Global Trends by Martin Khor

Monday 1 June 2009

Motor cars, the victims of the triple crises

The motor car and its users are being hit by the triple crises of recession, climate change and oil depletion.  The worldwide romance with the car may have to give way as family incomes drop and as steps are taken to curb pollution.

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The modern world is so much built on the motor car.  For many middle income families, it is the most important asset they own, after the house.  And many who don’t own a car have the fervent dream of doing so.

Just as car ownership is the most obvious status symbol for the individual, the making or assembly of automobiles is for many developing countries the centerpiece of their industrialisation process.

Today, the motor car, and what it represents, is caught in the midst of at least three crises – the environmental, economic and energy crises.  Its future will not be the same.

As the world runs out of resources, and as pollution (especially emissions of carbon dioxide) threatens the survival of Earth as we know it, the car is increasingly fingered as a major, if not the major, culprit.

Making motor vehicles uses up much of the world’s resources, from iron and aluminium to rubber in the tyre, and running the car is one of the major uses of oil. The burning of fossil fuels is the main cause of global warming, now identified as the greatest threat facing the physical world.

Because of the climate crisis, policies towards the car are changing, as policy makers around the world will have to act to curb the growth of the car and how it is made and operated.

Then there is the crisis of oil production and supplies.  The world is rapidly running out of oil.  The point of “peak oil” has been reached or is just about to be.  At that point is the highest level of production of oil globally, and after touching that peak, there will be a deeper and deeper decline in global output.

Reflecting the declining stocks and supplies, the price of oil is likely to resume its recent rapid rise.  The fall from the peak of about US$140 a barrel to US$40 a barrel, due to the recession, is likely to reverse.  Already the oil price has recovered to US$60 and one day it will exceed US$140. That will make it more and more expensive for consumers to run a car.  

The United States just days ago adopted new standards for fuel efficiency so that the average motor car will have to be able to run many more miles per litre of petrol.  Cars are also being designed so as not to use petroleum.  Thus the emergence of cars run by batteries, or by bio-fuels, or by a hybrid of oil and hydrogen, or oil and bio-fuels.

To complicate matters further, the car is also caught up in the middle of the current global financial and economic crisis.  As families are threatened by loss of jobs or job hours and the choking of consumer credit, they are cutting back on their spending on the car – the most expensive household item.

That is spelling trouble for the motor industry, nowhere more evident than in the United States, where two of its biggest companies are in serious trouble.  Chrysler is already in a bankruptcy procedure, while General Motors is expected to apply for bankruptcy today.

The motor industry is the first industrial sector to obtain the massive bailouts that characterise the current recession.  After spending trillions of dollars rescuing financial institutions, the US government has controversially turned to the car companies to bail out.

General Motors has already received US$20 billion in U.S. government aid.  Another US$50 billion of government funds is expected to be injected into the bankrupt company in return for a 70% equity share in a restructuring exercise.

In Germany, the government is also desperately trying to save Opel, a local General Motors brand by providing loans to other companies to buy it up.  Many thousands of jobs will go if Opel closes.

Many rival companies and many governments around the world are watching.  If the US and Europe are spending so many billions of dollars or euros to rescue their automobile companies, can those companies that do not get similar aid survive?

Whatever happened to the principle at the World Trade Organisation, that a country is not allowed to subsidise its industries? 

But even the massive subsidies that the Detroit “big three” (Chrysler, GM and Ford) are getting may not be enough save them.

The recession is simply cutting away the consumer’s appetite for new cars, as the day of the easy loan is over.  Recently, more than 17 million new cars were sold a year.  The market has fallen by 46 percent to a rate of below 10 million this year. If sales do not recover, more state aid will have to be given to Chrysler and G.M.

Perhaps it is good that the recession is training people to live without owning a car, or at least without changing their cars so often, because meeting the climate challenge will require the world to switch from a car-based to a public transport-based world.

It is impossible for the people in developing countries to pursue the American dream of individual car ownership, for the Earth will not survive the climate change implications of such a massive population explosion of cars.

But there is also no way to force the developing countries to give up their dream of building industries around the car, unless the Americans themselves first abandon their dream of two or three cars per family.

In the end the world will have to learn not only to build cars to make use of petrol more efficiently, but to make less and less cars.

And our lifestyles and the way we measure success and status may have to change with that.  For example, the middle-class romance of going on a date in a car – another intrinsic part of the dream of the modern world -- may have to give way to rediscovering romance without the car, such as going out by bus and walking, as was done in the past, and as most people in the world still actually do.