High Gas Prices are Good For The Economy

[Brian S.Kroll]

Top Car Dealer Says High Gas Prices Are Good for the U.S. Auto Industry
AutoNation CEO Says Increase Will Drive Demand
For Hybrids, Electric Cars and Other Alternatives
WSJ / June 9, 2008
Detroit's big auto makers are slashing jobs, closing factories and undertaking costly revamps of their product strategies to cope with $4 a gallon gas. What's the worst thing that could happen now? Gas could get cheap again, says the man who runs America's biggest auto retailer.
"For once we actually have viable alternatives and exciting technology that are really game changers" in the effort to wean transportation from petroleum, says Mike Jackson, chairman and chief executive officer of AutoNation Inc. "However, if the price of petroleum goes down … it undercuts the viability of new technology."
"You have to tell the American people the truth," he says. "Energy costs will be higher."
It might seem odd that America's leading car salesman would want gasoline prices to stay high, given how much damage the recent surge in pump prices has done to demand for the big sport-utility vehicles and pickups that once powered sales at many AutoNation stores.
But Mr. Jackson's point of view about energy policy and the auto industry isn't based on concerns about this month's sales. What has him worried, he says, is that in the future he -- and by extension the whole auto industry -- will be stuck trying to make sense of a fundamentally incoherent national energy strategy, which was mirrored by the seemingly incoherent product strategies that the big U.S. auto makers were pursuing until $130 a barrel oil blew them up.
Mr. Jackson confronts a daunting challenge trying to read American culture and make intelligent bets about what consumers will want to drive.
If he looks in one direction, he sees a widespread consensus that, for a combination of environmental and national security reasons, Americans should consume less oil. To that end, Americans want the auto industry to speed production of electric vehicles and high-mileage, gasoline-electric hybrids, while substantially improving the mileage of conventional oil-powered cars.
Here's the big news: The auto industry finally appears willing and eager to respond.
It's entirely possible that a decade from now, we'll realize that this was a pivotal moment in the auto industry's history. This could be the moment when a century of relying almost exclusively on petroleum to power personal mobility gives way to a new model, in which electricity powers our transportation.
Indeed, there's a case that consumers who want to buy into the next generation of transportation technology shouldn't buy a new car until 2010 or 2011. By then, General Motors Corp. has promised to deliver its hybrid-electric Chevrolet Volt; Nissan Motor Corp. has said it will begin offering electric cars; Honda Motor Co. and several European manufacturers have promised to launch in the U.S. new, advanced, high-mileage clean diesel cars; and Toyota Motor Corp. might have a whole family of hybrid vehicles based on the next generation Toyota Prius.
A gaggle of small companies such as Norway's Think Global AS and Silicon Valley's Tesla Motors Inc. are all gearing up to expand the electric vehicle market if the big guys won't. But the excitement over projects like the Tesla Roadster can't compare to the significance of the shift in mindset among the people who run the world's biggest auto companies. This isn't a crowd given to green idealism, but they have come to the conclusion that remaining totally shackled to petroleum is bad for business and are re-gearing their future vehicle plans accordingly.

But when Mr. Jackson looks in the other direction he sees a widespread consensus that Americans shouldn't have to pay $4 a gallon or more for gasoline, and a Congress that in an election year has put driving down gas prices at the top of its agenda.
Further, he confronts the inertia of more than half a century of automotive marketing investment in teaching consumers that size and power are what make a vehicle desirable, and worth more money.
Mr. Jackson, like others of his baby boom generation, remembers well what happened in the 1980s, after the last big oil price shock. Through a combination of conservation and new production, the U.S. turned the tables on the oil producers. Gas prices plunged, sales of gas guzzlers took off and the table was set for the crisis the U.S. auto industry faces today.
"We are highly skilled at selling size, horsepower and speed at a premium price, and giving away fuel efficiency," Mr. Jackson says. "Now, going forward over the next 10 years we are going to have to convince consumers why they should pay more for a smaller engine…or some new technology that is going to give them a tremendous benefit on fuel efficiency. That's a completely new world for us."
"I'm a good car salesman," Mr. Jackson says. "If I have high gas prices and an open-minded consumer, it's very doable. There is a connection between their needs and what we have to offer them. If we have cheap gasoline, it's mission impossible."
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