Turning the corner on auto efficiency

Lower oil prices have sent pump prices below $2.50 a gallon, and the decline could continue. While the falling prices provide some relief to consumers, the nation's oil dependence is not going to disappear. But there are some developments on the horizon that will help decrease our reliance on foreign oil.

Both presidential candidates have suggested that additional drilling could help. But more drilling alone will not make the United States oil independent. Even if new drilling starts today, it could be a decade before that oil reaches world markets. And even then, the economic impact for American consumers may be negligible. Regardless of where the oil comes from, it is typically sold on world markets at the going rate.

The best way to reduce our dependence on oil is to utilize other sources of energy, such as wind generation, geothermal power, coal and nuclear power. Ethanol may also help reduce oil demand, although some studies suggest that the cost of producing and transporting ethanol counteracts much of the benefit that ethanol is intended to provide.

Fuel efficiency

The other obvious way to significantly reduce oil usage in the United States is for Americans to drive vehicles that are more fuel-efficient.

"We have a lot of room to improve fuel economy," said David Kittelson, professor of mechanical engineering at the University of Minnesota. "Advanced engines and hybrids can offer enormous improvements in fuel efficiency."

In fact, all three U.S. automakers participated in a federally sponsored program in the 1990s that was designed to increase fuel efficiency. And the results were very impressive.

"All three automakers developed cars that could get 70 to 80 miles to the gallon," says Kittelson. Unfortunately, funding for the program was discontinued under the Bush administration and the programs were shelved by all three automakers. "They all walked away from the project for two reasons -- the federal funding was killed and they felt the project was too expensive to fund on their own," Kittelson said.

If they had continued development of those vehicles, American automakers might be leading the initiative for more efficient cars instead of eating the dust of Toyota, Honda and other foreign carmakers that have developed hybrids and other energy-efficient cars.

"My frustration," said Kittelson, "is that Ford, GM and Chrysler make our technologies look bad. But it's not their engineers -- it's the management of those companies."

The fact is, American cars really are much more efficient now than they were a couple of decades ago, but mileage levels have changed very little. "Where has that efficiency gone?" asks Kittelson. "It's gone into the size of the vehicles and the acceleration rates. If we had the same size cars with the same acceleration today as we did in the 1980s, our cars would have 50 percent better fuel efficiency."

American carmakers may start turning out some innovative fuel-efficient models in the near future. "GM is expected to have a plug-in hybrid in 2010 that can go as far as 40 miles without a recharge," Kittelson said. "That looks like it could be a winner because 80 percent of the trips we take are 40 miles or under."

Outside of Detroit, carmakers already are unveiling some very efficient vehicles. Earlier this month Daimler introduced its "Smart ED," a small, all-electric vehicle that can go 90 miles between charges.

In Finland, engineers are developing a battery-powered car called Fisher Karma that can go 50 miles without a recharge, at which point a small gasoline engine kicks in to recharge the battery. On a long trip, the car can reportedly get about 100 miles to the gallon -- roughly twice the mileage of a Toyota Prius. But all that efficiency does come at a steep price. The Fisher Karma is expected to roll off the assembly line next year with a retail price of $80,000.

Although electric cars still require energy -- the batteries need to be recharged either through a gas-powered engine or through an electrical outlet -- the energy requirements are considerably lower than a traditional, gas-burning combustion engine, Kettelson said.

"I think the future will be the electrification of transportation," says Kittelson. "That may not work for airplanes and big over-the-road trucks. But I think we're going to see a lot more electric cars on the road in this country in the next few years."

Smart investors should start researching this field. If Kittelson is right, there will be plenty of investment opportunities.

Gene Walden is the author of more than 20 books about business and investing. He lives in the Twin Cities. Send questions or comments to: gwalden100@comcast.net.