Gas Rises

Let’s face it: the price of gasoline is going to continue to rise. Maybe drip by drip, but maybe in a tidal wave. Either way, OEMs have to be ready.

 

Even though the summer driving season is still a dream for many of us who live where the temps have been low even if the snow hasn’t been unbearable, there is an on-going increase in the price of gasoline pretty much everywhere.
 
Patrick DeHaan, senior petroleum analyst with GasBuddy.com, said in a statement on February 13, “Retail gasoline prices have continued to slowly rise across a majority of the United States. With the exception of one state—Wyoming—all states are seeing their gasoline prices averaging over $3/gallon again, with some of the largest cities—New York City and Los Angeles—closing in on $4/gallon.”
 
And Spring doesn’t even start until March 20.
 
Meanwhile, over in the Middle East there is increased roiling going on, with threats to the passage of tankers through the Strait of Hormuz. Although there have been announcements from various parties that (1) the strait won’t be blocked and (2) petroleum exports will be boosted to offset any blockage that may occur, if something like that does happen, you can be fairly confident that even in some of the smallest cities gasoline would be eclipsing $4/gallon.

The Chinese auto market has gone from seemingly nowhere to being a dominant player, which means there are a whole lot more people who are looking for a whole lot more fuel.

What is encouraging is that Detroit has finally embraced small, fuel-efficient cars in a serious way. Over at Chevy there are the Sonic and the Cruze; Ford has the Fiesta and the Focus; and a couple weeks ago Chrysler Group chairman and CEO Sergio Marchionne announced that the Belvidere Assembly Plant in Illinois will have a third shift added in the third quarter of this year for the production of the all-new Dodge Dart—a car that will deliver an estimated 40 mpg, a car that isn’t even on the market yet. (Chrysler has invested nearly $700-million in a new body shop at the plant—they are serious about the Dart, to put it mildly; Belvidere, incidentally, is where the Jeep Compass and Patriot models are produced.)
 
And the Japan- and Korean-based manufacturers continue to offer an array of vehicles that provide more than respectable fuel-efficiency.
 
In addition to which, there is a growing number of electrified vehicles available, ranging from a forthcoming smaller Prius (the Prius c) to the full-electric Nissan LEAF.
 
While there are those who say that market forces should be the determinant of what kind of cars and trucks are on offer, there are regulatory issues that are driving what OEMs will be producing.
 
Last month Energy Secretary Steven Chu addressed the Detroit Economic Club, where he said, in part, “We need to continuously innovate so that the highly efficient vehicles that global consumers want are powered by American technologies and made by American companies. . . . To strengthen our position, the Obama Administration has proposed landmark standards that will increase U.S. fuel economy to nearly 55 miles per gallon for cars and light-duty trucks by Model Year 2025.”
 
He noted, “We are on the cusp of big breakthroughs in vehicle technologies. The question is, ‘Which countries will make them?’ Asia and Europe are moving aggressively to seize technological leadership. So must we.”
 
Let’s face it, if a European or Asian OEM comes out with a car that gets remarkable fuel efficiency and gasoline at $5/gallon look appealing, where do you think the market is going to go?
 
While some people are metaphorically pounding their shoes on podiums talking about how 54.5 mpg is unattainable, there are some (Marchionne, for example) who are willing to do what it takes to achieve it.
 
There are a lot of driving seasons between now and then. And it is going to take a lot of investment in tooling and equipment to get where the auto industry needs to be to arrive at a place where it continues to offer cars that people want—and need.