Survival of the Corporate Fittest: The Future of Automotive Companies

Trains Lose

On May 10, 1869, the golden spike was driven home at Promontory Summit, Utah, and the first transcontinental railroad spanned the United States. For the next 60 years railroads were king, moving people, freight and the U.S. mail throughout the nation. By the time the U.S. entered World War I, the railroads employed 1.8 million people—more than one percent of the entire population at that time.

The railroads were so powerful they even controlled time itself, or at least its observance. Before 1883 clock setting was a purely local matter and regional governments decided for themselves what time it was based upon the position of the sun in the sky. But on November 18, 1883, the railroads established standard time within zones throughout the U.S. and Canada, which is why the Department of Transportation, which regulates the railroads, remains the nation’s timekeeper.

But the advent of highways and airlines encroached upon railway market share territories. Rather than evolve into a multi-modal transportation industry, the railroads refused to change with the times and many went bankrupt in the 1970s.

Oil Gains

When geologist M. King Hubbert predicted in 1956 that U.S. oil production would peak sometime between 1965 and 1970, his employer, Shell Oil, listened and made the corporate decision to evolve from an oil company to an energy company. Rather than continue to rely solely on traditional drilling and production, Shell has invested heavily in alternative energy sources, including wind, solar and biofuels research. Their projects include the creation of synthetic biofuel from waste paper or seawater algae (as an alternative to turning corn into ethanol), and construction of massive wind turbines to provide clean electricity in the U.S. and Europe.

In a similar manner, Chevron in February 2008 teamed up with Weyerhaeuser, one of the world’s largest forest products companies, to research the creation of biodiesel fuels made from wood chips. ExxonMobil funds climate and energy research at Stanford and collaborating universities around the world, including projects in hydrogen and solar power, biomass and advanced combustion of hydrocarbon fuels. (Although filling the gas tank remains painful, at least we know the money is going somewhere useful.)

Cars—Well . . .

U.S. automotive manufacturers find themselves at a crossroads today. With their current crop of gas-guzzling SUVs and pickup trucks becoming economically unfashionable and infeasible, it won’t be enough for Ford, Chrysler and General Motors to retool their factories; they’ll have to retool their thinking and decide which of the two examples above to follow.

If Hubbert’s peak oil theory is correct, the days of the gasoline-powered internal combustion engine are numbered and another way must be found to fuel transportation both public and private. Although all three U.S. automotive companies are introducing “greener” vehicles—hybrids, cars with greater efficiency or the ability to burn biofuels, the predominantly electric Chevy Volt—increases in technology, production runs and market penetration won’t be sufficient to lower America’s fuel usage for years to come. This will also require fundamental changes in the supporting infrastructure, from the inventory carried at the local auto parts store to the inclusion of electric plugs at parking lots or natural gas pumps at the corner filling station.

Legislative endeavors currently underway in Congress, prompted in part by ex-oilman T. Boone Pickens and in part by skyrocketing crude oil prices, intend to push that envelope by introducing natural gas powered vehicles which can be refueled at home, thus undercutting part of the infrastructure problem. The technology is proven, and these cars are already available overseas through Volkswagen, Opel, Mercedes, Honda and even GM and Ford. But it seems an act of Congress will be required before the concept is adopted for the private U.S. market.

Return of the Railroad

Meanwhile, deregulation and restructuring of the railroads in 1980 led to a resurgence in its viability as a bulk transportation system. According to the Association of American Railroads, an 85% improvement in fuel efficiency since that date has led to the ability to move a ton of freight an average of 436 miles on one gallon of diesel fuel, with resulting reductions in emissions, costs and road congestion. Over 40% of all U.S. intercity freight transportation is again riding the rails, four times the amount in Western Europe.

Detroit, are you listening?

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