Wrong attitudes
The editorial “Stopping the juggernaut” to me highlighted all that is wrong with attitudes in the oil and gas industry today (OGJ, Apr. 6, 2009, p. 20). Instead of acknowledging the problems with the failing US auto industry and its unwillingness to adapt to consumers’ wants and needs by producing desirable and fuel–efficient cars, the author turns the argument to personal attacks on the Obama administration using terms like “radicalism”, “btu bankruptcy,” and “environmental extremism.” Exactly what is extreme about building cleaner cars and wanting to conserve a valuable and finite resource for future generations?
The oil and gas business will continue to thrive and provide society with the resources it needs, regardless of government intervention or lack thereof. The demand for oil and gas is not going to decrease at any time in the foreseeable future, and to suggest that producing more fuel–efficient cars will lead to some sort of economic catastrophe or steer fuel consumption away from petroleum is both foolish and irresponsible. If the oil and gas industry cannot adapt to changing markets by investing in greener technologies and promoting the efficient and responsible use of its products then maybe the industry as a whole needs to take a good look at itself. Efforts by the petroleum industry should be focused on staying relevant, being innovative, and adapting to the changing marketplace, and this can only help to diversify and strengthen the economy over the longer term.
Aaron Santucci
Calglary
Why GM swooned
Somewhat belatedly I read your splendid editorial about Barrack Obama’s arrogant sacking of GM Chairman Rick Wagoner and the dangers this portends for the oil and gas industry (OGJ, Apr. 6, 2009, p. 20). Having spent most of my professional life in the Detroit area, and having done 450 metallurgical studies for Ford Motor Co. and also 1,000 testing jobs on high–strength steels for sour oil and gas wells, some of my comments might be of interest.
Only the federal government had the power to bring the world’s greatest and most successful corporation to its knees. The existence of roughly 75 million GM cars and trucks on American highways today should be testimony enough to GM’s success. Americans love their products. They’re functional, long–lasting, beautifully styled, and part of Americana. My wife and I couldn’t be happier with our two Buicks. It was GM that gave America the electric starter, automatic transmission, and countless dozens of other automotive innovations copied by all the foreign competition. More than any other companies, it was GM and Ford that made the mountain of vehicles, aircraft engines, planes, and weapons that got us through World War II.
If GM had simply grown with the population and the economy since the heady days of the ’50s and ’60s, its market capitalization would be nearly a trillion dollars today. Instead, it had crashed to under $1 billion at the low point about a month ago. Only the feds could have brought about this thousand–fold implosion. Though the news media and Sen. Richard Shelby (R–Ala.) remain totally ignorant of the government’s role in bringing down this industrial colossus, I can sum it up in a few key steps:
1. The Wagner Act of 1936. This put all the bargaining power in the United Auto Worker’s hands. At contract time the union singles out Ford or GM and presents its extreme demands (pattern bargaining). Does the targeted auto company gleefully serve up super–high wages for unskilled assembly jobs, gold–plated health benefits, “30–and–out” retirement (at ages as low as 47 or 48), and nearly full pay for not working during a slowdown, simply out of the goodness of its heart? Not at all. Every day that the union is on strike, that company loses customers to the other automakers. This drives the company to its knees, leading to the present exorbitant cost structure of the Big 3. The Wagner Act prevents the Big 3 from locking arms and saying, “There won’t be another car made in Detroit until this contract is settled.” Such a position would lead to much more reasonable wages and benefits, competitive with those of the Japanese, Korean, and German transplants.
2. Foreign competition. It was the genius of our founding fathers, saying no to imports from England and creating the rights of private property and the ideas of free enterprise, that brought on our high standard of living and lucrative markets. No other country had this. Why then were the Japanese allowed to waltz in and steal vast chunks of our rich automotive market? Originally, foreign imports were seen only as a way to help Germany and Japan rebuild their broken economies after World War II. That thought was overlooked and forgotten after their economies rebounded. The Japanese had a great advantage because their laws forced them to build small cars for their narrow streets. Sadly, our policymakers have zero loyalty to American workers, and the foreign competition closed Big 3 factories and squeezed profits.
3. Excessive regulations. You could fill a large room with all the costly regulations that Congress has dumped on the auto industry. Worst of all are the emission regulations that have reached absurdly low limits of hydrocarbons, NOx, and carbon monoxide. Never mind the fact that exhaust gases are vastly cleaner than when I was a boy (and those don’t seem to have hurt me), they continue to cut the limits in half about every 5 years. Cynically, I would describe this as job security for the Environmental Protection Agency bureaucracy, for the EPA emissions laboratory located 1 mile from my home, and for all the inspection stations. It’s like jumping half way to a line: You never get there. But an immense amount of research and development has been spent by the Big 3 to meet these unjustifiable limits. Furthermore, the rising CAFE standards in themselves reduce emissions, obviating the need for the extremely low limits. Needless to say, the very strict emission limits have added a lot to the cost of cars and have reduced fuel economy. Henry Ford would roll over in his grave if he heard that we are putting burnt gases back through the engine.
4. Wall Street bankers—the coup de grace. One year ago my son Ed, an engineer at the Cadillac engine plant in Livonia, Mich., told me that GM was going to be just fine. They had the fabulous new Chevrolet Malibu, the popular Cadillac CTS, and other fine new products; gas mileage and reliability were excellent; they had fewer recalls than the Japanese; and the stock price was about $25–40. But recently the stock price was under $2, and the market cap under $1 billion. What happened? Gasoline at $4.50/gal (partly caused by Wall Street speculators?) killed the markets for the only vehicles (SUVs and pickup trucks) they really made money on. But then, when gas prices plunged, the banking collapse brought on by greedy bankers (with shockingly inept oversight by Congress, of which Obama was a member) kept potential car buyers from getting loans on new cars. Plain and simple, it was the utter greed and malfeasance of the bankers that have suddenly brought the Big 3 to their woeful state. With meager inflow of money to meet their prodigious legacy costs, GM burned cash at billions per month and was forced to ask Washington for help. As you stated, the feds became “emergency creditor” to GM, and Obama exploited the situation, abusing his power to sack the very competent Rick Wagoner. Imagine: Obama, who never managed anything as big as a hamburger stand or a car wash, destroying the head of the world’s largest manufacturing company!
I know very many engineers that work, or have worked for the auto industry. With rare exceptions, they are very intelligent, competent, and dedicated. I would stack them up against the banking executives any day. How strange that the bankers, earning obscene salaries and bonuses, get off scot–free while shoving my engineering friends into the unemployment line and millions of other American workers into desperate financial circumstances. Someone noted that most of the 10 men on Barrack’s automotive team drive foreign cars. How much loyalty to the Detroit folks can we expect from them?
David L. Sponseller
President, OMNI Metals Laboratory, Inc.
Ann Arbor, Mich.
