AutoNation CEO Tells Industry The Party Is Over

AIADA's energy symposium yields constructive dialogue on future of mobility. Photo of 2005 Chevy Montana Sport Flex-Fuel pickup.

Published: 27-Jan-2006

It may be easy to sell diverse alternative fuel vehicles to consumers, but reducing the country’s dependency on foreign oil is another matter altogether.

Panelists at yesterday’s symposium "Sustaining Mobility in an Energy Challenged World," presented by the American International Automobile Dealers Association (AIADA), agreed that reducing oil dependency, and foreign oil dependency in particular, should be a fundamental goal, but acknowledged that reaching this goal will significantly challenge consumers, automakers, and federal policymakers.

Reducing our oil dependency is "an issue of national security," said Mike Jackson, Chairman and CEO of AutoNation, the largest of five national publicly-held dealership groups. Jackson challenged the federal government to enact a comprehensive energy policy that would increase the gasoline sales tax. "Consumers said that if an increase in the gas tax was part of a larger energy policy, they’d support it," Jackson said, citing a recent study. They would not do so if they did not see the tax increase as part of a comprehensive plan to reduce oil dependency.

Jackson was accompanied by four other panelists: Don Beyer, AIADA Chairman, former Lt. Governor of Virginia, and owner of Don Beyer Volvo; Ed Mortimer, U.S. Chamber of Commerce Transportation Policy Director; Ed Cohen, Vice President of Government Relations for Honda North America; Sam Kazman, General Counsel and head of the Death by Regulation project for the Competitive Enterprise Institute; and Stephen Goguen, Fuel Technologies Team Leader, Office of FreedomCAR and Vehicle Technologies, Energy Efficiency and Renewable Energy, U.S. Department of Energy. The discussion was moderated by Warren Brown, "On Wheels" columnist for The Washington Post.

All the panelists echoed the need to move away from oil as the primary source of energy for vehicle mobility.

"There is no question that we need to wean ourselves off petroleum. It is a finite resource," said Honda’s Ed Cohen. The question then becomes which technology and alternative fuel is the next winner. Cohen expressed concern over a sole "winner," or alternative to gasoline combustion engines which have dominated over the last century.

Each alternative fuel technology, including gasoline-electric hybrids and hydrogen vehicles, both of which Honda produces, face "bumps in the road," he said. Some of these bumps are less technological than they are infrastructural, psychological, and economical. Take, for example, ethanol. According to Stephen Goguen of the Department of Energy, the U.S. produces 4.3 trillion gallons of ethanol a year, or about 3.5 percent of the U.S.’s total gasoline consumption in 2004. This model year, 10 models are available that can run on gasoline alone, or an 85 percent mixture of ethanol (E-85) and gasoline, up from seven in 1999 according to the National Ethanol Vehicle Coalition.

Approximately six million "flex-fuel" vehicles are on the road (out of over 231 million registered vehicles in 2003, according to the Department of Transportation[1]), but if you are outside the Corn Belt, you probably aren’t filling up with ethanol. For example, California has only 4 ethanol fueling stations, and only one is available for public use, according to the National Ethanol Vehicle Coalition.

"What we face is an infrastructure problem," said Warren Brown. The Post columnist owns a flex-fuel Chevy S-10 and has only filled it with ethanol once. Washington, D.C., has three ethanol fueling stations, but none are for public use.

Another issue is psychological. Consumers say they value fuel efficiency and the environment, but their vehicle purchases belie their expressed enthusiasm for better mpg.

"We have a long way to go with American consumers to stimulate demand for fuel efficient vehicles," said Jackson. Consumers have mandated that "all the advances in fuel efficiency [in the past 25 years] have gone into increased horsepower and expanding vehicle size" rather than improved fuel economy, he added.

Don Beyer, also an auto retailer, acknowledged the trade off that consumers have been making, but said he felt confident that consumers would respond positively to wider alternative vehicle choices.

"More diverse options are always better for customers," Beyer said. "Where we are is seeing [which kind of alternative fuel technology] plays out. As close as we are to our customers, we will be able to give them the best options possible."

"The Party is Over"

Affordable energy is a luxury that American consumers have embraced almost as an American right. That illusion should persist no longer

"The party is over," said Jackson.

The era of affordable energy has given rise to an era of unparalleled personal mobility. But with the affordable energy era coming to a close, federal regulators, automakers, and consumers face tough choices. And few stakeholders agree on how to deal with the situation.

While Jackson proposed the gradual implementation of a $1/gallon gas tax as part of a comprehensive energy policy, others disagreed that this was a solution or at least a feasible one.

"Don’t expect the federal government to come up with a long-term energy policy," said Ed Mortimer, the U.S. Chamber of Commerce U.S. Chamber of Commerce Transportation Policy Director and author of the recent National Chamber Foundation report, Future Highway and Public Transportation Financing. The 2005 Energy Bill was years in the making, and even it barely addressed the issue, he said.

With little federal initiative expected, Beyer believes that states are the "laboratories" for the future of mobility policy. He pointed to his home state of Virginia, whose new governor, Tim Kaine, has promised to tackle Northern Virginia’s congestion problem. Beyer noted that the market was already making headway in dealing with the problem through the explosion of condominium construction in areas near Washington, D.C., and on public transportation routes. State governments should "encourage" market-based solutions, he said.

Sam Kazman, head of the Death by Regulation project at the Competitive Enterprise Institute, agreed that market-based approaches were far more likely to be successful in the long-run than government-imposed solutions, both in terms of consumers’ psychological and economic adaptation. Kazman pointed to Hurricane Katrina’s effect on gas prices and the likely backwards impact of using CAFÉ standards to deal with the problem.

"With Katrina, [the spike in gas prices] was a huge upset. But you did not have people feeling that something had been pulled on them," which they would have felt if the government had mandated the price increase, said Kazman. "Keep the government out."

Increases in CAFE standards will backfire in reducing oil dependency. "As demand for gas drops, the global price will too," he said. Cheaper gas prices will in turn increase demand for gas. "Then you’d be increasing dependency on oil…there’s a conflict that has to be resolved."

AIADA’s symposium was meant to be another avenue to support and continue the dialogue on the nation’s energy future between the automotive industry, government officials, and leading minds in energy efficiency. Transcripts from yesterday’s panel will be made available at AIADA.org in the coming days.


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