Monday, May 5, 2008

To Prius or Not to Prius? That is the Question!

I was listening to a panel discussion on a cable business show this week and, in attendance, they had a "democratic strategist." The discussion was focused on high oil prices. The democratic strategist blamed the oil companies for our high gasoline prices; making sure to point out the "obscene" profits being made by these "pirates" of corporate America. Of course, he seems to forget that gasoline prices are high all over the world. In Europe, they are paying the U.S. equivalent of over $8.00 per gallon for gasoline while our (selfish) average price is only about $3.60.

His solution? He believes that we can just "conserve" our way out of high prices. He pointed to "hybrid" vehicles as the solution.

So, on hybrids as our savior, here's the fallacy in that belief. First, there are about 180 million cars on the road in America, today, with an average age of 9 years. Even if every car produced, as of today, was a 40+ mile-per-gallon Prius-like hybrid, it would take more than 18 years to get every one of those 180 million cars off the road due to normal attrition. But, the problem with hybrids is that they will probably be "junked" before they even make it to 9 years of age; let alone 18 years of age. This is because of their expensive battery and electronic systems. At some point, those components that make a hybrid a hybrid will have to be replaced and their replacement cost is estimated to be between $3500 and $7000. Typically, depending on the types of driving, miles being driven per year, and the manufactured quality of the battery in the first place, every hybrid will require that its battery and all or some of its electronics be replaced between 5 to 9 years of use. At some point, it will become economically prohibitive to replace the batteries and/or electronics versus just "junking" the car. Think about it. What if you had a ten-year-old car with a value of $3000 and you were faced with a repair bill of $7,000. What would you do?

Right now, hybrids only make up about 2% of the our new car market. That's because they cost between $5000 and $7000 more to buy than a new all-gasoline equivalent automobile. In many ways, this makes them a "luxury" car and puts them out of the spending reach for most all middle and lower class Americans. As I have written before, being "green" is a rich man's sport. Statistically, if only 2% of the cars being sold today are hybrids, you can assume, at best case, only 2% of the cars, 18 years from now, will be hybrids too. Of course this assumes that, contrary to my above paragraph, all those hybrids are even capable of lasting that long; which they probably aren't.

Fuel efficiency, biofuels, and hybrids are not going to get us out of the bag that we are in right now. We should have allowed new drilling in places like ANWR (Alaskan Natural Wildlife Refuge) when it was proposed over twelve years ago. But, we didn't! So, every year that we block new drilling for oil, we become more and more dependent on foreign oil. Every year that we avoid new oil resources just pushes us out 10 years or more from having any new influx of oil products. Every year, our demand for oil energy goes up by 2+ percent; compounded. At the same time, our "old" oil fields are being exhausted at a rate of 2 percent or more per year. We have 243 million vehicles in America that aren't going to go away for a least 18 years. Most every one of them needs gasoline. They won't run on wind, or solar, or more than 15% ethanol without modification.

We can't avoid high oil prices if our demand keeps going up while our own supply keeps goes down. If you don't believe that, then I'd say that you still believe in the Tooth Fairy and in Santa Clause; or, that you are some kind of "rock-headed" environmentalist.

My guess is that 10 years from now I will be able to repeat this blog entry. The only difference from today is that we will be paying between $10 and $15 per gallon; rather than today's $3.60 gallon. The politicians will still be promising that they will lower gasoline costs. And, I bet that 95% of the cars on the road will still be gasoline powered. Mark my words!

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