After you’ve made your car mechanic a rich man and terminal rust is devouring the metal frame of your car, it may be time to re-evaluate your “investment” in your car. Statscan figures there are 1.6 million commercial and passenger vehicles sold annually in Canada. There are roughly 20 million on-road vehicles registered in Canada, which means that the average vehicle life is 12.5 years.
Collectively we burn 55 billion liters of gas and diesel. At $1 a liter, we spend $55 billion per year to keep our tanks with fuel.
A rough value of Canada’s vehicle fleet is $560 billion if we assume an average value of $28,000. Remember that trucks are included in this total. Each year we spend $45 billion on new vehicles.
My ailing vehicle is 12 years old and has six months to live. The tedious process of finding a replacement speaks volumes about the state of my finances. The rich write a cheque for the new car of their choice. The “financially challenged” agonize over mileage ratings, the sound of an engine, the slip of a transmission or the colour of exhaust. Options are weighed as salesmen spin their stories and our heads.
But there is a glimmer of hope in the distance. Perhaps you’ve read about the new low cost cars being built in Romania, China, Brazil, India and elsewhere. Some of these cars may cost as little as $3000. On the higher end is the Renault Logan, which costs roughly $8600 and has sold over 300,000 units. It has mileage ratings of 40 mpg (6.8 L/100 km) with a gas engine.
Where this car becomes very interesting is combining the low initial cost with annual fuel savings by replacing gas-guzzlers in Canada. With an average 20,000 km annually, the fuel used would be 1360 liters or $1360 dollars. Large numbers of Canadian vehicles are getting less than half the mileage rating of this car (20 mpg or less) and would use $1360 more. Over a 12-year life, the present value of gas savings for those people changing to efficient vehicles would be $10,802 (based on 7% interest).
This means that a new low cost car would be totally paid for in less than 12 years with the money that is saved on gas, with benefits of reduced CO2 emissions and reducing national oil consumption. The annual benefit of taking a gas-guzzler off the road and replacing it with something like this is 3600 tonnes per year. If ten million vehicles were replaced and efficiency doubled, then we have reduced CO2 by 36 Mt per year and that is 20% of the required Kyoto reduction. And it doesn’t have to cost the government any money to accomplish this.
So, could we turn this idea into a practical program without costing much government money? The key is to use the existing financial institutions as the administrators and source of funds. A minimum program would see loans of $10,000 at commercial rates to every person who wishes to replace their vehicle with a new vehicle that gives double the gas mileage. It is necessary that the previous vehicle be certified as scrapped / recycled off the road to derive the maximum benefit for the environment. The loan is repaid from cash available from fuel cost reduction. When fuel prices rise, the business case just gets better.
Not all people would want a Renault Logan or similar low-end vehicle. Some individuals would purchase vehicles of greater cost and absorb the repayment costs above fuel savings via income, as is the case today.
We should expect that as world oil production tends toward a decline, the status quo will become unacceptable. I got a chuckle hearing that GM is building a Yukon / Tahoe hybrid in 2008 that will take it’s average fuel rating from 18 to 22 mpg. Minor tinkering with fuel consumption is unlikely to save the SUV models and won’t stop GM from bankruptcy in the near future.
Automakers can’t immediately change course without large retooling costs but is there a really a choice if Ontario wishes to retain an auto industry? Witness the rise of the Japanese, Korean, and soon the Chinese automakers. What future exists for a Canadian industry that is anchored in the past and doesn’t provide vehicles that we will need in a post oil society?
The annual purchase of $45 billion worth of vehicles has an enormous impact on Canada. Our choices are influenced by auto industry spin (advertisements). It would be interesting to see an effective long-term liquid fuels strategy by the federal government. At what point will Stephen Harper inform Canadians that we urgently need vehicles with superior mileage ratings? His mantra that control of CO2 emissions is either impossible or requires enormous tax dollars wears thin.