Car Wars?

For seventy years what was good for Detroit was good for America.  The major auto makers could sell as many cars as they could make.  And Americans were enthusiastic about the freedom offered by relatively inexpensive personal transportation.  Since Henry Ford’s introduction of the mass produced Model T and John D. Rockefeller’s agreement to provide gasoline at cheap prices, the gasoline powered automobile has dominated the landscape. Great fortunes were made.  And lost.

The steam and electric cars of the early 20th century were swept away by the low cost gasoline powered Model T.  The true cost of technology in action.

Since the first oil embargo in the 1970’s (under the Carter administration) energy costs have been fluctuating.  And how have the automaker’s responded?  With the same vehicles they have been making for decades.  American car makers have had problems with low cost, high mileage cars for a long time.

As people have progressively become more environmentally aware, the by-products of combustion have become an attribute that people would like to change in large measure.  This could come about by increased efficiency or alternative technology.  In the last few years, all the hybrid vehicles sold in the US have been imports.  The current sales rate puts imported hybrids at 300,000 vehicles a year in the US.  That’s a lot of cars we didn’t build.

The Environmental Protection Agency has been trying to get American automakers to improve vehicle efficiency for 30 years or more.  The response from Detroit has always been reluctant.  Change will be costly and take a long time.  And even when mileage target agreements were made, they never seem to be met.

In most businesses, when you stop meeting the customer’s needs, you stop selling product.   That’s exactly what has happened.  American car buying has dropped from 13 million units/year to 8 million units a year.  Big change.  Regardless if you blame it on the car companies or economic conditions, or both.  And a lot of harmful consequences to the economy since cars consume more steel, glass, carpet and just about anything you can think of, than any other sector of the economy.

Foreign manufacturers have settled into the US market and established themselves taking a share of market away from Detroit.  I didn’t hear anyone calling for reorganization of the industry during the last two decades while Japan set up shop on our soil.

So it seems a little strange to have government, which doesn’t actually know how to produce anything, dictating how the automakers need to produce cars.  One aspect that concerns me about the current plan from Washington is that it is based on projections of sales volumes ‘returning to normal’.  At sales volumes of 12 to 13 million the current plan will restore the automakers to financial health.   Does anyone believe that the American car makers can sell that many cars per year any time soon?

Energy Density and the Real Cost of Driving

Energy density by itself is not a sufficient measure of anything.  It is only useful in a specific context.  For example, one can refer to the energy density of battery technology.  And that is an extremely useful comparison because the weight of the battery in an electric car is critical to its success.  The General Motors EV1 was abandoned because the battery technology was too heavy.

Context is very important.  Comparing the energy density of the battery to the energy density of a fuel is completely useless.  And this is an argument that some people use, incorrectly, to defend fuel based vehicles.  Gasoline may be 80 times more energy dense than a lead acid battery, but what does that really mean?  Of course, gasoline has far greater energy density than a lead acid battery.  That’s an absurd comparison if not taken in its full context.

What is the efficiency of the energy conversion process?  Internal combustion systems generate a lot of heat which is loss and highly inefficient.  Taken with its frictional losses and parasitic loads like the alternator, water pump, etc., input to output efficiency for internal combustion vehicle systems is estimated at 40% or less.  The same comparison for an electric car can result in measured efficiency of 90%.   So the comparison of system efficiency for internal combustion engine passenger cars and pure electric passenger cars is that the electric system is more than twice as efficient.  Lithium batteries are 4 times as energy dense as lead acid and will reduce the required payload of 1800 to 2200 pounds of batteries to a much more reasonably 450 to 600  pounds.

What is the absolute value of the technology?  That’s the really important question.

One basis for comparison would be cost per transportation mile.  In both cases, the system efficiency is directly affected by the cost of input energy.   When gasoline is $2.50 a gallon, a 20 mile per gallon car costs 12.5 cents a mile.  When gasoline is $4. a gallon, a 20 mpg car costs 20 cents a mile.  Pure electric cars are impacted by the cost per kilowatt hour, but generally are documented as costing about 3 cents a mile.

A more complete comparison would incorporate the maintenance cost in addition to the energy cost per mile.  Again the electric vehicle has significant advantages.  There are no annual maintenance costs, although some value might be assigned to amortize the cost of the battery pack.

Further, one can include the purchase price of the vehicle.  A $20,000 gasoline powered car will cost about $15,000 to operate over 5 years at 12,000 miles per year.  An electric car will cost about $1800 to operate over the same period.  So if a comparable electric car cost $33,000 the total cost of ownership over 5 years would be the same.  Not surprising when you think about it.

It will be interesting to see what comes out of Detroit over the next two years.

Manufacturing CFO Optimism Sinks beyond All-Time Low

CFOs of American companies’ optimism toward the U.S. economy continued to sink to an all-time low in the second quarter, according to a recent survey of CFOs conducted by Financial Executives International (FEI) and Baruch College’s Zicklin School of Business.

The CFO Optimism Index for the U.S. economy was 48.92 for the quarter, plummeting even further past last quarter (54.29), which was an all-time low for the survey. The growth of the U.S. economy was identified to be the principal CFO worry for the second half of 2008 (48 percent). Rising oil costs (35 percent), consumer spending / demand (29 percent), and inflation (25 percent) were also top concerns.

CFOs’ outlook toward their own companies, however, remained relatively stable this quarter, as the Optimism Index for CFOs’ own companies declined only 1.06 points from last quarter’s all-time low to 67.06. CFOs cited top business challenges for the remainder of the year as expense control and competition (30 percent and 25 percent respectively), while controlling labor costs was low on the list (1 percent). While availability of capital continues to receive significant attention in the financial press, few CFOs identified this as a top concern (10 percent).

Source: The Earth Times

Inc. Asks: Is Manufacturing Weighing Down the U.S. Economy?

Ever since Inc. started ranking the Best Cities for Doing Business in 2004, the bottom rung of the rankings has been largely dominated by older industrial cities where factories have long been abandoned and once booming economies have dried up. The 2008 list bears this sobering fact: among the largest regions surveyed, Detroit sits on the bottom at No. 66, with Warren Troy-Farmington Hills, Mich., Cleveland, Providence, R.I., Philadelphia, and the New York twins—Rochester and Buffalo—doing only slightly better.

 

So given this persistent underperformance, is manufacturing weighing down the U.S. economy? The answer may surprise you.

 

Even though the industrial towns dominated by what used to be called the Big Three automakers (General Motors, Ford and Chrysler) and their suppliers have been devastated by slumping sales, a host of other manufacturing regions have emerged as strong performers. For the most part, the largest beneficiaries of these changes are located either in the Intermountain West–the region between the Rocky Mountains and the Sierra Nevada, and the Sun Belt region stretching across the southern bottom of the country. Here, U.S. carmakers are not well represented and smaller communities with a host of specialized industrial companies have expanded in the face of tough times.

 

Source: Inc. Magazine

German Industry Tools Up to Face Global Slowdown

Falling orders, a strong euro, and high oil prices have put Germany’s manufacturers in a tight spot, but they are responding to the challenge and are better placed to handle the global slowdown than their euro zone peers.

The recent news flow from the manufacturing sector has made for grim reading: orders fell for the sixth month in a row in May, when industry output and manufacturing sales also fell.

Add to the slew of weak data news that industrial conglomerate Siemens plans to cut some four percent of its workforce worldwide, and the picture appears to darken.

However, the Siemens example shows that German companies are taking steps to shape up. Widespread restructuring in recent years prepared German manufacturers well for the global economic slowdown—a trend many are responding to with fresh cost cuts.

Source: Reuters

Efficient UK Manufacturers Weathering the Storm

With economic gloom descending on many sectors of the UK economy, a new report suggests that manufacturers who are innovative, efficient, and export effectively are outperforming the rest of the economy to weather the worsening economic situation.

 

The “Modern Manufacturing – The High Performers” report highlights the top 20 high performance sectors within UK manufacturing. And the message is that those companies who treat globalization as an opportunity, who innovate and use technology to their advantage, are the ones who are thriving. Nine sectors have outperformed the manufacturing average over the last five years, together accounting for almost 60 percent of UK manufacturing output.

 

Especially strong growth can be seen in transport equipment, mechanical equipment, medical and precision instruments, non metallic equipment and recycling, which have all expanded at a rate of between four and 10 times the average.

 

Source: nebusiness.co.uk