By Keith Crain, Automotive News
Just as everyone was getting used to the disaster we call the domestic automobile business - gasoline was way more than $4 a gallon and oil was pushing $150 a barrel - the unexpected happened.
The prices of a barrel of oil and a gallon of gasoline started dropping. Where they will stop, nobody knows. But in the meantime, a lot of people are getting nervous about the instability of prices.
If you are Honda, you're not going to do much to adjust your product plan or your marketing. You have lots of high-quality, high-mileage vehicles.
Toyota people have to be scratching their heads trying to figure out the next scenario. They have a huge inventory of big trucks, and they're shutting their Texas plant for a few months. They aren't planning to send anyone home, but those employees are going to get plenty of training in the next few months.
Nissan has decided it will ditch its full-sized pickup, writing off a substantial investment. It plans to let Chrysler build its big pickups.
And General Motors, Ford and Chrysler have to wonder whether the reduction in the price of oil is temporary.
Last week, an OPEC official said he wouldn't be surprised to see the price of crude oil drop as low as $70 a barrel in the future.
How good is your crystal ball?
If you've decided that gasoline is going to stay at about $4 a gallon or go even higher and you've adjusted your product plan accordingly, you're having some sleepless nights.
Now the world is finding out just how important flexible manufacturing is and how important it will be in the future.
No one can figure out whether the costs of commodities are permanent or will continue to swing wildly. If you decide to hedge by buying futures and there are some wild swings the wrong way, you're going to be in a very uncompetitive position. It makes no difference whether you are building cars or running an airline.
Automobile dealers are going to be very cautious about their inventory. Today, too many dealers have far too high an inventory of pickups and SUVs - that is, unless the price of gasoline drops another half dollar. Then, perhaps - and only perhaps - American consumers will revert to their old buying habits.
It's a billion-dollar poker game these days, and few have a strong hand.
Keith Crain is publisher and editorial director of Automotive News, a sister publication to Urethanes Technology International.