Now That Gasoline Prices Are Plunging...
November 11, 2008

By Bill Visnic

Even those predicting a retreat from this summer's $4-per-gallon fuel prices didn't call for prices to plunge so far, so fast.

Regular unleaded gasoline in some parts of the country once again begin with a "1." The Energy Information Administration (EIA) said last week's national average for regular unleaded was $2.40, but even that number reflected a drop of some 61 cents from a year ago and a crash of 25 cents in just a week.

The erratic price of diesel fuel hasn't seen such drastic drops, although the EIA reported last week's national-average prices also were down 20 cents or more from week-prior and year-prior marks.

Some are fretting the return to normalcy for gasoline prices, in particular, already is causing motorists to return to old driving habits -- and once again display consideration for the kind of consumptive vehicles they have abandoned.

What may be worse, the auto and fuels industries also may be allowing short-term memory to redirect efforts to develop fuel-efficient models and alternative-fuel development initiatives. As has often happened in the past, it seems the wind has gone from the figurative sails of some efficiency-enhancement efforts as the world oil price retrenched to a $60-per-barrel level after hitting $147 this summer.

It's reasonably certain most of these actions are not entirely the result of nose-diving fuel prices, but consider these events of the past weeks:

• Ethanol refineries begin closing -- and plans for a multitude of other corn-ethanol refineries were canceled. And the nation's largest publicly owned ethanol producer, VeraSun Energy Corp., filed for bankruptcy, a severe blow for the once high-flying corn-ethanol industry.
• Several initiatives for high-tech processes to produce ethanol from cellulosic and waste sources also may be stalled, thanks largely to reversing cost equations driven by oil's regression to $60-per-barrel levels.
• Consumer consideration for hybrid-electric vehicles sunk by 86 percent compared to highs in June, according to data from Edmunds.com. And industry-wide hybrid sales in October were off a startling 45 percent from their April highwater mark. This situation assuredly is not entirely fuel-price cause and effect, however: in the past three months, the auto industry has suffered a crippling lack of credit availability for consumers, causing severe setbacks for sales of all vehicles.

As the nation's purported recession deepens, overall shopping consideration has weakened, according to Edmunds.com -- but hybrid consideration nonetheless has fallen faster than consideration for all vehicles.

• Pickup trucks have experienced a mini-resuscitation. General Motors Corp. said it will add a couple of days of overtime to address an identified uptick in showroom demand. And Ford Motor Co. analysts also noted an increase in fullsize pickup demand in October (although the effect may be partially attributed to interest in the heavily redesigned '09 F-150 lineup). Enormous incentives on many full-size pickups and SUVs also have reached the point where, combined with falling gasoline prices, consumers have responded with their wallets.
• Fiat S.p.A. and its Alfa Romeo brands reportedly again are postponing plans to return to the U.S. market.
• A federal judge overturned landmark legislation in New York City that required all 15,000-odd taxis in the city's fleet to meet a minimum fuel economy standard of 30 mpg by next year -- effectively mandating hybrid-electric models. The law, promoted by NYC Mayor Michael Bloomberg in 2007, was often cited as symbolic of a new era of environmentally aware initiatives that would set the pattern for national behavior.
• Honda Motor Co. Ltd. reportedly now is reconsidering its plan to launch diesel engines in the U.S. and Japan next year. The company cited the ongoing disparity between diesel fuel and gasoline prices, high material costs and the deepening global recession as reasons.

Many automakers continue to express concern about the now-classic double-hit of disproportionately high diesel-fuel pricing (which currently erases most of the diesel engine's fuel-economy advantage of around 25 percent) and increasing price pressures in the showroom -- diesel-engine vehicles typically cost well more than $1,000 extra compared with a gasoline counterpart.

Barb Samardzich, Ford's vice president, powertrain product development, told AutoObserver recently that the company remains downcast about the prospects for diesel passenger cars in the U.S. (Ford will launch a diesel version of the revised F-150 for 2010). She said price pressures in non-truck segments and the high price of diesel fuel make diesel a hard sell for passenger cars.

Samardzich said the cost of the diesel engine might be tolerable, but the added cost of the emissions components to enable nationwide emissions compliancy for diesel passenger cars is the deal-breaker for vehicles sold at Ford price points.

"No [Ford] customer is going to pay for all that," Samardzich said.

Photos by manufacturers

1. A test vehicle for Honda's first-ever diesel engine that would comply with emissions standards in all 50 states. Honda now says it's reconsidering U.S. launch timing.

2. New York City's high-profile legislation to require an all-hybrid taxi fleet by 2012 hit a recent roadblock that may not have occurred if gasoline were still $4 per gallon.

Posted by Michelle Krebs at 6:54 AM under Analysis , Companies , Featured , Ford , Technology | Comments (2) | digg this | Seed Newsvine

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