By Robert Farago
June 21, 2008 -
Man, am I getting old. I surfed onto The Incredible Hulk on the SciFi channel last night to find David Banner getting all Gamma rayed-up. The Hulk burst through the front of a house. All I could think was, oh my Lord, that's going to cost a fortune to fix. (My neighbor's house was recently pulverized by a large green… tree.) Maybe it's because I'm happily married, or perhaps it has something to do with the WWF, or it could be that episode of House involving hypogonadism, but steroids-run-amok homoerotic imagery just doesn't do it for me. Sure I understand the appeal of watching someone or something getting mad and busting up the joint. Call it the Shiva the Destroyer Complex. But I want to assure you this site in general and myself in particular take no joy in what's happening to The Big 2.8. That said, I've come to terms with TTAC's bearer of bad tidings nature a long time ago. While I will endeavor to add some levity to the mix, the U.S. automotive market is going to get a LOT worse before it gets better. And TTAC will be there every step of the way, no-holds-barred. The truth hurts.
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POWERED
June 21st, 2008 at 2:42 pm
I think the oil companies are intentionally jacking up the prices so people will demand more off-shore drilling and ANWAR and Montana and the government doesn’t care because the higher the profit for the oil companies and the higher the cost of gas, the more tax is paid to the government. Makes sense, really.
June 21st, 2008 at 2:51 pm
its part of aging , I guess. I used to be excitied by the sound of a siren. Now, I just pull over to make way. The Detroit malaise just makes me queasy. It is a minor part of greed-o- nomics that marks the descent of the greatest industrial power of all time. I used to build ships, now I plug in unplugged transformers.
June 21st, 2008 at 3:38 pm
Out of destruction comes creation…
June 21st, 2008 at 4:12 pm
romanjetfighter: “Makes sense, really.”
No, it doesn’t. Because:
1. Econ 101. Prices will move to equilibrium of supply and demand.
2. Common sense. Ever try to get thousands of businesses in/and dozens of countries to move in lockstep–and secretly?
3. Petroleum-related taxes are typically X per unit, not X per value. Higher prices lower demand (consumption), so tax revenue goes down too.
4. Politicians like voters to be happy, or at least content enough to re-elect ‘em.
June 21st, 2008 at 4:51 pm
“Petroleum-related taxes are typically X per unit, not X per value.”
In California at least there are three taxes on fuel: Federal taxes on a per gallon basis, state taxes on a per gallon basis AND sales tax as a percentage of selling price. Even though gallon demand is off very slightly in the state over the past year, I’m sure the total state taxes collected on fuel is up as the price has increased far more rapidly than demand has declined.
June 21st, 2008 at 6:39 pm
Thanks to just finishing William Shatner’s autobiography, I understand what sitting Shiva means. I think the big 2.8 will be the not so big 2 before long. Chrysler is in the worst shape. Ford is taking painful measures to rightsize slowly. GM… GM. The dealership network is about four times to big and the vehicle mix is wrong. Lots of work there.
By the time it is all said and done we will be left with Ford/Lincoln and Chevy/Cadillac/Something.
Chrysler will be the American Subsidiary of Renault-Nissan before long.
June 21st, 2008 at 7:14 pm
RF: I remember reading an article perhaps a year ago in which you said that you were going to take it easy/off on weekends…
June 22nd, 2008 at 12:13 am
1. Mark Fields could be a GM exec. He’s a Carlos Ghosn/Lutz/Piech/Zeitsche-style rockstar executive, not a Mullaly/Watanabe/Fukui-style operations manager/fixer-upper. It’s rather scary that he’s the likely heir-apparent, because it likely means that even if Mullaly fixes Ford, Fields will drive the ship right back onto the rocks.
2. God, it must suck to be GM and Chrysler with their late-to-the-party muscle cars. At least Ford got in early, ate the good food, talked to the pretty people, had a nice drink or two and left feeling happy.
Ford’s sold Mustangs to all sorts of people: image buyers who’ll take a V6, gearheads, boulevard cruisers, anyone who could sacrifice some practicality for what is a nice-looking car. GM and Chrysler will get six months of mullet sales, tops, and then their cars will rot on dealer lots.
June 22nd, 2008 at 12:16 am
Now, when I saw the title, I was expecting some witty pun on Shiva being the Hindu god of death-and-subsequent-renewal.
June 22nd, 2008 at 3:31 pm
I take it this means you’re not a fan of Dragonball Z either, are you?
June 22nd, 2008 at 5:00 pm
romanjetfighter
“I think the oil companies are intentionally jacking up the prices so people will demand more off-shore drilling and ANWAR and Montana and the government doesn’t care because the higher the profit for the oil companies and the higher the cost of gas, the more tax is paid to the government. Makes sense, really.”
I really hope you’re kidding. I can’t help but find this line of thinking terribly misinformed.
I’ve said it before and I’ll mention it again, I happen to be a geologist for a ‘mid-major’ oil company. We, in no uncertain circumstances, do not have any control on the price of oil.
We work within the price environment. If the price is high (as it is now) it allows us to drill more wells (mind you, I work for a domestic, on-shore, natural gas-focused producer). When times were lean, as they were not that long ago, this particular company (and countless others) didn’t do as much drilling. Wells don’t get drilled without a certain amount of confidence that they’ll turn a profit.
The primary criterion for deciding whether a well gets drilled is the rate of return. In other words, is the anticipated amount of hydrocarbons producible from this particular wellbore capable of paying off the drilling, completion, and production costs? A typical mid-con natural gas well can easily exceed $1M to drill (yes, drilling companies have jacked their prices accordingly - everyone wants a piece of the pie) and $1M to complete, and if a particular prospect doesn’t have the anticipated recoverable volume (today’s technologies allow for roughly 70% to 80% recovery from most natural gas reservoirs - expect less with low permeability/low porosity tight-gas formations) to pay that off within a reasonable amount of time (remember, we play with the time-value of money - we don’t instantly extract the hydrocarbons. It may take a decade or more to reach the EUR [estimated ultimate recovery] for a particular well) then the well doesn’t get drilled. Why go to all the expense on a venture that doesn’t offer the same ROR as a wise (and easier) investment elsewhere?
The irony is that higher commodity prices make marginal wells profitable - and thus hydrocarbons that would have otherwise stayed in place are produced. Every company is in existence for profit, mind you - why why drill the wells if there’s no profit to be made?
Sorry for the lengthy rant - I just get in a tizzy when I think about the uneducated opinion the masses hold regarding the oil and gas industry.
June 23rd, 2008 at 8:54 am
Just wait until they nationalize the oil refineries, then the feces will hit the impeller.