Ford’s announcement this week that it will retool the company to produce smaller, more efficient cars ranks as one of those moments when you go, well, duh! Who knew there was an energy crisis?
The answer, of course, is that everyone knew except, perhaps, the American auto industry — which, once again, was the last to find out and the slowest to react. Ford will reveal its new direction on Thursday as it announces quarterly earnings, the New York Times reported.
Ford’s decision to go smaller is seen as another piece of evidence that high energy prices are here to stay and that overdependence on fossil fuels has begun to drive major changes in the world’s economic, environmental and political structures. Put more simply, it’s clearer that American lifestyles built on gasoline consumption will have to change.
Three plants to be converted
At Ford, three plants now making sport-utility vehicles and large pickups will be converted to small-car production. And the company will begin assembling and marketing several of its fuel-efficient European models in the United States, probably including the successful Mondeo and the European version of the Focus. Despite changes, a union official told the Star Tribune that it’s unlikely Ford would reverse its earlier decision to close the St. Paul plant in 2009.
The shift is huge for Ford, a company that for two decades had devoted itself to placing Americans in gas-guzzling, high-profit SUVs. But the company has lost $15.3 billion over the last two years as gas prices have risen and consumer tastes changed.
Now, by going smaller, Ford is, in a sense, “going home.” The company was built originally on an idea for a small, simple, mass-produced and mass-appeal car, the Model T, which is celebrating its 100th birthday this year. Whether the full-circle return to smaller products will rescue Ford from its current economic peril won’t be known for some time.
“The bet is a smart one, but it may not matter,” said Bloggingstocks.com. “Ford is now close to a decade behind the curve. Companies such as Toyota have produced small cars for the U.S. market since the days they began to open dealerships in America [during the first energy crises in the 1970s] as Ford chased immediate profits in pickups and SUVs. The margins in these products were outstanding, but their success relied on gas staying at $2-a-gallon forever. Things did not work out that way.”
More cost-cutting, layoffs predicted
The blog predicted that even with its shift, Ford faces more cost-cutting and more layoffs. Moreover, expensive retooling of plants will require more borrowed money or stock sales which, the blog said, are likely to dilute stock value. “Ford,” it said, “has been so slow to move into the market for fuel-efficient vehicles that it may have trouble staying solvent if the U.S. car market stays very soft for the next two years.”
Especially revealing was a remark to his management team by Ford’s chief executive, Alan Mulally, as reported by the Times. “We don’t have a sustainable company if we don’t do this,” Mulally said.
It’s a statement appropriate, perhaps, not only for Ford but for the nation. Can we have a sustainable country if we don’t respond fully and completely to this crisis? It’s a question that Times columnist Thomas Friedman has been harping on for years and now, at last, his phrases are coming from the lips of a wide swath of thinkers, including auto industry CEOs. Friedman’s column last Sunday was one of his most forceful.
‘A terrible thing to waste’
“A crisis is a terrible thing to waste,” Friedman wrote, quoting economist Paul Romer. He then described George Bush as a president on his way to wasting two crises: 9/11 and 4/11.
“After 9/11, Mr. Bush had the chance to summon the country to a great nation-building project focused on breaking our addiction to oil. Instead, he told us to go shopping. After gasoline prices hit $4.11 last week, he had the chance to summon the country to a great nation-building project focused on clean energy. Instead, he told us to go drilling.”
But neither shopping nor drilling is the solution to our problem, Friedman wrote.
“What doesn’t the Bush crowd get? It’s this: We don’t have a ‘gasoline price problem.’ We have an addiction problem. We are addicted to dirty fossil fuels, and this addiction is driving a whole set of toxic trends that are harming our nation and world in many different ways. It is intensifying global warming, creating runaway global demand for oil and gas, weakening our currency by shifting huge amounts of dollars abroad to pay for oil imports, widening ‘energy poverty’ across Africa, destroying plants and animals at record rates and fostering ever-strong petro-dictatorships in Iran, Russia and Venezuela.”
Friedman continued, “When a person is addicted to crack cocaine, his problem is not that the price of crack is going up. His problem is what that crack addiction is doing to his whole body. The cure is not cheaper crack, which would only perpetuate the addiction and all the problems it is creating. The cure is to break the addiction.
“Ditto for us. The cure is not cheaper gasoline, but a clean energy system. And the key to building that is to keep the price of gasoline and coal — our crack — higher, not lower, so consumers are moved to break their addiction to these dirty fuels and inventors are moved to create clean alternatives.”
Those alternatives are now more clearly before us. Some examples:
• Former Vice President Al Gore last week challenged the nation to produce all of its electricity from non-fossil sources within 10 years.
• The University of Minnesota’s Center for Transportation Studies (CTS) unveiled a report this week outlining steps for reducing carbon emissions that do not carry steep costs. The report, “A Smaller Carbon Footprint” was commissioned by the Minnesota Legislature and is aimed at reframing transportation and land-use policy in Minnesota. But, as CTS director Robert Johns pointed out, the steps are applicable for other states as well. Remedies include shifts toward fuel-efficient vehicles, lower-carbon fuels, more rail and barge freight movement, more transit and more emphasis on redesigning communities in ways that reduce driving and increase walking, biking and transit-riding for routine trips. Taking those steps immediately in Minnesota could reduce carbon emissions by 15 percent by 2015, the study estimated.
• The Brookings Institution recently laid out a broader policy blueprint that includes a smaller carbon footprint but emphasizes the importance of fostering prosperity during any shift away from fossil fuels. Among its transportation suggestions: The federal government must lead a coherent reform of the current system; metro areas should have more autonomy in spending federal money, and transportation must not be seen as an end in itself but as a means of designing and building more sustainable communities. Transportation, in other words, is not primarily about moving people aimlessly from point A to B; it’s about influencing the way we live day to day. How efficient will we be? How will our travel influence the quality of our environment? How do our commutes affect our health, our family relationships, our economic well-being, or the competitiveness of our communities?
Ford’s decision to go small isn’t only about the preferences of car buyers and the stock price of the company. It’s part of a broad and deep shift under way in the American economy and in the American lifestyle.
Like the hangman’s noose, $4 gasoline tends to concentrate the mind. Americans shrugged off two previous energy crunches, in 1973 and 1979, without a commitment to change their ways. This is looking and feeling a lot different — more like the real thing. “Ford has a better idea” was once the company’s slogan. Maybe this time it really does.
Steve Berg reports on urban design, transportation and national politics. He is a former Washington bureau reporter, national correspondent and editorial writer for the Star Tribune. Steve can be reached at sberg [at] minnpost [dot] com.