The starchy and sugary plants that are made into ethanol can be grown the world over, especially in tropical areas such as Latin America, Africa, and South Asia.
The resource base for methanol is wider still. Methanol can be made from any biomass without exception: crop residues (including the stems, leaves, etc. of ethanol crops), weeds (such as plants the clog waterways and need to be removed anyway), trash, even sewage, as well as natural gas and coal.
As a result, nobody can "corner" the market on alcohol and choke production to jack up the price, OPEC style. Anyone who tries would be immediately undercut.
So how do we switch to alcohol? It's actually shockingly easy. All that has to happen is for Congress to pass a law mandating that all new cars sold in America (not just made, sold, so as to include imports) be flex fueled. Flex fuel vehicles can use gasoline like usual, but also have the ability to use any alcohol fuel (methanol, ethanol, etc.) as well, in any mix with gasoline or none at all. This capability costs only $100 per vehicle for automakers to add, and if it becomes the US standard, like seatbelts, it will also become the worldwide standard as the Asians and Europeans switch their production lines to flex fuel to reduce redundancy.
In 3 years we'd have 50 million cars on the road in the US, hundreds of millions globally. Then gasoline competes with permanently cheap alcohol on a worldwide basis.
The predictably low price of fuel from that point forward not only makes automaker decisions easier, it also calms and reassures all other business decision-makers, allowing a resumption of investment, expansion, job creation, and economic growth.
The hundreds of billions diverted from the Iranian nuclear program, Saudi madrassas, Chavez narco-Marxist troublemaking, and international terrorism and into peaceful development in the Third World that buys badly needs it and buys our tractors, etc., will also be a boon to the economy.
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Dan 11:20AM (1/13/2009)
This is why Ford, GM, and to some degree Chrysler are in this pit in the first place. They do not understand how to sight the future. Any idiot can clearly see that fuel prices will eventually go back up and the interest in small cars will rise proportionately.
That's like postponing the fixing of that gaping hole in your house's roof because right now its summer time and the breeze feels good. Winter? What's that? Oh, I'm sure we won't have another one of those!!
Dumb-@$$es.
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Evan 7:52AM (1/14/2009)
i think what the artical was saying about Ford was the market makes it hard to predict how many cars they'd sell. when getting quotes on parts from supplies, there is a big difference in price when ordering 30,000 or 70,000. I think you could see EVERY automaker looking at smaller better mpg cars for the future.
Dan 11:04AM (1/14/2009)
@Evan... you have to read between the lines... what you don't understand is that Ford has NO IDEA how to sight the future. Their bean counters see that low gas prices are hurting small car sales... which means they won't green light NEW and IMPROVED small car development until they see a market bias towards their already-developed models. Which means we won't see a quick development schedule or model refresh (like the Germans do so well) for a very long time.
Ford, GM, and Chrysler don't hedge their bets on the future... they hedge their bets based on consumer trends visible in the present. This is NOT how you create a sustainable and successful business model.
jharlan 11:50AM (1/13/2009)
The Saudis kept telling us that there was ample supply of oil and it should not be supporting astronomical prices. They were aghast because they could see what the speculators were doing. It shocked everyone into action to limit their exposure to imported oil. They knew the obvious speculator bubble was bound to burst. It is not in OPEC's best interest to allow oil prices to reach the point where alternative energy sources are competitive. See what happened to oil demand? Now development of alternative energies is advancing in every direction, further limiting OPEC's ability to control prices.
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Carney 12:05PM (1/13/2009)
LOL. I'm sure the Saudis were "aghast" at their overflowing bank accounts all right. However did this happen?
Oh wait, they control OPEC, an open conspiracy whose sole purpose is to artificially jack up the price of oil by constricting production far below market demand.
Wake up. They're laughing as they splurge more hundreds of billions of OUR money on racehorses, palaces, concubines, recreational narcotics, etc., not to mention tens of thousands of madrassas including in Pakistan that are lobotomizing young minds and turning them into rage-filled terror supporters and often actual terrorists.
harlanx6 1:17PM (1/13/2009)
You are the one that needs to wake up. The Saudi's aren't that stupid.
Carney 2:03PM (1/13/2009)
Wait, harlanx6, were you talking to me? I never claimed the Saudis were stupid. Monstrously greedy, oleaginously duplicitous, breathtakingly corrupt, and viciously fanatical, yes, but not stupid.
Throwback 11:48AM (1/13/2009)
Dan did you foresee gas prices dropping to $1.50 within the same year as they hit $5.00 per gallon? Farley is simply stating a fact. If gas prices do not stay consistently over $3.50 per gallon they will sell fewer small cars. They need a certain volume to make a profit on the Fiesta. He is not saying they are canceling the car, but they have to be able to forecast the volume to give their suppliers an expectation of their volume. Toyota suspended construction on their Pirus plant. Not because they think they can't sell Prius', but because finances and demand dictate they do so. are they dumb asses too?
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Richard in FLA 12:36PM (1/13/2009)
A gas tax is the solution. Make the price floor of gasoline around $3.00 and watch how easy it is to predict economy car demand. When the price of gas was around $3.00-3.50, everybody did what was necessary to save money, including driving more scooters, and riding their bikes. Small car sales were up in comparison to large or mid sized cars and trucks. That's the solution to funding the auto bailouts as well.
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Carney 12:57PM (1/13/2009)
That's a horrible idea. Instead of getting us OFF oil, keep us locked in to gasoline-only cars.
And then drastically raise a regressive tax that hits the poor, blue collar, and middle class the hardest.
Did you happen to notice the sheer ecoomic devastation that happened last time gas prices hit that high? Granted, 60% of that money was flowing out of the country since we're 60% dependent on foreign oil, whereas a gas tax would have that money flow into Washington to be spent by our OWN politicians and bureaucrats, but it's still a catastrophe.
The only scenario in which a gas tax makes sense is if we have had a flex fuel mandate in place, alcohol pumps are now widespread, fuel prices are therefore reasonably low, and then OPEC floods the market to destroy the alcohol industry the way they did to the synfuel industry Carter tried to set up.
And in such a case, we should probably just tariff FOREIGN oil, or even specificall OPEC oil, not indiscriminately tax all gasoline.
Most of the time there won't be a need for such a tax to get us off oil anyway, because of the price differential that will exist between alcohol and gasoline, and most of all the relative certainty of low alcohol prices in the future compared to OPEC's roller coaster.
And forcing a proud and exuberant people in a spread out country with wide open space, who have big families, lots of stuff, and who like their freedom of movement, and robust safety, to live cramped, miserable, limited lives in teeny frail eco-boxes put-putting about is sadistic.
jharlan 1:58PM (1/13/2009)
Another scheme to raise taxes on the poor and working class and on businesses struggling in a failing economy. Fuel costs probably don't trouble you at all, but who in their right mind can agree with raising taxes on businesses and the working class while the economy is crashing? No one! You elitests that know everything ought to start working to get the economy going again, not raising taxes (which is what you apparently really like to do) on our folks struggling to achieve financial security in these troubled times.
Richard in FLA 1:31PM (1/13/2009)
You're wrong. Alcohol is the worst alternative fuel. It can't be piped, it must be trucked by diesel trucks, and the cost of making alcohol is higher than the net gain in BTU's. You need oil to make alcohol, and not all old cars can run on alcohol. The perpetuation that a gas tax affects the poor is mostly false. If the poor can afford a car they can afford to buy a smaller, more efficient car as well. Otherwise there's alternative methods of transportation. It may seem a shallow answer, but it's the truth, the unpolitical correct truth.
A gasoline tax will force the country to further go into conservation mode, that low gas prices don't instigate. We need not go further than to look at Europe and the effects of high gas prices that has made them weather the extreme price spikes of last year. Because of perpetual high prices of petrol, the demand for smaller, efficient cars was already in place. The high spikes of last year may have hurt them in the wallet, but I can assure you it didn't hurt nearly as bad as it did in the States. The American people didn't have many options available because the demand prior to the spike for efficient cars wasn't there. We were caught with our pants down. Keeping prices low will keep us vulnerable to price spikes since the demand for efficient cars will effectively be kept in check.
On the surface, the tax may seam to hurt the poor the most, but in provides for a road map to curtail oil consumption, and to promote alternative fuels by making them more affordable in comparison. It's a necessary evil. Unfortunately, politicians don't like to implement this sort of tax because they are seeking votes. We need politicians with some character to bring this country around.