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“My SUV is Upside-Down” May 24, 2008

Posted by davidzweig in Uncategorized.
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It really didn’t take a Rhodes Scholar to see none of the four major oil companies have not been able to replenish the amounts oil they’ve been removing from the ground in any of the last 30 years. 4 companies X 30 years each = 120 company-years. 0 for 120 constitutes a trend, no?

While the car makers have geared up to sell in China–now the world’s second-largest consumer of oil and fastest-growing new car market–they didn’t see a compelling reason to connect those two dots. In fact, the interests of auto manufacturers and oil companies have long been joined at the pump. This Freudian image is a perfectly apt metaphor of their perennially cozy relationship.

Here we find ourselves on May 24, 2008. As we are wont to say these days, Who knew? The following “dispatches from the front” come from a single article in CNN. Given the long lead times available to predict what has happened, and the long lead times required to adapt to the new conditions, it represents as devastating an indictment of the current short-term-profit oriented market system as one could find.

  • “The cars are literally just sitting, and it doesn’t matter how much you sell them for,” says Los Angeles used car wholesaler Jorge Fernandez, speaking of the SUVs and trucks nobody wants anymore. “It’s amazing. I’ve never seen it this bad, ever.”
  • The really large SUV’s with V-8 engines that can get as little as 12 miles per gallon in the city — like the Cadillac Escalade, Ford Expedition and Chevy Suburban — are dropping in value by the thousands.
  • Owners might owe $20,000 or more when the vehicle is now worth $12,000. It’s similar to an upside-down mortgage, and it may not make sense to try a trade-in. “What they might be doing is spending thousands of dollars to save hundreds,” says Jack Nerad, the executive director of Kelley Blue Book’s kbb.com. “Because if you make a trade, you’re most often going to spend more to make that move than you would just sucking it up and paying the extra gasoline prices.”
  • Nationally, for the first four months of this year, truck and SUV sales are down a collective 24.8 percent. SUV sales plummeted 32.8 percent while pickups dipped 19.9 percent.
  • Ford announced Thursday it was shifting production away from its longtime hallmark of pickups and SUVs in favor of smaller cars. In making the decision, Ford said it believes gas prices will remain in the range of $3.75 to $4.25 a gallon through the end of 2009. [Editor’s Note: Ford has never yet found a way to build such cars profitably.]

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