Saturday, November 22, 2008

Detroit going Green

I recently read a short paper by Ken Green in the American regarding the "green movement" forcing it's way into Detroit. Below is my letter to Ken, including complete text of his paper, and my own comments in green:

Kenneth, you're a smart guy. Your resume and credentials are impressive. By all accounts, you are are an accomplished individual and it should stand to reason that you would be an insightful and reasonable person.

No doubt, I would be crazy to challenge you.

But after reading your commentary regarding the "green movement" shoving their agenda on Detroit... all I can say is that YOU HAVE GOT TO BE KIDDING ME! It's points of view like yours that will perpetuate ignorance and bad decisions.

Please see my comments in green below following each section of your article from the American:

Always eager to shove their agenda into a seemingly unrelated policy discussion, the green movement has joined the debate over bailing out the Big Three automakers.

House Speaker Nancy Pelosi wants to tie federal assistance to a requirement that Detroit make more fuel-efficient, eco-friendly cars. “Any car company that gets taxpayer money must demonstrate a plan for transforming every vehicle in its fleet to a hybrid-electric engine with flex-fuel capability, so its entire fleet can also run on next generation cellulosic ethanol,” demands New York Times columnist Thomas Friedman. Writing in The Washington Post, Columbia University economist Jeffrey Sachs calls for a “major industry restructuring to position the United States to lead the world in producing cars that get 100 miles or more per gallon.” (Sachs is pinning his hopes on plug-in hybrid vehicles, “fuel-cell cars,” and the much-ballyhooed—but not yet seen or priced—Chevy Volt.)

In other words, at a time when the top Detroit automakers are desperate for financial aid, the federal government should force them to sell more expensive cars that are less profitable. Make sense to you? Me neither.

The auto industry has proven that left on it's own, it will make decisions ONLY in the best interest of the bottom line, with no regard for long term sustainable, good or even smart strategies. This has been, and will continue to be, at the expense of the auto worker, the environment, the consumer and the new global economy.

Now, you can argue that a corporation's only purpose is to post a profit for it's shareholders, and you would be right... in the old economy. In today's world, more than ever, business, government and society are increasingly interwoven and all are more demanding of accountability.

Specifically, the green movement- which I would argue is more of a revolution (as in, revolving, coming around again), is a new force in truly measuring the economy on a global scale. No longer is the simple (or complex depending on what type of bookkeeping and accounting loopholes are employed!) profitability of a corporation of primary concern.

Example: How can producing a $55,000 SUV that financially profits 30% in terms of cash, but macro economically (environmental, social and other such "costs") drives a stake into the heart of our being, be a good practice? Pollution, toxins, waste, landfill, fuel consumption and emissions- not just in the manufacturing level, but in terms of the entire useful life of the vehicle- are all costs that affect the economy. The true cost of that vehicle is nearly immeasurable. In looking at the big picture, it's easy to see that long-term sustainability is not present in this example.

It’s hard to see how greening Detroit will help car companies, car drivers, or American taxpayers. Greener vehicles are more expensive to make and bring in less profit than other cars. They cost more to finance, more to repair, and more to insure. Their sales depend heavily on tax incentives—which means that selling more of them will require more taxpayer dollars. The National Renewable Energy Laboratory (NREL) estimates that plug-in hybrid vehicles cost $3,000 to $7,000 more than regular hybrids, even though the performance differences between the two models are slight, and the really fuel-efficient hybrids cost $12,000 to $18,000 more than the conventional brand.

As my grandfather, a life-long railroad engineer, father of 8, and die-hard republican- yet master of common sense, would say, "The horse shit is knee deep in there." Come on. Development of ANYTHING new (vehicle or otherwise) is ALWAYS more expensive until economies of scale can come into play. Common sense dictates that as technologies improve, costs drop and profitability increases. THAT'S WHAT DRIVES COMPANIES TO INNOVATE AND DO BETTER!

Additionally, I must remind you that the petroleum industry is- always has been- heavily subsidized with TAX breaks! Who pays for that??? The American tax payer!

So, just off the bat, greening Detroit will help the American tax payer by reducing our dependency on petroleum, and eventually driving the oil companies the way of the dinosaurs. Ironic, isn't it!

And if it takes tax incentives to cause a huge shift in our consumer behavior, then so be it. I seem to remember there was a HUGE tax incentive for buying SUVs over 6000lbs, which led to Detroit making BIGGER and BIGGER vehicles, and buyers buying MORE and MORE of them. The government made it easy for the consumer to buy gas guzzling, emission spewing, expensive to insure, monsters of the road. Why not for greener vehicles as well!

BTW, history has proven (not estimated) that big-ass SUV's cost $10K to $30K MORE than regular station wagons or trucks. So don't tell me price is an issue! American's will always pony up for whatever the want.

What about general maintenance? Service on a hybrid is understandably different than traditional combustion engine vehicles, so it's not an apples-to-apples comparison for sure. But lets take tires for instance- a set of rubber for an SUV can cost as much as $1600 or more. A Prius can be put back on the road for more than $1000 less! That's $1000 of disposable consumer income that is able to be REDIRECTED to another focus such savings, or other costs of living.

Consider the Chevy Volt. When it was first announced, the price estimate from General Motors (GM) was $30,000. That soon jumped to $35,000. Now GM’s president says that the actual price could be closer to $40,000, and that GM will still lose money on the sale. As for fuel cells, GM’s prototype fuel-cell car runs on hydrogen and emits nothing but water vapor. It’s hard to get greener than that—but it’s also hard to find a more expensive car: the prototypes cost $1.5 million to produce.

Consider the source... GM is the creator AND killer of the EV-1 electric vehicle. It is also the suppressor of battery technology development. GM once owned the patent rights to NiMH batteries, which showed great success and promise in terms of rechargeable technology, and then sold that to Texaco. Hummmm?

Additionally, I think your financial/monetary arguments are lame, especially in terms of R&D. R&D dollars are there for a reason- for innovation. PROTOTYPES ALWAYS COST MORE. And, you obviously haven't considered the R&D tax credits so heavily relied upon by corporations- especially the auto industry, yes?

But for the sake of arguments, have you bothered to compare green R&D spending with pharma, aerospace or IT R&D? I'm guessing it's all about the same, proportionally, in terms of the cost of prototype development and bringing safe, reliable products to market. (Oh, and I'm taking serious liberty in assuming that corporations are intent upon bringing safe, reliable products to market! Truly, history has shown that profit driven corporations will find ways to cut costs/corners- usually in terms of consumer safety- all the while paying lawyers obscene amounts of money to defend their decisions, and lobbyists even more to get congress to ease consumer protection laws.)

Hybrids are also more expensive to insure. Online insurance broker shows that it costs $1,374 to insure a Honda Civic but $1,427 to insure a Honda Civic Hybrid. Similarly, it costs $1,304 to insure a Toyota Camry but $1,628 to insure a Toyota Camry Hybrid.

Oh, LAME again! Lets see, a $53 annual difference for the Civic? Are you serious? Less than one cup of coffee per week! And $324 per year additional for the Camry? Less than a dollar per day! The savings in fuel alone will make up the difference. I know people who spend more on dry cleaning and nail salon visits!

What explains the higher rates? According to State Farm, hybrids cost more to insure because their parts are more expensive and repairing them requires specialized labor, thus boosting the after-accident payout.

OK, let's forget for a minute that economies of scale will eventually come into play, and parts will become less expensive over time. You want us to assume that having smart, well trained, specialized labor is a bad thing? Green-tech jobs are the future! These will be the in-demand jobs that propel our labor force into a higher paid, higher standard of living.

Even conventional small cars are more expensive to insure than larger vehicles, because the former are involved in more accidents that produce extensive injuries. According to a recent article in The Wall Street Journal, the same driver would pay $412 more to insure a Honda Civic compact that gets 36 mpg on the highway than he would to insure a Honda CR-V (Honda’s mini-SUV) that gets 27 mpg.

You're right, after-accident payouts don't just include the costs of parts, materials and labor... they are really about bodily damage to the human being. But more people are smashed up by, and in, SUVs because of the perceived sense of invulnerability leading to higher risk taking and unsafe driving practices. Talk about high risk!

FYI, both Travelers and Allstate offer discounts for Hybrids. Shop around! According to Allstate's website,, "Hybrid cars aren't just cheaper to drive. Research shows that hybrid car owners tend to fall into the lower-risk category, which gives insurance companies the chance to offer them a lower insurance premium. This depends on the insurer, though, so be sure to ask when you get your quote."

I guess it all really depends on your point of view, and your spin. But at some point, we all need to make a decision of what we want, and what we are willing to live with. What are you willing to "sacrifice" to ensure a more balanced planet?

President-elect Barack Obama wants to give a $7,000 tax credit to Americans who buy a plug-in hybrid vehicle. He says that such a tax credit will help carmakers sell a million plug-in hybrids over the next seven years. If Obama is right, that means the government will spend around $7 billion in taxpayer money to promote the sale of plug-in hybrids. Replacing all American cars with plug-in hybrids would require tax incentives worth roughly $1.8 trillion dollars (assuming each car would cost the government $7,000).

I defer to my argument on the SUV tax break. THAT "INCENTIVE" WAS UP TO $75,000! How much did that cost the American tax payer!

If the green movement succeeds in carjacking the Detroit bailout, automakers will be forced to sell costlier and less profitable vehicles. Before allowing that to happen, policymakers should consider the consequences of higher car prices, namely, reduced sales, slower fleet turnover, and longer operation of aging vehicles that emit more pollution and break down more frequently than newer automobiles.

You really want people to believe that we should continue to produce status-quo, gas guzzling vehicles because the alternative will lead to reduced sales, slower fleet turnover, and longer operation of aging vehicles, etc? GET REAL! People still drive old cars today, and always will- both out of desire and necessity.

Other's buy new cars every year or two. Shouldn't they have reasonably priced, readily available alternative fuel vehicles to choose from? Then after a few years, they trade in, and thus starts a NEW supply of USED cars, AFV's this time, now available for buyers in the pre-owned market. WHAT A CONCEPT. It all has to start somewhere.

In fact, I'd argue that selling less and having slower fleet turn over (reduction in consumption?) is not necessarily a bad thing, especially if it means we have a chance to replenish resources, restore damage to the environment and renew/replace the infrastructure necessary to foster a more sustainable planet AND global economy.

Additionally, it will also FORCE Detroit to "get real" in terms of reorganizing into organizations that will survive and thrive in the coming decades.

They should also consider how higher car prices will affect Americans in the midst of a nasty—and possible long—recession. Finally, they should ask themselves: Is this really the way to make U.S. automakers more financially secure and globally competitive?

Arguing that we shouldn't enable a green agenda in Detroit because of your perceived short-term "pain", is absurd. The recession pain we are all feeling now, due to fast-and-loose financial business practices/greed, is just one example of why big corporations will never act in the best interest of society without a little encouragement.

If you are so worried about how higher car prices might affect Americans during this nasty, possibly lengthy recession, I say NOW is the best time ever to feel the pain- in the midst of ALL THE OTHER PAIN!

Ask yourself this... if you had to have a broken arm, leg, concussion, cuts and a coma, would you prefer being inflicted with multiple events (get beat up, fall down stairs, trip, wreck your car, etc) or just get it all over with in one big, bad trauma? The pain will be there no matter when each thing happens. But if it all happens at once, then the sting of one will help the sting of another not feel as intense. It will also give the WHOLE SYSTEM a chance to reset, regroup, make a full recovery and become stronger/better than before.

Don't you know, love shared is doubled, while pain shared is halved?

Now, I'm not arguing that the "green way" is the only way, or that radical tree-huggers have all the answers. But I will argue until I'm blue in the face that the status-quo cannot be the answer either.

And though I'm an idealist, I also realize that until we, as peoples of the earth, are evolved to the point where we ALWAYS act in the best interest of existence rather than self-interest, we will have to cope with greed vs. good. As a bridge to that more evolved, enlightened level of humanity, a more reasonable approach is to find ways to "optimize" our efforts in order to balance efficiency vs profit.

Attached is my "optimization curve" theory that shows the relationship of maximum benefit to the population in relation to extreme efficiency and extreme profitability. Basically, somewhere between each extreme is an optimized level of "enough" of each.

So, before ANYONE makes ANY decisions, we need to consider ALL of the consequences of continuing down the path we've been traveling. In my opinion, the "negatives" you present are nothing more than circumstances of transition.

I know you probably mean well, but I think you are truly misguided in your analysis. So, please, rethink your archaic, backwards, and generally "bad" ideas such that your readers might actually get through tomorrow with a better understanding of the things we really need to be doing in order to build a stronger future.

Sincerely yours,


Steve Greene is a renewable energy activist, and biodiesel industry refugee

Kenneth P. Green is a resident scholar at the American Enterprise Institute.

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