Episode 895 – Ethanol Reduces Gas Prices, Americans Driving Small, Winnebago’s China Syndrome

May 22nd, 2012 at 11:30am

Runtime: 6:47

A study released by two universities indicates ethanol production in the U.S. significantly reduced gasoline prices last year.  J.D. Power says American consumers are finally warming up to small cars, but could there be other factors at work?  A private-equity firm is looking to take over recreational-vehicle maker Winnebago in order to make Chinese cars.  All that and more, plus John McElroy takes a peek at the Toyota Prius c.

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Welcome to Autoline Daily. I’m John McElroy and here are some of the latest developments in the global automotive industry.

AUTOMOTIVE ALCOHOLISM (subscription required)
A study from the University of Wisconsin and Iowa State University says soaring ethanol production in the U.S. reduced gasoline prices by over $1 a gallon last year. The U.S. produced almost 14 billion gallons of ethanol last year, equivalent to about 10 percent of all gasoline production. This also allowed the U.S. to start exporting refined gasoline as well as ethanol. Last year a gallon of gasoline cost an average of $3.52.  The study says without ethanol production the cost would have been $4.61.

Consumer Reports came out with another one of those surveys it does where an overwhelming majority of Americans say they will consider buying an alternative-fuel vehicle. They especially say they will consider buying a hybrid. Younger respondents, those under 55 years old, say they will consider buying an electric car. But here’s my Autoline Insight: Don’t pay attention to what people tell the pollsters, watch what they buy in the showroom. As Autoline Daily viewers know, electric-car sales are going nowhere and hybrids only account for about 3 percent of all car sales. Last month sales for small cars in the U.S. were up 11 percent, but sales of pickups and SUVs were up almost 18 percent.

LITTLE CARS, BIG SALES (subscription required)
Speaking of small cars, J.D. Power says American consumers are finally warming up to them. It says small cars now offer the kinds of features that used to only be found on larger cars, and that consumers are also motivated to buy them to get better fuel economy. I would add that there’s another reason. People’s disposable income has flat-lined for over a decade now. The average midsize car costs close to $30,000, and that’s just too much for most people, so they buy a compact car that is closer to $20,000. But no one wants to admit that they can’t afford what they want, so they say they feel a need to downsize.


CHINA SYNDROME (subscription required)
Private equity firm North Street has offered $322 million to takeover recreational-vehicle-maker Winnebago. According to the Wall Street Journal, North Street wants to use Winnebago’s plants to do final assembly work for Chinese car companies that want to get into the U.S. market. North Street says it already has agreements in place with several Chinese companies if it acquires Winnebago. The private equity firm also tried to buy Spyker last year.

And speaking about China. We’ve reported on how expensive cars are there, or at least how expensive imported ones can be. Bloomberg reports that the base price of a Grand Cherokee in China is $91,000 and the SRT8 version is more than double that, it costs nearly $190,000. Part of the reason is a 25 percent tariff on imported vehicles, plus another 22 percent for vehicles imported from the United States. Jeep sales aren’t very big in China, but they’re growing fast. Last year Jeep sales grew 63 percent to 19,000 vehicles.

Coming up next, I’ll let you know what it’s like driving Toyota’s newest hybrid, the Prius c.

(The Toyota Prius c overview is only available in the video version of today’s program.)

The Prius c is doing pretty well. Toyota sold over 4,000 of them in the U.S. market last month, representing about 16 percent of all Prius sales. And Toyota continues to be the only automaker that has figured out how to sell hybrids in high volume. It still accounts for 75 percent of all hybrids sold in the U.S. market.

And that wraps up today’s show, thanks for watching we’ll see you tomorrow.

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30 Comments to “Episode 895 – Ethanol Reduces Gas Prices, Americans Driving Small, Winnebago’s China Syndrome”

  1. Marsh Says:

    ‘A study from the University of Wisconsin and Iowa State University – regarding ethanol’…

    I think they had better check their math. If a gallon of gas is 5% ethanol, and a gallon costs say $3.80, then 5% of that cost would be 19 cents, not a dollar for the gas it displaced.

  2. Chuck@GM Says:

    @1 Not to mention the cost of less food on the market to grow whatever they used to make the stuff.

  3. pedro fernandez Says:

    If the Feds are subsidizing farmers to make ethanol, then the savings are even less for the taxpayers.

  4. john 878 Says:

    I’ll take a Chevy Cruze Eco, with 42 MPG on highway, over a Toyota Prius C any day. From what you say John, it got only 43 mpg on the highway, and I imagine it could get better if one wanted to baby it, like most do, but I don’t care to do that….plus the Cruze is from an American company built in the USA.

    By the way, I already own a Cruze and it’s one heck of a nice car. Before I bought it I drove the competitions and found it had no competition.

    Another point I’d like to bring, I downsize because of the better gas mileage, not because I could not afford a more expensive car.

  5. Chuck Grenci Says:

    Smoke and mirrors (in the case of gasoline prices); I don’t know who’s pulling the strings, but (some authority) is setting prices, (as announcements, irregardless of market conditions) and state that either prices are going up ‘to’ or down ‘to’ (a certain level), and voila, they do. Funny, as an election year, they’re coming down; wonder if Wisconsin and Iowa State Universities are in line, or have just received some sort of grant or other moneys recently. My last statement is said in somewhat ‘tongue in cheek’, and total speculation, but I wouldn’t be surprised (if you know what I mean).

  6. pedro fernandez Says:

    Any news on the plan to bring on E15? this was being discussed a couple of months ago and I have not read anything further on the subject.

  7. Chuck@GM Says:

    @5 Yea, from all the press reports I’ve ever seen, the workerbees at the station recieve a call tell them the price to post. And for miles around all the prices at “competitive” stations are within a few cents of each other. Why would anyone think that there is price fixing involved?

  8. Jon M. Says:

    To add to your Autoline insight, John, I would say that a survey about what people would CONSIDER is hardly worth the cost to CR. I may honestly say I’ll consider an EV/hybrid, and then actually consider one. But if I just don’t want an EV or hybrid, then I won’t consider it much before saying no. I agree you can’t pay attention to what people say in polls, but that survey is not worth the effort to CR, let alone the effort for us to read. In other words, it’s all the more useless!

  9. GPL Says:

    I think another reason for the increasing popularity of “compact” cars is their increasing size. The original Camry was 175″ long by 67″ wide with a 100″ wheelbase. The current Corolla is 180″ long by 69″ wide with a 102″ wheelbase.

    As for the effect of ethanol on the price of gas, Wisconsin and Iowa are both big corn states. The aforementioned universities probably get a fair amount of grant money from the industry which was likely the source of funding for this study, so I wouldn’t exactly consider them unbiased.

  10. Kit Gerhart Says:

    If Chevy had sold the Cruze hatchback in the U.S., in Eco form, I would have at least considered it before buying my Prius. As it was, the Prius, and TDI Golf and Jetta wagon were the only vehicles on my “short list.” Had the new Focus hatch been on the market in 2010, I would have given it a look.

  11. Kit Gerhart Says:

    I suspect that whoever says gas would be $1/gallon more expensive without the ethanol, bases their prediction on some estimate that a 10% higher demand for gasoline would have a large effect on the price of crude and refined gasoline, based on its effect on supply and demand.

  12. cwolf Says:

    John Mac: Your review of the prius was better than previous,but it would have been more complete if the cargo area,with seats both up and down,were shown.

    Question Ya’ll: Do the higher rpm’s from a crv make listening to the radio more difficult and become untolerable on long drives?

  13. cwolf Says:

    I’m happy for Ford for getting their mortgaged “blue oval” back,plus a the return to investment grade status.

    Not good for Japan,though! Their credit rating was down graded today and it won’t be long before what models are imported will cost a bit more.

    BMW may have been voted “Carmaker of the Future”,but with what lies ahead for Germany and over optomistic belief China and the US will carry them past the bumps will be a sad misfortune for them very soon!

    US sales will continue to grow for a spell and the fact that home construction is up a tad is a good sign. Many of you pay little attension to the market,but if the S&P drops another 3% or below 1300, you better seek a safe haven for your IRA’s-if you haven’t already begun looking.

  14. Dale Leonard,Lakewood Oh Says:

    Just think,with all the gas we have in Washington DC,Methane powered cars would be really cheap!

  15. cwolf Says:

    Kit,you have influenced me enough over the past to consider,not a Prius,but the Fusion hyb. The price for one is said to be about $28K,which aint small potatoes,but I can use the Z-plan. 44 mpg highway is hard to ignor,although the ATS remains a possibility. The hyb. warranty is a comfort and,I guess,one who does not take risks may deny one of new discoveries.
    After listening to J Mac’s mension that many cannot afford $30K cars hit a nerve with me; I am absolutely blessed! I buy this price a car as a work vehicle for safety and comfort due to my commute. These thoughts make me think twice and,in a way, take some of the fun out of choosing my next set of wheels.

  16. Kit Gerhart Says:

    Are you thinking about the new Fusion, or the current one?

    I know someone with a Fusion hybrid, I think a 2011. She gets about 37 mpg overall, with a lot of short trip driving. It would get 40+ mpg highway at 65 or so. It would probably drop to the high 30′s at 75 mph on the interstate, very good for a car that size and shape, but below the EPA ratings.

  17. Kit Gerhart Says:

    If you are looking for a hybrid sedan, you might also want to check out the Camry hybrid. It is getting pretty good reviews, and is a lot more American than the Fusion.

  18. cwolf Says:

    Kit, I would consider the new Fusion. The turnpike eats most of my miles,but I believe approx. 20 mi. each way could reap city benifits. Oh…,Kit,I am most in tune to foreign competitors,but I remain ol’school. I am compelled to buy what I know as”American.” I’m sure you,and pedro, will be quick to remind me that the Fusion(and XKZ) is a Mexican product. Yes,it urks me to no end,yet a lot of my family is die-hard Ford/GM. A rock and a hard place comes to mind considering all the terrific choices now a day,but I remain so childish as to cringe to have an Asian car in my drive,let alone in my possesion! I don’t think I have missed out on a whole lot by believing in the teachings of the many before me and have no intent to challenge the wisdom I have gained over my many years. Ya,I still like many aspects of the foreign stuff,mostly German,yet Hyundai can sink with the tide as far I am concerned!

  19. HtG Says:

    I’m watching the market, cwolf. Attention, there is no market, just central bankers keeping all hell from breaking loose. 100+15 Billies to keep the Greek banking system from shattering. Thank you.

  20. pedro fernandez Says:

    So cwolf you’d rather have a car built in a foreign country by foreigners than one built in the US by American workers? Because of a brand name???????

  21. Kit Gerhart Says:

    I understand the American nameplate bias. If there had beeb a real GM/Ford/Chrysler alternative to the Prius, it would have received extra consideration. I’m also at least a little where you are with Hyundai. While they now have a lot of good stuff, I don’t see myself buying one in this lifetime.

  22. cwolf Says:

    #19 You got that right,HtG! They cannot let Greece fall at this time,but it will likely happen within 2 yrs. If less,other southern euro zones will act like fallen dominos,Of the power houses,France will take the initial hit,followed by Germany. Money won’t be able to be printed fast enough to save anyones ass!
    As you may have heard,the banks,US and various Euro’s are set to offer unified bonds to by time. Bet your boots Merkel will agree to incentives to boost economies. I expect Germans will voice displeasure once past practices are somewhat relaxed and the Euro falls below $1.25 US. To heck with Europe.It is the Germans,and french, who have one heck of a challenge ahead of them: And China/US auto sales isn’t going to be enough! What a good day to be an American!!!

  23. HtG Says:

    Let’s hope there’s no Lehman type error or miscommunication between the people with their fingers on the keyboards where money is ‘created.’ No printing required, they’ve got a Dell. Really.

    Hands up, who’s nauseated?

  24. Kit Gerhart Says:

    Some people seem to take buying “brands” to extremes. That would apprar to be the only reason the Aveo sold as well as it did. Everyone from CR to the enthusiast mags considered it worst-in-class, but it outsold some competitors.

  25. cwolf Says:

    #20: No I wouldn’t pedro. I want a US manufacturer making product in this country. But consider this; Those foreign manufacturers have the advantage of unfair trade practices between countries. Some add so much paper work to make an American purchase too much a chore,some are subsidized by their country of origin,some view workers as slaves. Do you think 8000 units to Korea is a fair deal? So,pedro,you don’t mind these manufacturers to take advantage of your country in many many more ways beyond car sales as long as they hire a handfull of hundred employees making a car you like just so you will turn a blind eye to the many other ways they screw the US and YOU! What is sad,is that some can’t see past their nose to spite their face. No pedro,foreign is foreign. The profits made from each sale really does a lot for OUR economy,eh?

  26. pedro fernandez Says:

    But it’s not just the assembly, it is the parts and all the diff suppliers that make them which employ thousands here while cars like the Fusion are assembled there, Ford needs to move mfg here and put Americans back to work.

  27. cwolf Says:

    In the case of Ford,some models will return in due time. It should becoming more evident that even the small cars,once unprofitable to make here are returning. Change never happens fast enough,especially when times are tough for many.

  28. jesse Says:

    How long will this farce about Ethanol continue?This has to be the most ridiculous article in a long time.1 DOLLAR a gallon less?Oh really?Even if that were remotely true,what about the fact that ETHANOL lowers gas mileage so one would need to buy gas sooner and buy more of it in doing so??Thereby negating any imaginary lower cost!Not to mention that it was useful back in the late 70′s or early 80′s.It served a purpose back then.Now,with technology,cleaner burning fuels and all that,it’s nothing more then a gimmick for some people to make big money on(farmers) and for politicians to fool the American public into thinking it actually has some benefit.Somebody really needs to speak up !!!

  29. Edwin Benson Says:

    Hmmm… The Ethenol Study comes from the Universities of Wisconsin and Iowa – two big farm states. Am I being conspiratorial to suggest that the ‘scientists’ who ran the study could have been promoting the interests of those who pay their salaries?

  30. Dan Clemons Says:

    We have a 2011 Toyota Prius and just love it. What we like least is the navigation. It can’t always get you where you want to go so we use our Garmin Nuvi and that always takes us where we want to go.