The Quest: Energy, Security, and the Remaking of the Modern World

by Daniel Yergin

  By the mid-1980s, when oil and gasoline prices collapsed, the share of household budget going for auto fuel shrunk back to a small amount. Once again, as in the old days, new-car buyers fixed instead on price, performance, and reliability—and, of course, on how the car looked. Fuel efficiency plummeted down the list of concerns, if it still made the list at all. But U.S. manufacturers still had to meet their efficiency targets. At the same time, foreign automakers, particularly the Japanese, were now broadening their appeal and demonstrating their ability to meet the demands of a wider public. They were entrenching themselves in the U.S. market and were pursuing a strategy that made them increasingly less “foreign.” Japanese auto manufacturers began to put down roots—opening plants, research-and-development centers, design facilities, and joint ventures around the United States. This helped offset vehement domestic opposition that came both from the Big Three and from unionized autoworkers.

  THE NEW PASSION

  Because it was required to do so under U.S. automotive regulations, Detroit produced the smaller, high-efficiency cars as sort of lost-leaders to ensure compliance with the CAFE fuel-efficiency standards. But its focus was increasingly on a category of larger vehicles called “light trucks,” and in particular, a type of vehicle that had never really even existed before.

  This shift began in the 1980s when Chrysler introduced a new kind of light truck code-named during development as the “T-115.” But soon it would be better known as the minivan. By then, the fuel-efficiency standards had effectively killed the station wagon as a major vehicle class. The station wagon had been the emblematic conveyance of pre-1973 suburban life. But the fleet averages for fuel efficiency left little room for the traditional station wagon, which was heavier than the typical car and used more gasoline. It had to be squeezed out if the automakers were to make their fleet averages for cars.

  However, minivans had the great merit of counting as something altogether different—light trucks. This would have major implications for fuel consumption. When the original 1975 fuel-efficiency regulations were written, the target standards were lower for light trucks—20.7 miles per gallon—compared with the 27.5 mpg for cars. In fact, not much thought had been given to such vehicles because they were such a small share of the market: cars comprised over 80 percent of total new vehicles sold, and pickup trucks and vans were mostly driven by farmers and tradesmen. The idea of the minivan and SUV was not even a glimmer in Detroit’s mind.

  But now with the minivan it was possible to have a vehicle that provided the functionality desired by many drivers—indeed, that exceeded the functionality of the station wagon—without pushing automakers into the penalty box on fuel efficiency. Vans, once the province of delivery people and plumbers and electricians, had become the favorite family vehicle. These new minivans had enough room for parents, children, friends, sporting gear, luggage, and pets, and came equipped with such family-friendly and parent-useful features as a sliding door on the right-hand side and a coffee holder. Chrysler, in the words of a competitor, had hit a “home run” with the minivan.

  Chrysler had also opened the door for another new vehicle entrant when it purchased the Jeep from now-defunct American Motors. What had originally been a rugged wartime workhorse now became the “sports utility vehicle”—better known as the SUV. In 1990 Ford brought out its four-door Explorer, and demand for SUVs really took off. In addition to minivans and SUVs, people who had no need at all for pickup trucks started buying pickup trucks. All these vehicles—minivans, SUVs, and pickups—were classified in the same “light truck” category. And Americans could not get enough of them. By the mid-1990s people were talking optimistically of a new “Golden Age of America Autos.” And Chrysler, a few years earlier on the brink of failure, was now crowned the “world’s most successful automaker.”19

  The Ford Explorer quickly became the most popular SUV. Its main competitor, General Motors, was caught off guard; it had assumed in the early 1990s that higher oil and gasoline prices were ahead, and thus it had been anticipating that consumers would want more-efficient cars and higher fuel economy. But in the face of the massive demand for Ford’s Explorer and other SUVs, it had to pivot and play catch-up. It responded with the Chevy Blazer, but it was not moving fast enough.

  “Sometimes a certain kind of vehicle gets hot for no logical reason,” said Rick Wagoner, the former CEO of General Motors. And the SUVs and minivans got very hot. “Demand outstripped supply,” recalled Wagoner. “We would wake up every morning and go into the market and find that we didn’t have enough product. We just didn’t have enough capacity for the larger engines required for these bigger vehicles. At every board meeting, we got the same question. ‘Why don’t you have more truck capacity?’ ”

  The light trucks even came to define a new demographic: the suburban “soccer mom.” By the time of the 1996 presidential election, she had become a coveted and critical bloc, courted by both parties. But it was not just moms. It was also dads and young adults. By the late 1990s, America’s traditional love affair with the automobile had turned into a torrid passion for SUVs.20

  This rapid move from cars to trucks had major implications for U.S. fuel use, for a new minivan or SUV was 25 percent less fuel efficient than a new car, and the number of light trucks on the roads was rapidly increasing.

  But there was also “price” behind the “passion.” A decade of extremely cheap gasoline facilitated the emergence of the SUV and trucks. The price of gasoline was so low that it was virtually irrelevant to the consumers; in fact, in 1998 gasoline made up a smaller proportion of U.S. household spending than it had in the 1950s and 1960s. In real terms, gasoline was cheaper than it had been at any time since records started being kept.21

  The effect of price was demonstrated in a study that compared the United States and Europe. In Europe, where fuel prices were much higher owing to taxes, 50 percent of the new technology in automobiles was directed at fuel efficiency. But in America, once the efficiency targets were reached, only 20 percent of the new technology in cars went toward fuel efficiency. The other 80 percent of new technology went into such things as performance, safety, size, accessories, utility, and what has been described as “luxury.” For instance, in the twenty years between 1987 and 2007, horsepower increased 85 percent.22

  By 2000, sales of less fuel-efficient light trucks in the United States had overtaken that of traditional cars. At the same time, people drove many more miles, whatever the vehicle. The average car put on about 30 percent more miles in 2003 compared with 1985: 12,300 miles per year compared with 9,400 miles. Also, the total number of vehicles on the road increased as the U.S. economy and population both expanded. For all these reasons, gasoline consumption had increased by almost 50 percent between 1985 and 2003.

  Overall, a kind of division of labor had settled over the auto market. Detroit concentrated its big guns on the bigger vehicles—SUVs and vans—while the Japanese, Koreans, and other manufacturers captured a growing share of the car market, increasingly with cars manufactured in the United States, as well as with imports. The SUVs were more profitable, which helped the American automakers cope with a competitive disadvantage compared with the foreign companies. This was the “legacy costs”—employee health and retirement costs, negotiated in the fat years with the United Auto Workers, which foreign companies did not have to bear. These costs have been estimated at $1,500 to $2,000 per vehicle—more than the cost of the steel that goes into the vehicle. In such circumstances, there was little incentive for American companies to risk a billion dollars and five years of product development to produce a new, more fuel-efficient model that relatively few would want.23

  The thinking was different in Japan.

  REMAKING OF AUTOMOBILE

  In the late 1980s, Toyota’s chairman, Eiji Toyoda, who had driven the company’s phenomenal growth over many decades, began to worry that complacency and self-satisfaction were enveloping Japan during its great economic bubble and that these sentim
ents might infect Toyota. Over the next couple of years, he brooded about the future of the automobile itself: How would concerns about the environment and energy security affect the future of the industry? Toyoda challenged the company to come up with a car for the twenty-first century that would be more efficient than its best-selling Corolla and that would be environmentally conscious. The cultural values of mottainai—“too precious to waste”—underlay this initiative. In Japan, with virtually no oil, the fragility of energy supplies was an ever-present concern in a way that was not the case for American automakers. The 1991 Gulf War dramatized the risks from dependence on oil.

  All these elements went into the mandate for a new car. The research team was called G21—for “global twenty-first century.”

  Still the mandate was pretty vague. From a cost and quality perspective, the G21 team came to a crucial conclusion: electric cars and fuel-cell cars were just too far away. By 1994 the team homed in on the idea of yoking together two parallel drive trains—one gasoline-fired; the other, battery-based. They called it a “hybrid.” The attraction of the hybrid design was that it would employ existing infrastructure and take advantage of the power density of liquid fossil fuels. They went through more than a hundred different configurations before settling on the fundamental design. Some in the company figured that the likelihood of success was only 5 percent. And some even questioned whether what they were coming up with were “really cars” at all or whether what they were calling a hybrid would be more appropriately described as a mutant.24

  In stop-and-go city driving, the car, which would become known as the Prius, would employ its electrical motor. But when an extra boost was needed, a small, hyperefficient internal combustion engine would kick in. At high speeds, the internal combustion engine would take over altogether. The battery would be partly recharged by the gasoline engine. But it would also be recharged by capturing the kinetic energy—dissipated as heat when cars brake—and turning that into electricity. (Indeed, about two thirds of the energy produced by the internal combustion engine is dissipated either as heat or through the exhaust pipe.) They called this regenerative braking. In this way, what traditionally was a waste product—heat—was transformed into something much more useful—electricity. The heat was “too precious to waste.”

  It was very challenging to implement the concept, for the engineers had to take two different engine systems and make them work seamlessly. Moreover, the G21 team was under intense pressure to get the car ready by 1997, to coincide with the Kyoto climate-change conference. Working at hyperspeed in terms of designing wholly new cars, they made the deadline, just barely.

  But the Prius still needed to be accepted in the marketplace. Honda actually beat Toyota into the U.S. market with its own hybrid—the Insight—released in 1999. Honda was following a different strategy—“hybridizing” its well-known Civic model rather than creating a wholly new car. The Prius, by contrast, was an entirely new model. It went on sale in the United States in 2000.

  For the first couple of years, neither Toyota nor Honda made much headway in the U.S. marketplace with their hybrids. It was only around 2003, with concerns rising about climate change and gasoline prices, that a second-generation Prius, larger and more powerful, caught the public’s imagination and started to become the poster car for the hybrid-generation.

  Sales of the Prius and other hybrids began to accelerate. They still cost several thousand dollars more than comparable models, and there was some debate as to how many thousands of miles motorists would have to drive to make up for the difference. Consumer Reports may have questioned whether a hybrid was actually superior to a high-mileage car from a dollar-savings point of view, taking into account vehicle as well as fuel costs, but that was not the point. Although there were tax incentives to encourage hybrid purchases, the hybrid was about more than just incentives and economics. Driving a Prius was also a statement—both to others and oneself—about the owner’s concern about the environment, climate change, and oil dependence. As time went on, hybrids gained cachet: in a statement about environmental consciousness, movie stars arrived at the Academy Awards in chauffeur-driven Priuses.25

  WHAT ABOUT PLAN B?

  Rising prices at the gasoline pump after the turn of the century made car buyers once again aware of the fuel bill for a car, and painfully so for an SUV. For Detroit this was the beginning of the nightmare. In 2004, for the first time since they began to take hold, the market share for SUVs and other light trucks began to slide. Yet the American automakers did not really have a real Plan B. “Light trucks” is how the companies made money, and “light trucks” seemed to be what buyers truly wanted. But not for much longer. As prices at the pump climbed, SUV sales slipped, putting pressure on the American companies. They tried to buy time—and hoped for a turnaround—by cutting prices, offering rebates, and providing 0 percent financing.26

  The politics were changing, too. Increasing gasoline prices were fueling the public’s rising ire. Moreover, in some parts of the public, concerns about oil imports and global warming were also gaining traction. All these were coming together to create a coalition in favor of doing something that had not been possible for three decades: raising fuel-efficiency standards.

  Detroit, with its shrinking workforce, shuttered plants, and reduced footprint, no longer had its old political clout. Now senators from states where Toyotas or Nissans or Hondas were produced did not worry much about the fate of General Motors or Ford or Chrysler. When Toyota announced that it was investing $1.3 billion in an assembly plant in his state, creating thousands of jobs, Mississippi Senator Trent Lott declared, “We are warriors on your behalf.”

  Just as important, there was a growing technical consensus that much more could be done to improve efficiency, as much as 40 to 50 percent by 2030, with existing internal combustion technologies. The National Research Council, representing the National Academy of Sciences and the National Academy of Engineering, made that argument, although it diplomatically added a politically somewhat-unpalatable observation: “There is a marked inconsistency between pressing automotive manufacturers for improved fuel economy from new vehicles on the one hand and insisting on low real gasoline prices on the other.”27

  NEW STANDARDS

  As oil prices headed toward $100 a barrel in the second half of 2007 and as conflict continued in the Middle East, political opposition to higher fuel-efficiency standards melted away. The Energy Security and Independence Act of 2007, for the first time in thirty-two years, raised the fuel-efficiency standards: to thirtyfive miles per gallon by 2020. The new target applied to both cars and SUVs and other light trucks. It could mean a savings of as much as two million barrels per day, compared with the previous standard. The legislation also initiated, for the first time, the process for regulating the fuel efficiency of large commercial trucks. This was the same legislation that also mandated the use of 2.3 million barrels a day of biofuels by 2022.

  In signing the bill, President George W. Bush called it “a major step” toward “reducing our dependence on oil, fighting global climate change, expanding the production of renewable fuels,” and making the country “stronger, cleaner and more secure.”28

  There was an unexpected bump at the very end of the legislative road. After the congressional vote for the new standards, the legislation still needed to be signed into law by the president. For that to happen, the bill had to be physically delivered to the White House, which meant that someone had to actually drive it up Pennsylvania Avenue. And that is what a congressional clerk did on the afternoon of December 19, 2007—in what is normally a very standard, unremarkable activity. Except that this piece of legislation—so bitterly contested by the U.S. automakers—was delivered in a fuel-efficient hybrid Prius, manufactured by the Japanese company Toyota. Not only was Toyota the great rival of General Motors, it was also at that moment in the process of overtaking GM as the number one auto manufacturer in the world. And not everybody believed that it was just an ac
cident. An outraged congressman from Michigan denounced the delivery by Prius as a calculated “slap in the face of every American autoworker.”

  This embarrassing incident, though indeed accidental, seemed to symbolize how the world was changing. Sales of the Prius had taken off to such an extent that the head of Toyota in the United States called it “the hottest car we’ve ever had.” The shift in consumer demand—and from one automotive era to another—was made starkly apparent in the marketplace. In 2007 Americans bought more Priuses than Ford Explorers, which had previously been the topselling SUV and, indeed, the vehicle that had been emblematic of the American SUV for a decade and of the passionate embrace of the light truck. But now the small, fuel-efficient hybrid, which some had dismissed as a mutant, had unexpectedly toppled the mighty SUV.29

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  THE GREAT ELECTRIC CAR EXPERIMENT

  Arie Haagen-Smit was an avid gardener with an abiding fascination with plants. In his professional work at the California Institute of Technology in Pasadena, next to Los Angeles, Haagen-Smit focused on the physiology of plants, particularly the chemistry of their odors and flavors. The Dutch-born professor achieved worldwide recognition for his work on plant hormones and the flavor components of wine, onions, and garlic. He also identified the active agent in marijuana.1

  In 1948 Haagen-Smit was investigating something that deeply intrigued him: the chemical basis of the flavor of pineapples. One afternoon he stepped out of his lab for a break and a breath of fresh air. But there wasn’t any fresh air. Instead he found himself immersed in what he later called “that stinking cloud that rolled across the landscape every afternoon.” His own lungs were under attack. The assailant was the smog that often settled over Southern California and had become a pervasive part of life in Los Angeles.