Don't forget the oil companies

Don't forget the oil companies
US automakers are asking Congress for a $25bn bail-out. But why not have the oil industry foot the bill?

Here's some data. According to the Bureau of Transportation Statistics (pdf), Americans drove about three trillion miles last year. To fuel all of that shuttling around, according to the Energy Information Administration , we purchased about 142 billion gallons of gasoline from retailers. A little bit of quick division and we find that, in 2007, the average vehicle mile was travelled with a fuel efficiency of 21 miles per gallon. Kind of pathetic.

At the same time, in 2007, the average gallon of gasoline ran about $2.80 – which is to say that Americans spent something like $400bn on gasoline last year alone. The EIA further reports that, in 2007, "distribution, marketing and retail dealer costs and profits in 2007 were 10% of the gasoline price". Just for fun, let's guess that "profits" accounted for 62.5% of that 10%. Well then: $400bn x .1 x .625 = (drumroll) $25bn! Let's see ...where have I heard that number before?

Overall, the oil industry collected $155bn in profits in 2007. That's in no small part (about 16% if this math is right) thanks to a decades-long lobbying effort to keep vehicle fuel standards as low as possible, which, as collateral damage, has made the American fleet uncompetitive in an era of high oil prices. That, in turn, is one (a big one) of the many reasons the auto industry is sitting on the precipice of a major collapse. And if it needs $25bn to stay alive, I can think of one place where they can find that kind of money.

But, of course, Detroit hasn't (and won't) ask Big Oil to bail them out. They've asked taxpayers – or, more specifically, the interest-group-beholden men and women in the US Congress who supposedly represent the taxpayers. They're the ones who will decide on the terms of an aid package. As they devise one, they should keep in mind the oil industry's role in the auto industry's woes.

Executives from the so-called Big Three auto companies – Ford, Chrysler and General Motors – came to Washington yesterday to make the case for aid but were met with an unusually icy scepticism. "I voted for $25bn [in low-interest loans] to help you restructure," said Democratic senator Robert Menendez. "But when I hear you not being able to give us how this $25bn will take you to that place in time in which you will be able repay the taxpayers of the country ... well, it's a difficult proposition."

Republican Richard Shelby, the ranking member of the Senate banking committee, asked: "Will it be used to improve their business model and product lines, or is this just life support?" (Shelby's home state, Alabama, it should be noted, plays host to plants owned by foreign manufacturers, including Toyota, Honda, Mercedes and Hyundai, all of which would be poised to benefit from a collapse in Michigan.) The New York Times added: "It appeared they had not persuaded enough lawmakers to move quickly on a bail-out."

So a bail-out may not happen at all. But if it does, what should it look like? Executives have indicated their willingness to accept limits on compensation. But the terms must be much, much broader than that. CAFE standards must be increased again. Companies must increase the percentage of operating costs that are currently dedicated to researching and creating hybrid and plug-in vehicles.

Beyond that, there's room for creativity. Part of the bail-out could be paid for via a windfall profits tax on oil companies. Or, perhaps, the package could include the following provision: Auto companies that receive federal funds must provide the government with hybrid or otherwise low-emissions vehicles. The government, in turn, would create a programme that a) allows low-income Americans (and Americans that are having a hard time fuelling up their SUVs) to trade in their gas guzzlers for new, clean vehicles, and b) recycles the scrap, where possible, into various flanks of a green infrastructure investment programme.

See? Bail-outs can be fun! There is no shortage of ways to sweeten what will otherwise be a bitter deal. And if you're not sure whether a particular provision is good or bad, you could do worse than to ask yourself: "Would oil companies be happy about this?" The answer should tell you everything you need to know.

*******************************************************************