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Bailing out the auto industry and SUV owners

Discussions about the economic and financial ramifications of PEAK OIL

Re: Bailing out the auto industry and SUV owners

Unread postby Javaman » Wed 06 Aug 2008, 06:20:33

$this->bbcode_second_pass_quote('Ibon', 'Y')ou cannot just make bold statements that the government should stop bailing out its citizens when any government that didn't take short term actions wouldn't stand a chance in hell of surviving.

Fuel prices have been heading upwards for about the last decade, and especially so in the last 3-4 years. Car makers and buyers have had time to adjust, or at least begin to do so, but mostly have not; this isn't a short term problem. From the US car makers, we are not getting 40+ mpg cars we are getting hybrid SUVs!
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Re: Bailing out the auto industry and SUV owners

Unread postby Ibon » Wed 06 Aug 2008, 11:24:33

OK. This idea sucks for the reasons explained.

On the general topic of "bailing out" citizens or corporations making bad decisions it makes sense that the best course is letting an economic process of "natural selection" weed out those institutions and individuals.

But as economic pressures start disenfranchising larger percentages of the population government will be forced to mitigate short term crises to avoid social revolutions. Latin American politics have pragmatically shifted left during the past 10 years for this very reason.

Does anyone argue that the US economy, increasingly mired in debt, will start producing an underclass of disenfranchised citizens whose growing numbers will eventually threaten the stability of government similar to many Latin American countries?

These social pressures will grow immense in the years to come. Whining over gas prices and losing your SUV is just the opening acts .
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Re: Bailing out the auto industry and SUV owners

Unread postby Twilight » Wed 06 Aug 2008, 13:44:24

Change at the individual level is necessary and inevitable. People will come up with all sorts of arguments why they should not change and someone else should, but with finite resources, appeasing any group will be at a cost to another. By bowing to the demands of the "disenfranchised", and on the contrary they would in fact be the kingmakers, governments will succeed in little more than playing revolutionary Whac-A-Mole.
Here is a typical example from today's news.
$this->bbcode_second_pass_quote('BBC', '"')We hope to also send a strong message to the government that, as the working people in this country, we are not going to be taking on the burden when it comes to financing [electrical] power," National Union of Mineworkers spokesman Lesiba Seshoka told the BBC's Network Africa programme.

OK, so if people with skilled jobs are not going to take on the burden, who will? :roll:

Ibon is unearthing a good point - waste too is inevitable, and countries will collapse as a result. But I expect those which succeed will be those which minimise the number of times and the expense with which they yield to populism.
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Re: Bailing out the auto industry and SUV owners

Unread postby mrobert » Wed 06 Aug 2008, 13:46:31

@MrBill: You are right. Let me give you a real life example.

Overhere, the government offers you a subsidy if you save money for a new house, change your house or improve it. It's a nice idea.
How it goes?

I open an account with a bank for 2 or 5 years, and start putting in money monthly. Once a year, the government pays the subsidy into that account. At the end of the period, I can use the money.

Where is the catch?
Banks pay no more the 3% yearly interest for that money, credited at the end of the year. The government will pay the subsidy this year, for last year.
The subsidy is a percentage of that money, capped. The most you can get in terms of percentages, is up to 10% per year.

Current CD interest rates here, are between 8 and 11%.

Now, even in best case scenario, If I decide to put my savings in simple CD's and don't apply for the subsidy, I still make at least that sum of money. (Interest is capitalized and paid monthly).

It looks VERY GOOD on paper, but practically, 100% of the government subsidy actually subsidisez banks interest paid for people's deposits, offering a wonderfull source of 0% interest rate financing for banks.
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Re: Bailing out the auto industry and SUV owners

Unread postby Canuk » Wed 06 Aug 2008, 14:09:11

$this->bbcode_second_pass_quote('MrBill', 'A')ny government subsidy that favored domestic versus foreign imports would in any case fall foul of WTO obligations triggering tit for tat tariffs on US exports that are currently at record levels due a weak US dollar. Any subsidy paid to American car makers for small cars at the exclusion of foreign automakers - $2000, $5.000, $10.000 - would get capitalized into the price of US made small cars. That would benefit car makers at the expense of taxpayers. There is no way the car makers will pass along that windfall except in rebates that narrow the price difference between domestic made cars and similar imports. I can see the car companies working on those spreadsheets right now.

Light Trucks which includes SUV's have been subsidized for years.
They have been shielded from foreign competition by tariffs and subsidized by various loopholes in the tax laws and environmental regulations.
There are many articles on the 25% tariff, here's one that explains the histroy of it: link
$this->bbcode_second_pass_quote('', '
')The big exception is the "light truck." The 25 percent tariff on pickups went on in 1930, fell to 8.5 percent, went back up and is still at 25 percent today. Virtually all other cars -- from SUVs to sedans, golf carts, and sports cars -- have a 2.5 percent tariff. (Buses and tractors are minor exceptions, with tariffs of 2 percent and zero.) Why the anomalous treatment of pickup trucks? This stems from a trade dispute of the 1960s. The European Community, the six-nation ancestor of today's 25-country European Union, had blocked American chicken sales. The Johnson administration responded by raising the pickup truck tariff from 8.5 percent back to 25 percent. Ducking each of the big trade agreements since the 1960s, the pickup tariff has stayed there ever since.


Tax breaks for buying light trucks in the US: link
$this->bbcode_second_pass_quote('', 'T')he total cost of the loophole hasn't been calculated by the government, but Taxpayers for Common Sense, a non-partisan Washington watchdog group, estimates the SUV tax loophole could cost taxpayers between $840 million and $987 million for every 100,000 vehicles sold to businesses...
...There are long-standing limits on deductions to prevent taxpayers from subsidizing luxury-car purchases. But the limits do not apply to 38 light trucks that weigh 6,000 pounds or more, including the Cadillac Escalade, Dodge Durango, Excursion and Lincoln Navigator.... Tax experts say the light-truck tax loophole was originally targeted for farmers...

A farmer hauling hay in his Escalade...
As to the tariff on small cars in my previous post, it might be reasonable since the domestic auto industry suffers from some competative disadvantages. Employee related costs such as health care and pensions are socialised in most of the industrialized world but private in the US and thus borne by the manufacturer - adding hundreds of dollars in additional cost per car (not including legacy costs). The car industry will need to decline but a sudden decline will be catastrophic.
$this->bbcode_second_pass_quote('', '"')No other single industry is more linked to U.S. manufacturing or generates more retail business and employment. New vehicle production, sales and other jobs related to the use of automobiles are responsible for one out of every 10 jobs in the U.S. economy,"
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Re: Bailing out the auto industry and SUV owners

Unread postby cube » Wed 06 Aug 2008, 17:15:38

$this->bbcode_second_pass_quote('Twilight', '[')url=http://news.bbc.co.uk/1/hi/world/africa/7544359.stm]Here is a typical example from today's news.[/url]

$this->bbcode_second_pass_quote('', '"')Food is at a higher price than petrol. Everything is high. We cannot live life like this. We are sick and tired... The government must make a plan," one woman said.
This woman sounds like a liberal.
$this->bbcode_second_pass_quote('', '"')I've got a house, but what about the people who are staying on the street? People are dying, especially in the wintertime," a man said.
A sign of collapse perhaps? BTW South Africa is the wealthiest nation in Africa.
$this->bbcode_second_pass_quote('', 'C')osatu, an ally of the governing African National Congress (ANC), said the strike would be a warning to employers who may want to sack workers because of a downturn in profits due to a power supply crisis.
okay that's beyond "liberalism" that's like socialistic France.
So if I'm running a company and I can't make a profit then I'm not allowed to let go of employees? Collapse looks like a guarantee.
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Re: Bailing out the auto industry and SUV owners

Unread postby Twilight » Wed 06 Aug 2008, 17:34:51

$this->bbcode_second_pass_quote('cube', 'S')o if I'm running a company and I can't make a profit then I'm not allowed to let go of employees? Collapse looks like a guarantee.

Probably. Power is a regulated sector over there, utilities need government approval to raise rates, and due to the political sensitivity of energy prices they are not getting the increases they are requesting. On top of that, billing is poor and I would imagine power theft is commonplace. They are trying to spend their way out of the problem with new capacity scheduled to come online in a few years, but are suffering a brain drain. One bad election and they lose that battle.

In the meantime, industrial users and ordinary people alike have to use less and get used to years of it, and quite possibly accept reduced economic activity without demanding the government give in to their short-term demands. This needs to happen for utilities to stand a chance of fixing their problems. If there is no understanding, no deal and the government caves in, the goose that lays the golden eggs gets eaten. Once only.

South Africa may come to serve as a cautionary tale.
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Re: Bailing out the auto industry and SUV owners

Unread postby Denny » Wed 06 Aug 2008, 19:00:04

I am for REAL change. Let's not subsidize anybody's purchase of any kind of vehcile, instead, let them trade in their SUV's for a pittance, and they can use that on public transit.
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Re: Bailing out the auto industry and SUV owners

Unread postby Javaman » Wed 06 Aug 2008, 20:02:34

$this->bbcode_second_pass_quote('Denny', 'I') am for REAL change. Let's not subsidize anybody's purchase of any kind of vehcile, instead, let them trade in their SUV's for a pittance, and they can use that on public transit.

Or the SUV owner could carpool with three other SUV owners. Assuming a roughly 11000 mile per year commute in an SUV that gets 14 mpg, together they could save 3 x 11000 / 14 = 2347 gallons of gas per year. Of course a solo driver in a 35 mpg car would only use about 314 gallons driving the same distance.
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Re: Bailing out the auto industry and SUV owners

Unread postby yesplease » Wed 06 Aug 2008, 20:24:28

$this->bbcode_second_pass_quote('Javaman', 'F')rom the US car makers, we are not getting 40+ mpg cars we are getting hybrid SUVs!
To be fair, Chevy has the Cobalt XFE that should be able to average ~40mpg w/ conservative habits even if they offer "hybrid" SUVs, and as expected, the XFE is the best selling trim level while the "hybrid" SUVs are more or less sitting on the lots.
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Re: Bailing out the auto industry and SUV owners

Unread postby MrBill » Thu 07 Aug 2008, 04:05:56

$this->bbcode_second_pass_quote('canuk', 'L')ight Trucks which includes SUV's have been subsidized for years. They have been shielded from foreign competition by tariffs and subsidized by various loopholes in the tax laws and environmental regulations. There are many articles on the 25% tariff, here's one that explains the histroy of it. link

You are, of course, right, but under WTO rules a tariff that applies equally to everyone is not against the rules. This is one reason that some foreign automakers shifted production to the USA, and why some are now operating in large potential markets like China. And that is to avoid tariffs and non-tariff barriers.

But it would be against WTO rules to give a direct subsidy to US auto manufacturers by giving SUV owners a subsidy to only buy from domestic car companies. That would be quickly challenged by foreign automakers just like some rules that require states to only purchase domestically have also been challenged.

As the USA is a large exporter, and still runs a trade deficit, this would not be good for the USA if other countries started slapping counterveiling duties on US exports while the case against the US winds tortuously through the WTO and endless appeals process. And as your post amply illustrates those tariffs meant to help farmers and tradesmen are really just a sap to car companies that end up being paid by consumers.

Far from subsidizing SUV owners the US should adopt the EU practice of taxing engine sizes and CO2 emissions. The bigger the engine the more tax. Farmers and tradesmen would get those taxes back as they are a cost of doing business. If they are a legitimate business. Soccer moms and weekend warriors do not.
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Re: Bailing out the auto industry and SUV owners

Unread postby Javaman » Thu 07 Aug 2008, 06:30:54

$this->bbcode_second_pass_quote('yesplease', '')$this->bbcode_second_pass_quote('Javaman', 'F')rom the US car makers, we are not getting 40+ mpg cars we are getting hybrid SUVs!
To be fair, Chevy has the Cobalt XFE that should be able to average ~40mpg w/ conservative habits even if they offer "hybrid" SUVs, and as expected, the XFE is the best selling trim level while the "hybrid" SUVs are more or less sitting on the lots.

The EPA says 25/37 or 30 combined, but that is at least a small step in the right direction. Is the maker able (or willing) to ramp up production though? Hybrid SUVs sort of miss the point of using a hybrid drive train.
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Re: Bailing out the auto industry and SUV owners

Unread postby MrBill » Thu 07 Aug 2008, 07:44:08

$this->bbcode_second_pass_quote('Javaman', '')$this->bbcode_second_pass_quote('yesplease', '')$this->bbcode_second_pass_quote('Javaman', 'F')rom the US car makers, we are not getting 40+ mpg cars we are getting hybrid SUVs!
To be fair, Chevy has the Cobalt XFE that should be able to average ~40mpg w/ conservative habits even if they offer "hybrid" SUVs, and as expected, the XFE is the best selling trim level while the "hybrid" SUVs are more or less sitting on the lots.
The EPA says 25/37 or 30 combined, but that is at least a small step in the right direction. Is the maker able (or willing) to ramp up production though? Hybrid SUVs sort of miss the point of using a hybrid drive train.

Okay, Javaman, that is fair enough. "At least a small step in the right direction" is not a very bold political move when the car companies have the ability to churn out vehicles that get 40 to 50 mpg with existing materials and technologies. So setting a future target at 30-35 mpg is really setting the bar low. Too little, too late to change the big picture. Kind of like living in a McMansion forty miles from work with 4 bathrooms and a triple garage, but being eco-friendly by turning off some of the lights in the house. Every little bit helps, right? Incrementalism will be the death of us.
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Re: Bailing out the auto industry and SUV owners

Unread postby mos6507 » Thu 07 Aug 2008, 09:57:29

$this->bbcode_second_pass_quote('MrBill', '"')At least a small step in the right direction" is not a very bold political move when the car companies have the ability to churn out vehicles that get 40 to 50 mpg with existing materials and technologies.

Outside of HCCI and hybrids, I don't think you can get 50mpg with straight gasoline without requiring a vehicle that will also require a radical change in the public's taste. We're talking about trying to get everyone to drive cars that look like Honda Insights with the rear skirts that so many people hate.

The automakers still see its vehicles as moving sculpture and the degree of push and pull they do on the body determines how creative they can be. The physics of wind resistance significantly limits their palette, as it were. If all cars were to target efficiency above all else, they will all go through a process of convergent evolution towards the theoretical ideal bubble car, none of which the public likes.

The public wants to have its cake and eat it too.
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Re: Bailing out the auto industry and SUV owners

Unread postby mrobert » Thu 07 Aug 2008, 10:16:17

$this->bbcode_second_pass_quote('MrBill', '"')At least a small step in the right direction" is not a very bold political move when the car companies have the ability to churn out vehicles that get 40 to 50 mpg with existing materials and technologies.

I just got back from vacation. I drove 1300 miles through 3 countries. At the end, I had 29 mpg. I could have done way better (around 31) just by driving a bit slower.

My engine is a 2 liter turbocharged (not diesel). Very large and powerful, by european standards. It was manufactured in 2002 so the technology is pretty old.

I know people who have SUV's on smaller engines or diesel engines that are powerful cars and still get a way better mileage then I do. 40 - 50 mpg SUV's are not a dream, and I bet a I can find a few around here.

Hate to break this for you ... but in Europe we always joke on "american engines" in both power and mileage terms.
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Re: Bailing out the auto industry and SUV owners

Unread postby Canuk » Thu 07 Aug 2008, 12:20:42

$this->bbcode_second_pass_quote('MrBill', 'B')ut it would be against WTO rules to give a direct subsidy to US auto manufacturers by giving SUV owners a subsidy to only buy from domestic car companies. That would be quickly challenged by foreign automakers just like some rules that require states to only purchase domestically have also been challenged.

The truck tariff did not apply uniformly since Canada and Mexico were exempt under free trade agreements. It had a positive long term effect by forcing Toyota and Honda to open assembly plants here to not be classed as imports.

The US has a long history of challenging WTO rulings - such as softwood lumber with Canada - a dispute that has stretched well over a decade.
$this->bbcode_second_pass_quote('MrBill', 'F')ar from subsidizing SUV owners the US should adopt the EU practice of taxing engine sizes and CO2 emissions. The bigger the engine the more tax. Farmers and tradesmen would get those taxes back as they are a cost of doing business. If they are a legitimate business. Soccer moms and weekend warriors do not.

A much larger gas tax would also do this by encouraging purchases of efficient vehicles and reducing overall vehicle miles driven (of course it would be labelled socially regressive). Visible taxes would not be politically viable in the US since various groups are currently calling for a repeal of the gas tax.

Larger gas and vehicle taxes have encouraged smaller cars in Canada - SUV and light truck ownership are a much smaller portion of the overall sales figures.

For example in 2003 27% of the vehicles sold in the US was an SUV and approx. 26% was a "light" truck (includes vans, etc.) - while in Canada it was less than 17% SUV for the same year with approximately another 9% as a "light" truck.
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Re: Bailing out the auto industry and SUV owners

Unread postby vaseline2008 » Thu 07 Aug 2008, 13:14:08

$this->bbcode_second_pass_quote('Armageddon', 'T')he government should just print all of us one million dollars.

I'd like to supersize that order...make that double, and supersize both...with cheese please!
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Re: Bailing out the auto industry and SUV owners

Unread postby Ibon » Fri 08 Aug 2008, 01:32:56

When I started this thread I mentioned the original idea came from a friend who came up with this during a conversation we had. He is not a member of the peak oil community but I directed him to this thread so that he could see how people responded to his idea. Let's call my friend Yarbo to give him a name. Below please find Yarbo's response. It is interesting to read his fresh perspective not having been so deeply immersed in this topic as many of us have been. I find Yarbo's insights valuable.
$this->bbcode_second_pass_quote('Yarbo', 'S')ome of those posts were stupid. "Subsidizing something makes more of it." That's a retarded reflection. What subsidizing? Its a "trade in". Of what would there be more to make? People get caught up in buzz words. Not a one mentioned the admirable benefit of recycling the money being lost in Iraq towards domestic solutions.

I would think the first order in the business of thwarting oil consumption is to plug the big leaks in the system. What's with the negative comments? In the large picture there is a dynamic at play with that idea that supercedes the simple basic idea of simple replacement of low gas mileage vehicles.

People are easily influenced. Government assistance in replacing gas guzzling vehicles with more efficient ones would assist in showing the country that there is an urgent need to address our apparent fuel crisis. Positive, creative gestures from the government to constructively save fuel (while supporting US manufactured automobiles, thus supporting our struggling economy), would be a ray of sunshine for our generally disgusted and or disillusioned population. Trust in our government is so extremely low right now. Many many people are very allegiant to a sense of patriotism and if the government made a genuine attempt of encouraging energy conservation, I believe for the first time in a long time, people would find themselves part of a society they could possibly feel themselves happy to be members of. Maybe Ford can come up with an energy efficient model for this program. It could be called "Freedom" and would be available in only red, white and blue. The population might even call energy conservation "The will of God".

Here in the South there are tons of people who go to church, behave conservatively, voted for Bush and will likely vote for McCain. Many of these southern neighbors and friends are actually very nice people and consider themselves truly devoted towards doing the right thing for their families and their country. These people are not evil or inherently bad. In fact many of them I'd trust with my life, where I wouldn't trust many "open minded liberals", similar to myself, as far as I could throw us. Lets face it, sometimes we liberals can be the same self centered smug little pricks we call "the others". If you want to change things, bridge the gap and appeal to the masses

Living in the South has taught me that if I have to indulge in practicing prejudice that I apply my prejudice not towards race, shoe size, religion, sock color, party affiliation, marachino cherries lovers or people that like to stuff green olives with pimentos in their anus, but towards arrogance. I've yet to find any gathering of minds short of arrogance. To those that truly understand the repulsive nature of the Bush administration and still support them, fuck em. But for the many uneducated Republicans out there who simply are being supportive of what they think is best for their country, cut them some slack. They watch Fox news, clutch their bibles and simply do not understand.

So, give them their new car, a new purpose, a new flag, a new direction and something to stand behind other than the most wretched unethical war in US history.
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Re: Bailing out the auto industry and SUV owners

Unread postby cube » Fri 08 Aug 2008, 02:00:56

$this->bbcode_second_pass_quote('Ibon', 'W')hen I started this thread I mentioned the original idea came from a friend who came up with this during a conversation we had. He is not a member of the peak oil community but I directed him to this thread so that he could see how people responded to his idea. Let's call my friend Yarbo to give him a name. Below please find Yarbo's response. It is interesting to read his fresh perspective not having been so deeply immersed in this topic as many of us have been. I find Yarbo's insights valuable. $this->bbcode_second_pass_quote('Yarbo', '.')......

I agree - it is good to read opinions of people who disagree with you. It gives you an inside look at another person's mind.
now after saying that *takes a deep breathe* If this is how the rest of society thinks ---> We are FCUKED UP beyond ALL Repair. I see a hard crash post peak.

I can't help but feel like Yarbo is trying to spit venom in my eyes.
Notice how Yarbo does not even bother to ask why we think the way we do.....he simply lashes out like a poisonous snake yikes!
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Re: Bailing out the auto industry and SUV owners

Unread postby Twilight » Fri 08 Aug 2008, 03:08:57

I will address the one substantive point:
$this->bbcode_second_pass_quote('', '"')Subsidizing something makes more of it." That's a retarded reflection. What subsidizing? Its a "trade in". Of what would there be more to make? People get caught up in buzz words.

The more fuel efficient cars would have to be new, because they do not exist at this moment. At the moment of trade-in, a new vehicle would have to be traded for an old one, and two vehicles would be in existence, where at this moment there is only one - the original. The government financing will in many cases have to extend not only to the price of the new vehicle, but the negative equity in the original. Hence the subsidy. In the event pulling out of Iraq pays for both, that only brings us to the point - good luck pulling out of Iraq.

The rest is political "if only there could be understanding" which is cheap.

The beginning and end of the problem is that faced with an unearned windfall, most people piss it away. This is why a sound energy policy should not rely on handouts to private citizens. The real question should be what they are going to have less of.
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