December SUV and light truck sales are expected to exceed car sales for the first time since early in '08. Production of the Prius hybrid has been halted due to plunging sales, which were down 48% in November.  Heavy SUVs (those built on a truck chassis) and full sized pickup truck sales are expected to exceed 51% of all vehicles sold in this country when all the December sales numbers are in.

Global warming or climate change (whichever is currently the politically correct terminology for the theorized environmental impact of carbon dioxide emissions) doesn't seem to be much of a front page issue at the moment nor does it seem to be on the mind of most of the few people actually buying vehicles.  Concerns about America's energy dependency seems to have waned as well -- importing most of our oil doesn’t seem to bother us nearly as much when it is cheap as it does when it is expensive.  Of course, at some point in the not too distant future, the blame for the incredible folly of foregoing a hybrid in favor of a gas-guzzling pickup truck will be blamed on "Joe Sixpack's" shortsightedness.
 
Gasoline prices exceeded $4 a gallon this summer, recent prices in the $1.60 range is a major factor driving the change in fortune both for SUVs and hybrids.  Obviously, some Americans are living in Nirvana -- where gas prices will stay under $2 forever.  However, another factor is contributing to the resurgence of the SUV: the extraordinary level of incentives that the domestic automakers are providing to SUV and light truck purchasers.  These "incentives" exceed $12,000 for some SUVs and light trucks and are actually indicative of the gross margins built into the "sticker" price of these once VERY profitable vehicles.

Another factor to the resurgence of the SUV is the fact that GMAC is now a "bank," with access to the generous outflow of funds from the Treasury and the FED that are only readily available to "banks."  GMAC can now finance vehicle sales to customers that other lenders would deny an auto loan.  Just to put a little perspective on things -- the $5 billion that the Treasury handed to GMAC is enough to have financed every GMC Sierra pickup sold last year.   There is little doubt within the industry that GMAC -- unlike the other "bankers" who received TARP funds -- will be lending those funds out to finance new vehicle purchases in order to support GM.  GMAC had been effectively written off by GM and its other owners before the treasury stepped in and provided GM with the financing need to convert GMAC to a bank.   Therefore, every dime that GMAC has available will be lent regardless of the financial consequences for GMAC.   It will be interesting to note over the next few months is there develops a trend indicating that GMAC uses its TARP funds to finance pickups and SUVs while denying loans to equally qualified borrowers for small cars in order to increase GM's operating profits.  Oh, if you doubt that they would do that, I encourage you to open an incredibly high rate passbook account at the new GMAC BANK.  They seem to be willing to pay a much higher rate than the 0.0% they are charging "Joe" for a loan on a new SUV and are paying only slightly less than the 4.6% they are charging "Joe" to finance a reasonably fuel efficient sedan.

Do you remember back in September Congress passed and the White House approved a $25 Billion loan package for to help pay for retooling factories to build more fuel-efficient vehicles?  That program has gone nowhere and the media has been very quite about that fact since those funds were not to be utilized as a part of an auto industry bailout.  The bureaucrats at the Department Of Energy haven’t approved any of the 70 loan applications that it has received for the Advanced Vehicle Technology program as it is officially called.  It would seem that DOE has lost interest in pursuing energy conservation or alternative fuels in the transportation industries.  The executives at DOE must be living in the same Nirvana as "Joe."  As a result GM "postponed" plans to build a plant to produce the motors for the electric vehicle (Volt) it was planning on introducing in 2010.  This was necessary because GM was counting on funding from this program to build the plant.  (Where else would GM get the money to build a new plant?)

Now, Rep. Mike Rogers, R Albama would like to give "Joe" a $7500 tax deduction for purchasing his next new SUV and make the interest he pays on the loan deductible as well.  AND, of course, he would throw in a little "kicker" of a tax deduction for the banker who wrote the loan on "Joe's" new SUV (necessary to get the measure past Barney Frank.)   

Meanwhile, elsewhere in Nirvana, Oregon Governor Ted Kulongoski proposes ending Oregon's tax break for hybrid vehicles and providing a $5,000 tax credit for electric cars.  Now that sounds good unless you are cognizant enough of the world around you to know that there are currently no "electric cars" in the US market for less than the current price of a Macmansion -- making it pretty hard for "Joe" to get one financed.  That makes the Governor's proposal a transparent effort to remove any incentive to pick a hybrid over a gas-guzzler.

Oil prices have not dropped due to the discovery of massive new producible reserves increasing available supply.  A decline in world demand caused by economic recession and the failure of the money lending system that supported massive speculation in commodities using highly leveraged borrowed funds is what has caused the massive price drop.  Prices will begin to rise within a year or two, even if our economy does not recover significantly, because oil exploration and oil field development have nearly stopped.  New oil supplies are required to offset the dramatic decline in production that has been occurring in older production fields, i.e. Mexico and the North Sea.  The current low prices will not cover the production costs of the new deep-water offshore fields that are the only real hope there is to maintain or marginally increase the supply of crude oil. 

Even some oil sources currently in production are economically marginal at current prices.  For example, a year ago the production cost from Canadian tar sands was estimated to be between $40 and $45 per barrel.  With the price of crude being so low (< $40/bbl today) and volatile, tar sands producers are at risk of significant losses if they continue production. However, if they curtail production now the problems in the credit markets may make it difficult or impossible to fund a restart of operations as crude oil demand and prices increase.  Of course, planned increases in tar sands oil production capacity have been postponed due to uncertainty over price and the inability of some players to obtain funding in the frozen credit markets.   

It would appear that America is heading for another oil crisis which may be the most severe yet as rapidly increasing prices and tight supplies put a phenomenal stress on an economy decimated by the worst economic crisis in over 50 years.  We will have nobody to blame but our institutions, and ourselves -- but we won't -- we will blame "Joe" -- and, of course, those damned selfish, greedy Ragheads. (sic)