German carmaker Opel, owned by American automobile giant General Motors, as well as the European division of Ford could both profit from the current crisis at their mothership companies across the big pond. GM and Ford have been hit hard by falling sales of gas-guzzling pickup trucks and SUVs. With drivers having to pay an average of over $4 per gallon, sales of larger cars have slowed to a trickle, blindsiding US automakers, who have focused for years on the formerly lucrative truck and SUV market. Unable to quickly retool to develop their own fuel-efficient models, GM and Ford are both reviewing their units in Europe -- where compact and subcompact models are far more prevalent -- for possible models that could be produced for the American market.
It's been an open secret since the new GM-UAW contract was signed that the company would be introducing two fuel vehicles into their American fleet. Product commitments made by GM included a commitment to start production of the Volt, a plug-in hybrid at Hamtramack, MI, and a hatchback vehicle in Lordstown, OH the same year.
Most likely, this will involve GM taking vehicles designs from their Opel division in Germany and producing them in US factories. GM has already imported many vehicle designs from this division for use in its Saturn plants. The Opel Astra and the Saturn Astra are virtually identical, the main difference being branding.
So let's take a look at some of the vehicles available from GM and Ford's European divisions that could be produced in the US. I'm going to take examples from the offerings made by both companies in the UK. In the UK, Opel is sold under the Vauxhall brand. Remember that 1 Imperial mpg is only 0.833 US mpg.All the figures I'm quoting are in US mpg.
So let's start with the Vauxhall Agila 2008 model. 30 city, 48 highway, 40 combined for the unleaded model. 43 city, 59 highway, 52 combined for the diesel model. This is an Opel model, owned by GM, sold under the Vauxhall brand name in Britain for the US equivalent of $18,000-20,000. The low dollar really jacks up that price, and I think that somewhere between $13,000 and $15,000 is a realistic production price if it was made in the US.
Remember this is only one model, look at the page I linked to above, and then use this calculator to convert Imperial mpg to US mpg.
And it's not just GM. Ford continues to produce the Ford Fiesta for sale in the UK. Looking at the most fuel efficient Fiesta model, you get great gas mileage, bigger engines mean less miles per gallon. So for the most efficient unleaded model, 30 city, 50 highway, 40 combined. For the diesel model, you have a large engine, but still get great mileage. 40 city, 62 highway, and 52 combined. Remember that diesel has more energy density per gallon than unleaded, and it also generally more expensive. Again the UK price in US dollars is about $18,000-20,000. Which would likely be considerably lower once production occurred in the US
The point here is that Detroit has the capacity to import these designs into American production here and now. The thing that stops them is the cost of retooling their American plants.
This is a place where I think where the government can play a key role. Subsidizing the cost of retooling would do a great deal towards bringing these cars to the US market. And it could be a one time investment by the government to reconfigure the makeup of the US auto fleet. CAFE standard for these cars is something like 27.5 mpg.
My suggestion would be to offer $1000 for every increased mile per gallon over the current standard. To be split 50/50 between a subsidy to the manufacturer (specifying that US production content must exceed 90% to qualify), and the consumer at purchase.
So let's take a look at that Ford Fiesta. Let's assume for the second that it costs $14,000 to bring to the US market. It has a combined mpg of 40, or about 12 over the US CAFE standard. That means that the vehicle would receive $12,000 in subsidies. $6,000 going to the manufacturer, $6,000 to the consumer. So the actual cost of the vehicle to the consumer comes to $8,000. At 8% interest, the monthly payment on a 5 year loan comes to $162.21. If have this subsidy reflected on the show floor, imagine how fast these things would fly off the floor. And the cost.
Assuming all 11 million vehicles produced in the us saw a 12 mpg increase. It would cost the US government $66 billion. Or put in other terms, 40% of $165 billion in military spending recently approved by the Congress.
Now let's talk about benefits. Each mile per gallon increase in CAFE results in a 3.6% increase at current standards. So lets say that this incentive is able to increase the efficiency of all 11,000,000 vehicles produced in the US annually by 5 miles per gallon. Assuming 15,000 miles traveled annually (the average) that means each vehicle on average uses about 81 gallons less gas a year. That's 1.93 barrels per vehicle annually, or 21.23 million barrels annually, or about 58,165 barrels a day. Coupled with a plan to purchase and scrap older less fuel efficient vehicles, it could be considerably more than that.
The US used 9.29 million barrels daily of finished motor fuel. So the reduction at a 5 MPG increase in fuel economy over the entire annual production is about 0.6%. Raising the fleet average by 10 miles per gallon would double that to 1.2%, or 116,330 barrels daily.
In the end, we're going to need to address the design of cities to cut miles traveled if we are going to end our dependence on imported oil.