Loophole Whiplash

The Corporate Average Fuel Economy (CAFE) standard is back in the news. One of the main results of the Energy Independence and Security Act of 2007 (EISA) was to increase the overall US new car fleet CAFE target to 35 miles per gallon by 2020. Now the National Highway Traffic Safety Administration, which administers the CAFE program, must establish the milestones for stimulating and measuring progress toward that goal. Today's Wall St. Journal reports that auto manufacturers that had previously embraced last year's CAFE compromise are now objecting to a 2015 interim standard of 31.6 mpg. As obtuse as this may seem, in light of consumers' recent and dramatic shift toward more efficient cars, it is a consequence of two past regulatory failures associated with CAFE: the well-known "SUV Loophole" and the much more obscure rules promoting the manufacture of "Flexible Fuel Vehicles" (FFVs.) Carmakers haven't just been slammed by high fuel prices; they also have a bad case of loophole whiplash.

To the surprise of many observers, last year's energy legislation finally closed the much-debated SUV Loophole, which had subjected "light trucks" to a different, lower fuel economy standard, compared to "passenger cars." This was a classic case of good regulatory intentions gone wrong. When the CAFE standard was originally established in 1975, Congress and the Ford administration recognized that the pickup trucks and delivery vans used by businesses could not attain the same fuel economy as personal cars using the technology of the day. Forcing them to do so would have made a bad US economy worse. Without rehashing how this sensible policy morphed into the SUV fad, the result is that 33 years later, the 2008 model (scroll down to March 2008 report) passenger car fleet came within 0.2 mpg of meeting the proposed 2015 target, while new SUVs and pickups still averaged only 23.4 mpg. So not only have SUVs become albatrosses on cardealers' lots, thanks to $4 gasoline, but the same federal program that promoted them in the first place has now turned them into a huge regulatory liability.

A less-publicized aspect of the 2007 energy bill has a bearing on this problem, as well. Previously, FFVs were treated as an even more privileged category under CAFE, and an FFV SUV was a precious commodity. As NHTSA's CAFE FAQ page explains, a model getting 13 mpg on E85 and 16 mpg on gasoline would be counted towards a carmaker's CAFE quota as though it were a sort of 50 mpg hybrid on paper. An automaker could meet up to 1.2 mpg of its overall fleet target this way, in another example of US alternative fuel policy gone awry. Under EISA 2007, this benefit will be phased out between 2014 and 2019. The result only amplifies the SUV pain for US carmakers.

Although the timing of all this could not have been worse for Detroit, it was never going to be otherwise. Only another energy crisis could produce the political coalition necessary to close these loopholes, guaranteeing that this would coincide with market conditions that would punish US carmakers for the past success they enjoyed by taking advantage of them in the first place. There is no doubt that GM and Ford, at least, can field entire new car fleets capable of meeting the 35 mpg standard. The technology exists today, and their 2006 European models already delivered the equivalent of the ultimate US target. In the EU they will be required to beat 40 mpg by 2012. The question is whether they can retool quickly enough to pull off the same trick, here, with a sales mix reflecting the expectations of US car-buyers--expectations that are currently in flux but still differ markedly from those of consumers in the UK or Germany.

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Rate of Change

For how much longer will the US depend on petroleum as our primary source of the energy we use for transportation? Conflicting beliefs about the answer to that question lie at the heart of the current debates about offshore drilling and additional support for alternative energy programs. If it is only a few more years, as some assert, then indeed, the production from oil fields in tracts currently off-limits would likely arrive after the greatest need for them has passed. If, on the other hand, we will still be importing oil 20 years from now, then we need to keep our oil project pipeline full, to ensure that we don’t open an even larger window of import vulnerability, on our way to greater energy self-reliance.

Answering this question involves a number of large uncertainties, including the persistence of Americans’ current conservation efforts, particularly if energy prices stabilize or fall farther; whether and how soon non-food-based biofuels can be produced on an industrial, rather than boutique scale; how rapidly plug-in hybrids and other electric vehicles can capture significant market share; and how our response to climate change will re-prioritize our use of other energy resources, and in particular whether we preferentially back out oil or coal first. The future availability of oil itself will also play a role, depending on how close we really are to a permanent peak in global production.

It’s good to have a vision of the end result we desire, presumably a world that is much less reliant on fossil fuels and in which renewable energy sources power electrified cars via a modernized power grid, augmented by nuclear power and liquid biofuels. But planning our journey to that outcome requires a clear understanding of the incremental changes that must occur along the way. In order to make progress toward such a goal, every year the output of that year’s additions to our renewable energy sources must exceed the net result of the growth of demand, moderated by efficiency and conservation, and any changes in the output of other energy sources. If, for example, domestic oil production declines by more than the net new contribution from biofuels, conservation and vehicle electrification, we will lose ground and import more foreign oil.

Last year we did pretty well on the liquid fuels front. In 2007, US ethanol production increased by 1.65 billion gallons per year, the energy equivalent of 71,000 bbl/day of gasoline, about 0.8% of demand, while gasoline consumption grew by less than 0.4%. This year, with gasoline consumption down and ethanol likely to add over 2 billion gallons of additional production, ethanol should capture more market share from petroleum-based gasoline. But in light of concerns about competition between food and fuel, and new questions about the environmental benefits of grain ethanol, that kind of growth cannot be sustained for much longer, without a large contribution from cellulosic biofuels that are still in the demonstration phase.

Progress was less impressive last year with regard to electricity, despite sustained high growth rates for both wind and solar power. The US added a record 5,244 MW of wind capacity, contributing approximately 14 billion kWh of generation, or 0.3% of electricity demand. That backed out the equivalent of 100 billion cubic feet of natural gas, equating to about 50,000 bbl/day of oil. Solar power grew by approximately 270 MW, covering another 0.01% or so of demand, or the equivalent of an extra 2,000 bbl/day of oil. However, US electricity demand grew by 2.3%, while hydropower, our largest renewable energy source, declined in output. As a result, the market shares of coal and nuclear power were stable, while natural gas actually gained ground at the expense of all renewables.

Based on these figures, renewable energy must expand by about a factor of ten before its annual growth will be large enough to make a significant dent in our reliance on fossil fuels in the electricity sector, even without considering the growth in electricity demand that would follow from the addition of millions of plug-in hybrids and EVs to our car fleet. Nor are biofuels likely to eliminate our oil imports in the meantime. At the Congressionally-mandated rate of 36 billion gallons per year in 2022, they will displace the equivalent of 1.5 million bbl/day of gasoline, while the US today imports between 11 and 12 million bbl/day of crude oil and petroleum products, net of exports.

The bottom line is that renewable energy is not yet in a position to make fossil fuels obsolete, and anyone suggesting otherwise is engaging in as much wishful thinking as someone who asserts we can “drill our way to energy independence”—a proposition I have only ever heard as a straw man offered up by opponents of drilling. Renewables have ample scope for further growth, but they also face important obstacles. Even with an increased focus on conservation and efficiency, the chances that we will not still need to import significant quantities of oil ten years from now look very slim, particularly if US oil production continues to decline at the 2-3% per year rate we have experienced over the last decade. Against that backdrop, the current energy compromise suggested by the “Gang of 10” senators looks pragmatic and prudent.

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Frankfurt Motor Show: Wiesmann GT MF 5

Wiesmann have shown off their GT MF 5 creation to a lucky few at the Frankfurt Motor Show.



While the Wiesmann GT MF 5 was never officially shown, it has been seen behind closed doors. The V10 aluminum sports car was show in a sky blue paintjob. Styling has been focused more on the classic sports car look rather then the new futuristic cars many makers have been focused on. Pushed by a front mounted V10 with maximum torque of 520 Nm and 507bhp, the GT MF 5 flies from 0-100 in 3.9 seconds and has been priced at €178,900 and will be released in Autumn 2008.

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Mercedes-Benz S300 S-Class Hybrids new competition for the Lexus Hybrid

Mercedes-Benz have a huge presence at the Frankfurt Motor Show, but what would you expect as they are on home soil, one car that the German automaker was showing off was the 2010 Mercedes-Benz S300. This is the car that has been collaborated with other German car maker BMW, and is their first less complex mild hybrid. This new sedan is hoped to be in direct competition with the Hybrids from Lexus.

The Mercedes-Benz S300 S-Class Hybrid mates a 3.0L Bluetec diesel V-6 to n electric motor to help achieve at least 43.6 mpg; this is while it is set on the economy cycle not bad for such a large car. This is not the only car that BMW and Mercedes-Benz are in collaboration with as they are working a new small car, maybe called the Mini Merc.

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The smart roadster finale edition: a collectable classic

Exclusively available in the UK from April 2006, the roadster and roadster-coupé ‘finale edition’ will give customers a fun-packed and thrilling driving experience.

Originally launched in the UK in June 2003, the roadster helped recreate an authentic driving feeling, reminiscent of the 50s and 60s. Since it was announced that the car will no longer be built, experts have been predicting that it will become a collectable classic.

The commemorative special edition has an 80 bhp engine and boasts an impressive level of specification, including 17" runline alloy wheels, metallic paint, air conditioning, cockpit clock and rev counter, starter switch integrated in gear shift lever, sound package, interior contrast components in ‘flow silver’ and an exclusive colour combination on the roadster of speed silver body panels with black tridion. With front and rear grille in the same body colour, the car looks strikingly different from standard models.

Dermot Kelly, Managing Director Mercedes Car Group, said: "With more than 6,500 models sold in the UK since launch the roadster has been extremely popular. This could be the last chance for roadster enthusiasts to buy what is expected to be a sought after model."

The pricing of the ‘finale edition’ will be:
- roadster ‘finale edition’ £13,990 otr
- roadster-coupé ‘finale edition’ £14,690 otr

The smart range is available from smart retailers, starting from £6,775 otr. Customers can find out more about smart by logging onto www.smart.com/uk or by calling the freephone number 0808 000 8080.

Source: Automotoportal.com

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Classic Car Insurance

Being the owner of a classic car separates you from the average car driver with practical needs. If your car was manufactured before 1973 or at least fifteen years back then it qualifies as classic car. A collector’s car is like a walking work of art that you have to maintain and preserve for its historical value. Consequently, a classic car insurance company will have different areas of focus than with the usual auto driver.





Before settling for an insurance company you need to pin down the requirements that you need to attach to your classic car. Your insurance profile will be determined depending on: how often you will be driving the car – all year round or just on warm, sunny days; how many miles you intend on driving – some classic car insurance companies will restrict you to drive a certain mileage while others won’t do that, but will oppose to your using the car for public and frequent transportation; what the estimated worth of the car is – it’s not a new car so the insurance company won’t be able to set ahead a standard value; you will also need to jot down any modifications that have been made to the car and specify the parts that have been replaced. Some companies will ask for a number of pictures to be taken of your inside and outside of the vehicle before they asses your classic car insurance policy. This will save you a lot of time and effort. Last but not least the age of the vehicle is very important. Unlike the cars that are intended for daily use, classic car insurance will charge more for older cars and less for newer ones.

The owner of a classic car will be allowed to drive it as much as a couple of thousand miles per year. In case the owner disagrees and asks for a more mileage than the classic car insurance company will charge higher premium or deductibles. It may be just a small detail but the garaging is also very important and restrictive. The car should be kept in a garage at all times when it’s not driven. Not anybody is allowed to use it – the driver must have at least 10 years of experience and a clean driving record. Some of these specialized companies require the owner to have another vehicle for frequent use; others will insure only cars that are 25 years old or older, only these qualifying as collector’s vehicles.

Usually, classic car insurance works the agreed value system, which refers to compensation. There is a value that the insurer agrees to offer in case the car gets stolen or damaged beyond repair. This is considered to be the most effective way to insure a classic car.

But there are problems that stem up from the confusions of the real value of the car and the estimated value that the owner affirms. Very frequently the owner will place a higher value than the price he purchased the vehicle with. Classic car insurance companies can charge a fee for the evaluation of the car and it will always take place considering the actual condition of the car, the people that restored the car, the parts that have been replaced and the models that are most appreciated by the clubs.

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Petro Profits

This energy crisis has given rise to a new American ritual: every quarter, after ExxonMobil's earnings are announced, the media breaks them down into dollars per hour, minute and second, and then cues to reaction shots of consumers expressing outrage that any company should benefit so much from their pain at the gas pump. Although I'm not suggesting we should all feel warm and cozy about oil company profits, we might be better served to focus our fulminating on the dog that doesn't bark. If the largest US oil company produces only 3% of the world's oil and still made nearly $12 billion last quarter, what did the national oil companies that own most of the world's oil make, and who paid for that?

Considering the average price of oil in the 2nd quarter, no one should be surprised that Exxon had stellar results, in spite of earning 54% less on refining and marketing and a third less on chemicals than they did last year at the same time. Allocated over the 26 billion gallons of petroleum products they sold around the world in the quarter, these profits equate to an average of 45¢ per gallon, with 87% coming from finding and producing the oil that went into making those products. It's not unreasonable for consumers paying roughly $4 per gallon to grouse about that, though it does say something about our current national mood that the media chooses to highlight that reaction, rather than someone seeing the results enjoyed by Exxon's shareholders and wanting a piece of the action, no matter how small. But whatever the US oil companies, including Chevron, ConocoPhillips, Marathon, and numerous others make, at least most of their profits get recycled into the US economy, in the form of new investments and the savings and spending of the millions of us who collect their dividends, directly or indirectly. The same can't be said for the profits of Saudi Aramco, the National Iranian Oil Co. (NIOC), Kuwait Petroleum Co., PdVSA, Rosneft, and so on.

Consider NIOC, the second-largest producer among national oil companies, at 4.15 million barrels per day, about 60% of which is exported. Iran is a relatively low-cost producer, though probably not as low as Saudi Arabia. If their total costs per barrel averaged more than $15 per barrel, I'd be surprised. So at an average price for Iranian Heavy for 2Q08 of $113.85/bbl., that works out to a quarterly gross profit just on exports in the neighborhood of $22 billion, excluding NIOC's earnings from domestic sales, refining and its substantial production of natural gas. Those might add another $10 billion to the total. Lop off a billion or so for overhead, and NIOC is probably reporting to its sole shareholder second-quarter results north of $30 billion. That'll buy a few centrifuges.

So go ahead and grumble about big US oil companies making record profits, while we pay near-record prices at the pump. But don't forget that we import 12 million barrels per day of oil and petroleum products, for which each and every quarter we must send roughly $135 billion outside the country, at current prices. Mr. Pickens is right to bemoan this enormous and unsustainable transfer of wealth. In that context, a smart national energy policy would not bog down in trying to choose among expanded drilling, conservation, and renewable energy, as though these were mutually exclusive options; it would pursue all of them, vigorously, and without vilifying companies for wanting to produce more energy here in the US.

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