What Would Chavez Drive?
After GM filed for bankruptcy and the US government took a 60 percent ownership position of the troubled company, Venezuelan President Hugo Chavez quipped, “Hey, Obama has just nationalized nothing more and nothing less than General Motors. Comrade Obama! Fidel, careful or we are going to end up to his right.”
Chavez’s provocative statement wasn’t the first time that critics have accused the Obama Administration of playing a heavy hand with the auto industry. Iowahawk, a web humorist and auto industry observer, had a YouTube hit with a video about the “The 2012 Pelosi GTxi SS/RT Sport Edition,” a tiny alternative car mandated by “Congressional Motors.”
Evidence of Washington’s inability to live up to its promise to take a “hands off” approach with GM is already beginning to emerge. According to the Wall Street Journal, Rep. Barney Frank—whose committee controls the distribution of government funds to GM—took issue with the planned closure of a distribution center in his district. Frank placed one phone call to CEO Fritz Henderson, and suddenly, a decision was made to keep the center open for at least another 14 months.
One wonders how aggressive President Obama will be in forcing GM and Chrysler toward higher fuel efficiency. Last month, the administration guided a diverse group of stakeholders to agree to a significant bump in fuel efficiency standards—a rise from 27.5 mpg today to 35.5 mpg by 2016. Will Obama force Detroit to produce the vehicles to meet those standards, regardless of what auto executives or consumers may prefer?
Ironically, it’s perhaps not Obama’s policies, but Chavez’s nationalization of Venezuela’s economic sectors that may more effectively push automakers in a greener direction. Why is that? Because Chavez’s nationalization of oil has hamstrung his country’s oil production—the world’s fifth-largest crude exporter.
In 2007, Venezuela’s state oil company took a 60 percent stake in four projects which process crude oil into 600,000 barrels of synthetic oil a day in the country’s eastern Orinoco River basin. The companies affected by the decree are Exxon Mobil, Chevron, ConocoPhillips from the US, Total SA from France, British Petroleum and Norway’s Statoil ASA. Overall, Chavez’s government has seized the assets of 60 foreign and domestic oil service companies. “The privatization of oil is over,” Chavez said. “This is the last space that was left for us to recuperate. Petroleum now belongs to all Venezuelans.”
Chavez’s alienation of oil service companies has reduced Venezuela’s oil production below 1997 levels. Venezuela’s national oil company has slashed investment in new energy projects by $10 billion.
Venezuela’s actions are part of a larger trend. More than 75 percent of the world’s oil reserves are controlled by national oil companies today. Of the world’s top 20 oil-producing firms, 14 are state-run. Lack of new investment continues to reduce production. Meanwhile global demand—which has been temporarily slowed by economic recessions—is expected to steadily rise in the next year or two. Analysts predict yet another in an ongoing series of oil price spikes—sending the price at the pump through the roof and US consumers racing toward hybrids and other fuel-efficient cars. In this way, Chavez’s nationalization efforts could have a bigger impact on the cars we drive than Obama’s so-called “nationalization” of GM ever could.