Filling Up On Stupid

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The next time you pull into a gas station and pull out $100 from your wallet, take a look around. Notice the other vehicles that are sucking up the $4-per-gallon gasoline. My guess is you would be hard-pressed to find a late-model car, truck or SUV that has anything smaller than a 200-horsepower engine.

I know more than half-a-dozen family and friends driving vehicles that punch out a mind-numbing 300 to 500 horsepower. That is a lot of ponies unless you spend your Friday nights down at the local drag strip.

It was not supposed to turn out this way. Thirty-five years ago, I carpooled to the University of Calgary with my best friend Dave. The world had just come off of two OPEC-induced oil shocks and he drove a 1976 Honda Civic. It looked exactly like the car pictured at the top, replete with the tiny fog lights and the canary-yellow paint.

Dave’s Honda had a 91-cubic-inch engine that produced 53 horsepower. For four years, we drove 40 miles round-trip in it. On alternate weeks we took my car, a 1976 Mercury Capri. That was a bit of a hot rod for its day, generating 130 horsepower.

What I remember most about Dave’s Honda is that it got us to class on time, it never broke down and we passed a lot of gas stations. It was to be the wave of the future.

But in the early 1980s, crude-oil prices fell all the way to $12 per barrel. People stopped caring about fuel economy and became obsessed with horsepower and status.

From 1984 through 2010, the fuel economy of new U.S. cars increased… from 27 mpg to 27.5 mpg. Forget the tech revolution. In the past three decades, the average car can now go half a mile farther on a gallon of gasoline.

Source: Wikipedia

 

As a result, it is not hard to understand that demand for gasoline in the U.S. has nearly doubled in the past 35 years.

The Wall Street Journal addressed the issue a year ago with a story which asked: Whatever happened to fuel efficiency? According to the newspaper, “If there is a super fuel-efficient car in your future, then it was built in 1986.”

The Journal pointed out the Environmental Protection Agency’s top 10 list of cars with the best fuel economy in history. According to The Journal: “Many of the best haven’t been available in showrooms for years or even decades.”

“In addition to music, the 1980s were a high point for fuel-efficient cars,” concluded the WSJ. “Even when judged against today’s high-tech hybrids, cars like the 1987 Honda CRX shine.”

The CRX was updated version of my friend Dave’s ’76 Honda Civic. Like that Civic, the CRX was fun, dependable and it got 47 mpg! It turned out nobody wanted it.

The New “Stupid” Car

It almost seems as if Detroit doesn’t even know what the price of gasoline is.

A few weeks ago, Ford announced its newest Mustang, the Shelby Super Snake (try saying that four times in row). In case you are worried about merging onto the interstate, you can take comfort in knowing the Super Snake pumps out 800 horsepower. That is about the same horsepower Japan used in Zero fighters during World War II, and it will catapult today’s new Mustang from zero to 60 in fewer than 4 seconds. If luxury is more your style, you can pick up the Cadillac CTS-V super sedan with its 556-horsepower supercharged engine that gives you a top speed of 190 mph.

With products like these, it is not hard to see how Detroit has been broke and begging Washington for money since Chrysler first got on bended knee in 1980.

The real question is: Why do we ignore all common sense when it comes to things like cars, yet complain when we have to pay so much at the gas pump? (By the way, I don’t exempt myself from these criticisms. My lust for fast cars ended only after I almost killed myself in my 1995 Chevy Camaro. By today’s standards, the Camaro was relatively tame, generating just 275 horsepower and a top speed of only 155 mph.)

It’s the Economy that Needs Turbo-charging

Remember the 1980s when America had a fast economy and slow automobiles? Today, it is the opposite. Unemployment is a chronic problem. Credit is almost gridlocked. And inflation is starting to boil over. A single oil shock — say upheaval in Saudi Arabia — could send the U.S. economy over a cliff.

Even-higher gasoline prices would quickly choke off U.S. consumer spending, the one bright spot in a dull economy. Say gasoline gets above $7 per gallon. In that case, there won’t be much left to spend on clothes, entertainment and even basics like food and mortgages.

That is exactly what happened in the 1970s following two oil embargoes. The price of crude oil rocketed from $3 per barrel to $36 per barrel. Unemployment soared from 4.9 percent in 1973 to 5.6 percent in 1974 and then hit 8.5 percent in 1975. Then, things got bad. As a result, the Dow Jones Industrial Average lost two-thirds of its inflation-adjusted value by 1980.

All this happened just more than a generation ago, yet we Americans continue to make stupid mistakes — from the cars we choose to the leaders we elect.

For example, President Barack Obama wants to spend billions of dollars on new rail systems, new solar-energy power plants and electric cars — most of them built off a blueprint that doesn’t even exist.

My question is: Why don’t we improve our economic prospects by returning to tried-and-true technologies (like fuel-efficient cars) while exploring and developing America’s own fossil fuel reserves, especially those offshore and in Alaska?

The answer comes down to two words: power and corruption. Despite the fact taxpayers keep bailing out Detroit, U.S. automakers could not care less about what is good for the country. They care about padding profits and collecting big bonuses. And you don’t have to be an automotive engineer to see the fat profits in an 800-horsepower muscle car compared to an economy car that gets 50 mpg.

As a nation, we must start making smarter choices because we are running out of chances. When I was going to college in that Honda, the U.S. imported 6 million barrels of crude oil each day. Today, the U.S. imports twice that amount (see chart below). Yet Washington doesn’t bat an eye as Madison Avenue convinces us we cannot possibly be happy unless we have a 300-horsepower V-8 parked in the garage.

 

U.S. Imports of Crude Oil and Petroleum Products (Thousand Barrels per Day)

Through it all, Obama proclaims he wants to rebuild America, make it a Green utopia fabricated from fanciful wishes and borrowed money.

But listen hard and you can almost hear them coming: a mechanized army of Obama electric cars. What a shame when all we needed was to modernize that little yellow Honda and elect some good leaders.

Yours in good times and bad,

John Myers

Editor, Myers’ Energy & Gold Report

John Myers

is editor of Myers’ Energy and Gold Report. The son of C.V. Myers, the original publisher of Oilweek Magazine, John has worked with two of the world’s largest investment publishers, Phillips and Agora. He was the original editor for Outstanding Investments and has more than 20 years experience as an investment writer. John is a graduate of the University of Calgary. He has worked for Prudential Securities in Spokane, Wash., as a registered investment advisor. His office location in Calgary, Alberta, is just minutes away from the headquarters of some of the biggest players in today’s energy markets. This gives him personal access to everyone from oil CEOs to roughnecks, where he learns secrets from oil insiders he passes on to his subscribers. Plus, during his years in Spokane he cultivated a network of relationships with mining insiders in Idaho, Oregon and Washington.

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