Tuesday, June 3, 2008

GM Follows Ford: Been Here Before

GM announced they will follow Ford down the same road we have traveled before. With sales down and heat up, from the politicians and environmentalist to raise the CAFE standards, both have announced they will suspend manufacturing of SUVs and cut productions of PU trucks. This is nothing new, we went through the same scenario in the 1980's after the second oil crisis. The first crisis was the 1973-1974 embargo and the second was the 1979 Iranian revolution. After the government in Iran lost control and our Embassy was taken over in Tehran, oil production from OPEC was down and became unreliable.

The auto industry shifted from large automobiles to smaller more compact cars and trucks. This was done to satisfy the new 27.5 mpg CAFE that was passed by Congress. The American auto industry also had to compete with imports to America. Companies that had built smaller vehicles that worked well in their own countries began to be very popular in America. Honda, Toyota, Nissan, Subaru, Mazda and Yugo found a new market in the U S. The big three countered with their own versions of small fuel efficient vehicles. Unfortunately the CAFE standards were never met and the small engines that worked well in the smaller countries would not stand up to the daily transportation needs of Americans.

Along with some American brands most of the models offered eventually failed. The Mazda rotary engine, Yugo and most 4 cylinder engines fell out of favor with most Americans that lived outside of our major cities. American cars like : Pinto, Vega, Escort, Omni, Aspen, Skylark and others that were equipped with 4 cylinder engines also fell out of favor.

The oil crisis in '73 and '79 not only effected the auto industry it effected everything with the rise in fuel prices at the pumps. The government reacted with conservation, rationing of gas, tax breaks for using alternative energy sources like Solar and Wind, new home construction responded with totally electric homes, and industry was given tax breaks for research into alternative fuels. Universities around the country were given government grants to research alternative fuels, renewable sources of energy, and an alternative to the combustion engine. The Federal Government also restricted the speed limit on interstates to 55 mph.

Not much has changed today than in the 1980-1989 period. CAFE standards have really not been met. Most vehicles on the road today don't meet the 27.5 mpg required in the 1980's. We increased the size of our engines to V-6 and V-8 to satisfy the needs of American motorist and added electronic gadgets and emissions controls to satisfy the environmentalist. What did change is we started buying oil from countries other than OPEC. While we are still dependent on them countries like Mexico, Canada, Venezuela, and others started increasing production and brought the price down.

Traveling down the same road we traveled before will not help us today. It will only bring about more Pintos, Vegas, and Yugos. Congress will hold hearings, raise the CAFE standards, preach conservation, spend, spend, spend tax payer money but never allow drilling off shore for are own oil.

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