When Will the Auto Industry Reach a "Better Place"?

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 |  Includes: BP, COP, CVX, F, GM, XOM
by: Michael Fitzsimmons

California has joined Israel, Denmark, and Australia by teaming up with Shai Agassi's Better Place to bring electric transportation infrastructure to the Bay Area. See these related articles at the Better Place website, "San Franscisco to Detroit: Go Electric" from Green Wombat, and "Recent Announcements Will Spark Electric Car Sales" at Seeking Alpha.

While this is indeed a milestone in the US, our political leadership still doesn't "get it". How ironic it is that the Big 3 bailout discussions continue without some basic common sense terms in return for US tax payer money:

  1. Existing "little 3" CEO's must make their exits without bonuses and golden parachutes.
  2. The companies must agree to make natural gas cars and trucks, electric cars, and hybrid high efficiency vehicles.
  3. Hummers, low mileage SUVs, and other ludicrous models must cease production.

Meanwhile, Obama's job creation plan missed a golden opportunity to put people to work doing something strategic and productive: building out the natural gas infrastructure on the interstate highway system so that the "chicken and egg" problem with natural gas powered transportation is solved once and for all. There remains only one natural gas powered vehicle for sale in the US (well, some parts of the US), the Honda Civic GX.

There remains only one natural gas garage refueling system on the market, Phill, and my understanding is the price is still in the $4,000 neighborhood. How in the world is the US going to solve its energy crisis when we cannot even get off the starting blocks with respect to natural gas powered transportation? At the same time, oil exporters like Iran and Brazil continue to build and convert their cars and trucks to run on natural gas so they can export more oil to the US.

There are some hopeful signs out there. Recently, several electric utility company CEOs had a meeting in which they agreed to support electric car manufacturing by purchasing electric vehicles for their operations. Apparently, it has finally dawned on them that electric vehicles will mean more sales and profits for their companies. That said, why in the world natural gas distributors and companies aren't supporting efforts by Pickens and others to build out natural gas powered cars and trucks is beyond me. Wouldn't you think local natural gas providers would be working hand and hand with the little 3 auto and truck manufacturers to build natural gas powered transportation that would increase their sales and profits? Why aren't they?

Meanwhile, the bailouts go on and, for the most part, sane energy initiatives are not part of the conversation. Just in case anyone has forgotten, the US *still* has an energy crisis and a strategic, long-term, and comprehensive energy policy is the only economically viable solution.

By the way, the auto industry makes arguments about the extreme costs of "re-tooling" to make alternative vehicles. I wish someone would explain to me why it cost so much to re-tool existing manufacturing lines to make natural gas vehicles when you can pull into any conversion shop in Utah, Iran, or Brazil and leave 4 hours later with a converted vehicle that runs on natural gas. You need two things: a different fuel tank (natural gas fuel is under high pressure) and you need a new fuel delivery system. Of course to optimize the car, the engine controller should be reprogrammed as well, but this is simply software and no "re-tooling" is necessary. So, the re-tooling argument doesn't hold. There are two reasons only the US lacks natural gas transportation solutions:

  1. Policy
  2. Lack of natural gas refueling stations

Back on the hill, the US continues its policy of flooding the uber-wealthy and well-connected with yet more bailout money as the printing presses are definitely running overtime. What this means in the future is much higher inflation and a huge reduction in the standard of living in the US (at least for those people not of the "chosen few"). If Japan, China, and the oil producers ever decide to stop financing this madness, the US dollar will drop like a rock. That said, I have certainly been wrong throughout this whole "financial crisis" in terms of what the US dollar and gold reactions would be: the US dollar index is up some 19% since July. I suppose this is result of deleveraging and a flight to "quality" US treasuries.

However, how long can this last? What is the compelling case to invest in a US economy which is not only based on very unsound fiscal policies but also imports 70% of its oil and has no energy policy? There is no case. This economy is simply not sustainable. The result will be massive inflation.

The only way US investors can protect themselves from this inevitable future is to gather their belongings and move to another country, or buy oil, gold, and other US dollar inflation hedges. I continue to recommend the purchase of US and Canadian gold coins (buy small denominations and take personal delivery), XOM, COP, CVX, BP, GLD, MERKX, and PSAFX. You might have to be patient while the deleveraging and financial insanity continue. However, long term, US investors should not be scared out of the assets which they will most need to own in the extreme inflationary future that economic theory and history teach us to expect. Meanwhile, collect your oil company qualified dividends and have a happy Thanksgiving.

The author owns all of the investments recommended in this article. The author does not own an electric or natural gas automobile, but desires availability of such vehicles in the very near future.