Environmental Issues > Energy Main Page > All Energy Documents

Contents page

Executive Summary

Since the late 1990s, Detroit's three big U.S. automakers -- General Motors Corp., Ford Motor Company, and DaimlerChrysler -- have relied heavily on large, truck-based sport utility vehicles to drive company profits. But with gasoline prices now at near-record highs, consumer demand for mid- and full-size SUVs is sinking fast. What if higher gas prices are here to stay and the trend away from gas-guzzling vehicles continues? To help automakers and policymakers evaluate the consequences of high oil prices, we modeled potential effects of average gasoline prices at $2.86 a gallon ($80 a barrel) and $3.37 a gallon ($100 a barrel) against a baseline of $1.96 a gallon ($45 a barrel). This report says that sales, profits, and American jobs are at risk if Detroit automakers continue with their current business strategy in the face of higher oil prices and recommends actions that automakers, government, and investors can take to mitigate the risks.

Key findings include the following:

  • Profits at Detroit's Big Three will shrink by $7 billion to $11 billion. Reductions in vehicle sales, especially SUVs, will lead to an industry-wide decline in pretax profits of $11.2 billion to $17.6 billion. Detroit's Big Three will absorb $7 billion to $11 billion in total reductions because of their dependence on SUV and pickup sales.

  • Detroit's Big Three will absorb nearly 75 percent of the decline in total sales volume. Without deeper discounts, sales volumes in the North American car and light truck market will shrink between 9 and 14 percent, or 1.9 to 3.0 million vehicles, because of the overall effect of higher oil prices on the economy.

  • Detroit's Big Three automakers absorb nearly 75 percent of the sales decreases. Fourteen U.S. factories, mostly in the Midwest, and two Canadian factories, are at risk for closure and layoffs. Especially vulnerable are GM, Ford, and DaimlerChrysler plants that build mid- and full-size SUVs, large cars, 8-cylinder engines, and rear-wheel drive transmissions in Arlington, TX, Jamesville, WI, Oklahoma City, OK, and Wayne, MI.

  • At least 297,000 jobs are on the line, 37 percent of them in Michigan, Ohio, and Indiana. North American auto-related employment in 2009 would drop by 9.8 to 15.3 percent if gas prices rise to $2.86 or $3.37 a gallon. Approximately 110,000 of the jobs at risk are in only three states: Michigan, Ohio, and Indiana.


High Oil Prices Are a Key Driver in the U.S. Vehicles Market

In just the first five months of 2005, sales of the Chevrolet Suburban fell by 31 percent, the GMC Yukon by 28 percent, and the Ford Expedition by 22 percent. GM cited falling U.S. SUV sales as the main culprit in its $1.1 billion first-quarter loss; its shares are trading at 12-year lows. Falling sales also contributed to a 38 percent first-quarter profit plunge at Ford, which has seen its U.S. market share decline for 25 consecutive months.

In a bid to prevent sales from decreasing, U.S. automakers have offered steep consumer incentives. In fact, research shows that U.S. automaker incentives between 2001 and 2004 correlate almost exactly to increases in fuel operating costs during the same time.

Although incentives help move inventories of unsold cars and trucks, they also eat into profits, weaken brands, and mask a deeper sales slump. Without these large incentives, both Ford and GM will likely continue to suffer sales declines and lose market share to foreign rivals.

Oil prices have more than doubled since 2001 and have risen to more than $60 by early June 2005. In fact, with almost no spare oil production capacity, it would take only one major event to disrupt world oil supplies, sending prices to $80 per barrel or more. And with geopolitical tensions remaining high in critical oil-producing regions, a supply disruption is a growing possibility.


Automakers, Investors, and Lawmakers Should Act Now

Fortunately, several policy measures could stem these future job losses and declining sales. Automakers, government, and the investment community should come together to address the negative effects of sustained higher oil prices on U.S. automakers in the following ways:

  • Automakers should make fuel efficiency job number one. Fuel efficiency will increasingly be a key determinant of automaker competitiveness in the near future. Betting on low oil prices might have been a good strategy a decade ago, but today it's a gamble that places companies, workers, investors, and communities at grave risk. Without a product mix that meets changing consumer demand in response to high oil prices, Detroit will pay a heavy toll.

  • Investors should recognize fuel efficiency's role in protecting shareholder value. Investors can identify, quantify, and, therefore, better manage their risk exposure in the vehicles market if they have more information about fuel efficiency. As with recent investor-led actions on climate change concerns, investors should require greater transparency from U.S. automakers and demand analyses that consider fuel economy.

  • Lawmakers should raise fuel economy through incentives and standards. Making our economy less vulnerable to high oil prices by reducing oil dependency is a national priority, and it merits public investment and commitment. Financial incentives to retool factories to build more fuel-efficient vehicles would help raise fuel efficiency levels and increase U.S. automaker competitiveness. It is crucial that the states most vulnerable to factory closings and job loss -- Michigan, Ohio and Indiana -- lead efforts to retool the U.S. auto industry.

FIGURE ES.1

Figure ES.1

Back to contents page

last revised 7/25/2005

All Tags [ View Popular Tags ]:
60mpg
AB 1493
AB 32
AB32
agriculture
air pollution
air toxics
alabama
AlexJackson
algae
AliyaHaq
alternative fuels
AnthonySwift
Appalachia
appliances
Arctic
Arctic National Wildlife Refuge
asthma
automakers
aviation
beaches
biochar
biodiesel
biofuels
biogas
biomass
birds
boreal forest
BrianSiu
budget
CaiSteger
California
California environmental legislation
Canada
cap 2.0
cap and trade
carbon footprint
carbon offsets
carbon pollution
cars
case studies
causes of global warming
CCS
CFLs
Chile
china
CHP
Clean air
Clean Air Act
clean energy
clean energy economy
clean power plan
clean vehicles
climate
climate change
climate legislation
clothes dryers
cloud computing
coal
coal-fired power plants
compact fluorescent lighting
compact fluorescents
computer equipment
Congress
consumer products
coral
cover crop
CPS
DabbieHammel
Danielle Droitsch
DanielleDroitsch
data centers
DebbieHammel
deforestation
DerekMurrow
DevraWang
DianeBailey
diesel
diesel buses
diesel exhaust
dirty fuels
dod
dolphins
drilling
economy
efficiency
efficient light bulbs
efficient vehicles
electric cars
electric utilities
electric vehicles
electricity
electricity and natural gas utlities
ElizabethShope
emissions
energy efficiency
energy efficiency standard
energy efficient buildings
energy efficient light bulbs
energy effiency
energy policy
energy security
energyappropriations
energyapprops
energy-efficient bulbs
environmental history
environmental protection agency
EPA
ethanol
finance
fish & fishing
FL
florida
Forests
fracking
fracking risks
FranzMetzner
fuel
fuel economy
fuel efficiency
fuel efficiency standards
fuel savings
gas drilling
gas prices
gasoline
gis
global warming
global warming and the economy
global warming emissions
global warming legislation
global warming pollution
globalwarming
green building
green buildings
green business
green jobs
green sports
greenhouse gas emissions
Gulf
gulf of mexico
gulfofmexico
gulfspill
halogen bulbs
halogen lightbulbs
health
health effects
home energy
home networks
household energy use
HUD
human health
Hurricane Katrina
hybrid
hybrid electric vehicles
hybrid vehicles
hybrids
hydraulic fractring
hydraulic fracturing
hydrogen
incandescent lighbulbs
incandescent light bulbs
India
India Initiative
indoor air quality
infrastructure efficiency
interiorappropriations
interiorapprops
JacksonMorris
jobs
KatharineMcCormick
keystone
Keystone XL
Kids' Health
KXL
Latin America
LCFS
lead
LEDs
light
light bulbs
light emitting diodes
liquid coal
livestock farms
location efficiency
Los Angeles
louisiana
LukeTonachel
mapping
Marcellus Shale
Massachusetts
mercury
MerrianBorgeson
methane
Mexico
mid-Atlantic
mining
MiriamRotkinEllman
mississippi
Missouri
Montana
mountains
mountaintop removal mining
mtr
natural gas
natural gas drilling
NEPA
New York
nitrogen oxides
NoahHorowitz
North Dakota
Northeast states
nrdc offices
nuclear energy
oceans
offshore
offshore drilling
offshore oil
ohio
oil
oil and gas industry
oil drilling
oil shale
oil spill
oil spills
oilspill
open space
ozone
particulate pollution
PatRemick
pennsylvania
photos
PierreDelforge
pipeline
policy
pollution
power plants
PTC
public lands
public transportation
rail
RalphCavanaugh
refrigerants
regional greenhouse gas initiative
regulatory reform
renewable energy
renewable fuel
renewables
residential small networks
respiratory illness
RGGI
riders
Rocky Mountains
RPS
SamanthaWilliams
SashaLyuste
SashaStashwick
SB 315
schools
server rooms
servers
shell
SierraMartinez
smart biomass
smart grid
smart growth
smog
smog air pollution
solar
solar power
solutions
soot
Southeast
StarlaYeh
sulfur dioxide
SusanCasey-Lefkowitz
sustainable sourcing
TanjaSrebotnjak
tar sands
tar sands pipeline
tar sands; keystone xl
tax incentives
tax subsidies
television
tennessee
texas
toxic waste
trailbreaker
transit
transportation
transportation bill
trasnportation
tv
tvs
utilities
VEETC
vehicle
vehicle emissions
vehicles
video game consoles
wastewater
water efficiency
Water Pollution
wetlands
whales
what you can do
wind
wind power
wind turbines

Sign up for NRDC's online newsletter

See the latest issue >

Give the Gift That Will Make a Difference: Renewable Reality

NRDC Gets Top Ratings from the Charity Watchdogs

Charity Navigator awards NRDC its 4-star top rating.
Worth magazine named NRDC one of America's 100 best charities.
NRDC meets the highest standards of the Wise Giving Alliance of the Better Business Bureau.


Donate now >

Related Stories

Efficient Appliances Save Energy -- and Money
A consumer's guide to buying energy efficient appliances and electronics.
Share | |
Find NRDC on
YouTube