October 2067

Posted Friday, Jul. 04, 2014  comments  Print Reprints
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Almost 20 years ago, a friend who sat on the National Acura Dealers Council was invited to attend meetings in Japan with Honda’s top executives to discuss their long-term plans. Unlike here in the States, where our entire business focus seems to be what the stock price for GoPro will be on Monday, Honda’s top people laid out then where their automotive focus would be, not just five years out, but in 2050, the year that Honda believed would mark the end of the Oil Age.

As it turned out, most of the Japanese automakers had studied the oil industry and its known and potential future reserves. All had come to almost the identical conclusion — that oil would cease to be a viable commodity in this century’s middle year.

So, shortly after that conference, Honda introduced the Civic GX, which would run on natural gas. At the same time, all manufacturers walked away from their first generation of electric cars in California, thinking them a poor investment that would never pan out. Still, as the natural gas-powered Civic came to market, so did the world’s first mass-production hybrid electric, the Honda Insight. That vehicle would quickly be followed by the more mainstream and far more successful Toyota Prius.

No one here ever connected these much more fuel-efficient vehicles’ arrival with the 1997 meetings between some Japanese automakers and their best dealers, warning them that within five decades their current business model would not longer be viable.

Planning vs. Dreams

Other automakers, such as General Motors, had probably come to the same conclusion, but hadn’t worried quite so openly about the end of oil. Nevertheless, GM launched a huge PR campaign just over a decade ago, promoting the fact that it would be selling hydrogen fuel-celled automobiles in large volumes by 2010.

Now, to be fair, in autumn of 1998 both Toyota and Honda promised to be selling hydrogen fuel-celled automobiles by 2003. And on September 30, 1998, GM showed off an Opel Zafira minivan that was also powered by a fuel cell, promising that it would be in the marketplace by 2004.

Needless to say, those promises were not kept.

True, Honda delivered a handful of its FCX Clarity hydrogen fuel-celled cars a few years ago. And last month Hyundai officially started leasing its fuel-celled Tucson at three dealerships in California. A week ago Toyota unveiled its upcoming fuel-celled car — with a price tag of only $69,000.

Still, no one realized why, starting in the late 90s when gasoline was selling for $1 a gallon, so many manufacturers came out with natural gas-powered vehicles, hybrid electrics and the promise that one day soon we would all be driving cars with fuel cells powered by hydrogen. After all, in that same period America was on a car-buying spree, but we weren’t snapping up the most fuel-efficient vehicles being sold. No, Ford was selling 1 million F Series trucks; meanwhile, if one combined Chevy Silverado and GMC Sierra sales, GM was accomplishing the same sales volume. GM was having to build its full-sized SUVs at no fewer than five factories to keep up with demand, and sales of mid-sized SUVs were setting all sorts of records.

Let’s face it, we all thought the Japanese were out of touch with reality. Proving that point, not only were Prius sales extremely lackluster to start, but it was widely reported that Toyota was losing close to $8,000 on every Prius built. What the public did not know was that many of the first Prius models sold were purchased covertly by automakers worldwide, seeking to discover how the Japanese automaker had pulled off an engineering coup that most believed was technologically impossible at the time.

Walking into the Dark

By 2000 the electric car was dead; only a few well-heeled geeks had purchased the Prius, fewer still the Honda Insight; and the Honda Civic GX was rusting on dealers’ lots coast to coast. No one could understand why the Japanese weren’t walking away from those automotive sales disasters but updating them, even bringing out new models of those cars despite the public’s reluctance to purchase them in less than mediocre volumes.

But another factor came into play in the final days of 2000. The Commodities Futures Modernization Act not only deregulated all tradable commodities including oil, gasoline, diesel and aviation fuel, but also allowed for dark and unregulated exchanges in which to place one’s bets on these items.

Then legislation became the game changer. In August of 2007 the world started entering a major recession. According to the EIA, shipments of oil, gasoline and diesel started falling rapidly, worldwide, in response to much weaker demand for those products. And yet the price of oil zoomed from $69 a barrel to $147 a barrel by July of 2008 — and then the world’s financial system suddenly melted down.

When gasoline first peaked at over $3 a gallon in late 2005, after Hurricane Katrina took out 25 percent of the nation’s Gulf Coast refineries, hybrid electrics went from being decent selling cult cars to being extremely popular. But with the advent of $4-a-gallon gasoline in the summer of 2008, those same hybrid electrics went mainstream. Within a few years Nissan would introduce the newest generation of electric cars, only to see the automotive media slam the company much like they had the first hybrid electrics, just 11 years earlier.

Meanwhile, GM found that it no longer needed five factories in which to build its full-sized SUVs; now only one factory would suffice.

Panic Always Costs More

We laughed at them or questioned their judgment more than a decade ago, in the last days of truly cheap gasoline, for moving into unconventional power plants for their automobiles. But the Japanese automakers were looking ahead, 50 years into the future, to prepare their strategies for what would happen once the era of crude oil came to an end.

Now, thanks to British Petroleum’s latest annual review of energy statistics, we have that final date. Right at 53.3 years from now, in the Fall of 2067, BP believes the oil pumps will all be shut down and the Oil Age will die, after a brilliant 208-year run that changed the world to the one we know.

No one knows which plan for the masses’ motorization will end up succeeding 53.3 years out. It won’t be hybrids or diesels, as there won’t be any fuel for them — and one wonders whether the airline industry has laid any plans for that end date. Hydrogen and electric cars seem to make the most sense, but ultimately no one really knows what the next stage of motoring will be two generations from now.

But one thing is certain. We would be well advised to start planning for events that we know will be coming, long before they happen. Both Japan and China take great pride in setting potential goals that far out; it’s why the Japanese first brought us hybrids and created a new generation of electric cars. When gasoline suddenly spikes or there are disruptions to the energy system, they prefer intelligent planning and preparation to knee-jerk panic reactions.

And let’s assume BP is wrong, since the critics are already claiming that there’s yet more oil to be discovered or new technologies to be found for recovery. Even if the critics are right, it’s not going to be enough to keep the oil age going for long. As one oil analyst said of our recent passion for shale plays, “It’s not a revolution, it’s a retirement party.”

The Japanese realized that first.

© Ed Wallace 2014

Ed Wallace is a recipient of the Gerald R. Loeb Award for business journalism. He hosts Wheels, 8:00 to 1:00 Saturdays on 570 KLIF AM. E-mail: wheels570@sbcglobal.net; read all of Ed’s work at www.insideautomotive.com

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