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Using the "D" Word -- And How to Duck It

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The housing bubble alone couldn't bring us back to 1929. But the housing bubble combined with the auto-oil catastrophe might. Let's look at the current, measurable toll from our addiction to oil and from the American auto industry's dependence on the past.

We are spending $700 billion a year on importing oil (far more than on the war in Iraq, as T. Boone Pickens reminds us). The last time I counted, American manufacturers had shut down 70 manufacturing and parts plants to shed no-longer-marketable SUVs and light trucks in the last few years. When oil hit $4 a gallon, the issue of what to do with our fleet of SUVs and trucks that no one can afford to drive was already imponderable. This week we learned that 40 million Americans have auto loans larger than the value of their vehicles -- which means they can't afford to trade them in and can't afford to drive them. September will be grim.

GM is worth almost nothing on the stock market, and those who invested in it have been wiped out -- as have those who dedicated their lives to working for it. Last week the Sunday Business section of the New York Times laid out in seemingly gory detail the sordid history of how American auto companies fell behind and failed to see high oil prices coming. The story nailed the reality that Detroit failed to learn how to produce different models of cars on one assembly line, which would have enabled it to respond to changing oil prices and consumer demand.

The story also lamented how Washington, by failing to improve fuel economy rules, was complicit in Detroit's failure. We have voices such as retiring New Mexico Senator Pete Domenici saying, "Much of what we're seeing today could have been prevented or ameliorated had we chosen to act differently. It was a bipartisan failure to act." Even Chevron CEO David J. O'Reilly told Larry King:

"If we want to solve this problem of high energy prices, we're going to have to work not only in the demand side, as Congress has done with [Corporate Average Fuel Economy] standards and alternatives, but we're going to have to work on the supply as well."

So now we're all in favor of using technology to get us farther on a mile of gas, right?

And the problem was just one of those inexplicable failures to see the future, yes?

Well, not quite.

First, we are not all on board yet. In fact, the Bush Administration is busy setting fuel economy standards on the assumption that oil will cost not $5 gallon, not $4.50 a gallon, much less the $8/gallon some are talking about. No, in the fading months of this administration, they are looking through a rear-view mirror and assuming that oil in 2015 will cost $2.45 a gallon. This is not an abstract concern. If the National Highway Traffic Safety Administration assumes a future gas cost of even $3.40 a gallon, the average car in 2015 will be required to get 13 percent more miles on a gallon of gas. But we're still acting as if gas will be cheap tomorrow -- when we know better -- and the result will be that America wastes more gas and ships more money and jobs to the Persian Gulf.

Nor was this one of those "I just didn't get it" problems. During the Clinton years, Dan Becker (the Sierra Club's auto strategist) and I made annual pilgrimages to Detroit to sound the warning. "Forget global warming," we said. "Your business model can't survive. You make money by relying on outrageous markups on trucks and SUVs built with old technology. They waste gas and handle badly. Eventually Stuttgart and Tokyo will take over those markets as well by building assembly plants inside the tariff wall that protects you today."

Whether we were talking to Ford, or GM, or the UAW, they would always agree that the auto industry needed to change. I remember one day sitting with Steve Yokich, then the president of the UAW, and making this point. Yokich took me to the window of Solidarity House, the union's headquarters, and asked me to look out at the parking lot and comment on what I saw. "Well," I said obviously, "they're all American made." "Of course," he said. "But there are almost no SUVs. Car guys don't drive crap." But then he told me that the companies would have to lead the change -- the union couldn't.

And the companies? Well, they got the timing wrong. Oil hit $4 a gallon far sooner than they had calculated. But why didn't they modernize? That was hard to understand, until one day when a senior VP for GM told me, "We can never make money producing sedans in the U.S. This needs to become a truck-only manufacturing platform for us. We'll make cars -- in China and Mexico." The industry thought it had ten more years of maintaining a share of the U.S. market with trucks and SUVs. It got caught napping. But it had never planned, once it woke up, to modernize its American manufacturing base. The plan was always to go south or west, as Ford has just done by putting its new Fiesta plant in Mexico -- where wages, instead of rising to U.S. standards, are slumping to Chinese levels.

Can we get out of this? Not painlessly. But because our vehicle fleet is so inefficient and because we use so much of the world's oil (25 percent), we have a shot. But we need to act like this is an emergency. We need to set fuel-economy standards based on realistic future estimates of the cost of gas -- $5, $6 a gallon. We need to give consumers a choice at the service station -- gasoline, diesel, ethanol, CNG -- so that Detroit and Tokyo can start offering options.

The oil monopoly hasn't served us well -- let's break it. We need major investments in plug-in hybrids and in wind and sun to produce the electricity those vehicles will need -- or to free up natural gas for auto use, as T. Boone Pickens has suggested. We need to start giving mass transit operators the money they need to meet the demand that has been created. Could we conceivably build a high-speed train or two in the U.S.? And if we had smart growth planning, our cities would need 20 percent less driving.

The solutions are out there. We just have to let go of the past and grab them.

And I promise -- we won't like the results if, once again, we let politics as usual stand in the way.

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