2008-12-29 (Monday) by Gregory Tucker.

http://www.businessweek.com/magazine/content/08_52/b4114024610745.htm?chan=magazine+channel_news

I believe Businessweek has come up with an answer to a previous question: why don’t we allow the bankruptcy courts to sort out this mess, while taxpayers guarantee the loans that allow the companies to restructure.

1. Bankruptcy does not automatically modify the contracts with workers.
2. Bankruptcy does not automatically renegotiate the agreements with dealers
3. Creditors can scuttle bankruptcy proceedings if they choose, forcing full foreclosure and sales of assets.

I still believe Chrysler should be killed, but it is too late for that now.

Posted in Economics, USA | Print | 1 Comment »

2008-12-26 (Friday) by Gregory Tucker.

Today, while reading Natural Capitalism, I ran across the following excerpt that nicely sums up the state of the automobile industry today:

The automobile industry of the late twentieth century is arguably the highest expression of the Iron Age. Complicated assemblages of some fifteen thousand parts, reliable across a variety of conditions, and greatly improved in safety and cleanliness, cars now cost less per pound than a McDonald’s Quarter Pounder. Yet the industry that makes them is overmature, and its central design concept is about to be overtaken. Its look-alike products fight for small niches in saturated core markets; they’re now brought on price via the Internet like file cabinets, and most dealers sell new cars at a loss. Until the mid-1990s, the indusry had become essentially moribund in introducing innovation. As author James Womack has remarked, “You know you are in a stagnant industry when the big product innovation of the past decade is more cupholders.” Virtually all its gains in efficiency, cleanliness, and safety have been incremental and responded to regulations sought by social activists. Its design process has made cars ever heavier, more complex, and usually costlier. Thes are all unmistakable signs that automaking has become ripe for change. By the 1990s, revolutions in electronics, software, materials, manufacturing, computing, and other techniques has made it possible to design an automobile that would leapfrog far beyond ordinary cars’ limitations.

The fact this was written in 1999 and still holds true today makes it all the more important. Since then the industry’s greatest innovations are the Flex Fuel and hybrid engines, both of which are still just incremental improvements over the traditional car design premise. The Prius is a minor departure that hasn’t yet changed the basic paradigm of car design.

Patrick Emerson, Prof. of Economics at OSU, suggests we should allow Chrysler and GM to enter bankruptcy, and limit government assistance to guaranteeing loans in bankruptcy. This mechanism is well-established, does not require any major feats of political courage, and contains the legal authority to renegotiate agreements with the unions and suppliers. I agree, but I am concerned about the downstream effects on the entire ecosystem of parts suppliers and contractors. The government, in this case the Federal district courts, would become overburdened with bankruptcy cases and will instigate the government to a much greater degree than can be accomplished otherwise.

BusinessWeek recommends  the end of Chrysler. We should either allow the company to fail, or have GM absorb it. I would allow Chrysler to fail, for the simple reason of moral hazard–Cerberus Capital Management is well-capitalized and could save the company, but is refusing to do so, in order to get a free handout from the government. Let it fail. My only concern is a repeat of the prior–what would happen to the ecosystem of upstream suppliers if Chrysler went into bankruptcy? How would that affect the viability of Ford and GM? Otherwise the move would be positive for Ford and GM.

Natural Capitalism: Creating the Next Industrial Revolution. Paul Hawken, Amory Lovins, and L. Hunter Lovins. 1999.

http://oregonecon.blogspot.com/2008/12/detroit-and-chapter-11.html

http://www.businessweek.com/bwdaily/dnflash/content/dec2008/db2008128_251483.htm

Posted in Economics, USA | Print | 1 Comment »

2008-12-26 (Friday) by Gregory Tucker.

Concentrated Solar Power (CSP) currently has the upper hand in solar energy production. In September 2008 the Texas Comptroller estimated there are 419 megawatts of production using CSP, and many new CSP plants are scheduled to come online.

But CSP is not without its problems. For one, it only works in medium and large scale installations, because it relies on heated fluids to drive a turbine. Moreover, it only works when there is direct sunlight. The corollary is CSP continues to produce energy even when there is no direct sunlight, because the fluids continue to hold heat which drives the turbines. In general CSP installations are low tech, and the major costs are in the concrete, the mirrors, and the turbines, which are not expected to decrease significantly in cost in the future. On the contrary, the costs of these basic commodities may inflate in the future.

The VC communities are more interested in PV, for a variety of reasons. They operate in diffuse sunlight. They operate in smaller scale, rooftop installations. Their high cost components, the thin-film or crystalline silicon PV components are expected to drop in the future. If these components follow Moore’s law, their costs will be very competitive in a few years. At some point in the next few years, the limiting factors will become, depending on the application, battery storage.

In 2009  we may already begin to see significant reductions in PV costs, as more production capacity comes onto the market. Silicon spot prices are expected to drop from $165/kg to to $113/kg, resulting in module price drops of 12% from $1.52/watt in 2008. Meanwhile, thin-film PV prices are approaching $1/watt, and New Energy Finance estimates production of thin-film PV modules will quadruple in 2009. NEF estimates unsubsidized costs of production will drop precipitously by 2010.

http://www.window.state.tx.us/comptrol/fnotes/fn0809/mirrors.html

http://www.renewableenergyworld.com/rea/news/story?id=54380&src=rss

Posted in Energy | Print | 3 Comments »

2008-12-25 (Thursday) by Gregory Tucker.

I recently ran across a couple articles on Renewable Energy World that are both sobering and hopeful.

This article discusses the failure of Thin-film PV projects. While PV is gaining popularity among small scale installers, to date there are only two successful instances of Thin-film PV among larger generation projects, among hundreds of attempts. In general successful solar power projects involve Concentrated Solar Power (CSP) which use parabolic dishes or troughs to heat a fluid.  However, shortly after this article was published, PG&E announced a 10MW thin-film PV project in Nevada.

This article discusses the use of geothermic energy to provide 2,000MW of power using minor differences in the temperature of the earth from 10-ft diameter tunnels as deep as 12 miles.

Posted in Energy | Print | 1 Comment »