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Also by Vijay V. Vaitheeswaran

Power to the People: How the Coming Energy Revolution Will Transform an Industry, Change Our Lives, and Maybe Even Save the Planet

CHAPTER ONE

The Terrible Twins

Cars and oil wrote the history of twentieth-century American capitalism

After a century of prosperity and power, the industries that shaped America more than any others are now at a crossroads. The age of oil and cars is giving way to something new. Together these two industries dominate world business because of their sheer size. The big five of oil—ExxonMobil, Royal Dutch/Shell, BP, Chevron, and ConocoPhillips—and the world's automobile giants—General Motors, Toyota, Ford, Daimler, and Volkswagen Group—dominate the lists of the global top-fifty corporations. Each has sales between $100 billion and $200 billion.

They spend huge sums each year looking for oil, extracting it, making today's cars, and developing technologies for the cars of tomorrow. GM in the past five years has spent the seemingly awesome sum of $1 billion on research into clean cars with hydrogen-fuel-cell engines, with no prospect of making a profit on this in the foreseeable future. But even $1 billion is barely two days' revenue for a company GM's size. That shows how high the stakes are now, as the car industry faces a revolution.

The really big spenders in global research and development are not the white-coated scientists of Big Pharma and biotech or the geeks of Campus Microsoft. They are the legions of engineers, chemists, physicists, and geologists employed by the oil and auto industries. The automobile manufacturers are the biggest spenders worldwide on R & D. As pressure now mounts for them to make cleaner cars, the pace of the race for new technology is picking up.

Since even America has woken up to the threats of climate change caused by the rising emissions of global-warming gases, the car industry is in the front line of the battle against carbon. About a quarter of the man-made greenhouse-gas problem comes from surface transportation, including ships and trains. (Air travel adds another 3 percent.) Cars and light trucks make up the lion's share of such mobile pollution sources. As the oil industry starts tapping the vast but carbon-intensive reserves of "unconventional" hydrocarbons like Canada's tar sands and America's shale, which can be converted into gasoline at great environmental cost, the impact of transportation on global warming may rival even that of coal-fired electricity production.

What is more, because everyday life in most rich countries is built largely around the car, it is sure to be the most difficult source of carbon emissions to moderate. Over its decades of fighting smog, Los Angeles has discovered that it is really hard to change individual behavior to reduce consumption of gasoline, and so it turned to techno-fixes like catalytic converters, which reduced the emissions associated with such gas-guzzling instead. That painful experience explains why technological solutions to tackle the carbon from automobile tailpipes are the key.

Today the problem is greatest in America, Europe, and East Asia; these three markets account for three-quarters of the greenhouse gases pushed out the tailpipes of the entire global new-car fleet of more than sixty million cars and trucks each year. On average, American vehicles emit around 480 grams per mile, just over double the European level. For Asia, the figure is halfway between the two. The European figure has come down because of the increase in the use of inherently more fuel economical diesel engines, which now power about half of all new cars. The rise of diesel, in turn, is itself the result of European governments placing heavy taxes on gasoline (the retail price for a gallon at the European pump can be two or three times that paid in America) and lower taxes on diesel.

That European models such as Mercedes are now being launched in America with diesel engines is one early indication of technological improvement spreading around the world in response to the global-warming challenge. But that is incremental and inadequate; the scale of the global oil and carbon challenge demands a much bigger response. Any such revolution must be on a huge scale because of the sheer size of the global auto industry.

And Amory Lovins, a farsighted energy thinker who lives atop a mountain in the Rockies, has been arguing for some years now that the car and energy industries must embrace radical change—and, much to the annoyance of industry bosses, has been showing them how to do it.

Ripe for Revolution

It is a rare company prospectus that begins with a quotation from Goethe: "Whatever you can do, or dream you can, begin it. Boldness has genius, power, and magic in it." But Lovins is not a normal entrepreneur, as anyone who has met this eccentric and disheveled but unmistakably visionary thinker knows. The founder of the Rocky Mountain Institute, a leading green think tank based in Old Snowmass, Colorado, thinks the car industry's incremental approach to cutting emissions and improving fuel efficiency will never amount to much. He wants a complete redesign of the automobile, from the bottom up, and intends to show the big boys how it should be done.

This is not the first time the Sage of Snowmass has challenged conventional wisdom. Back during the gloom and doom of the 1970s oil shocks, most energy pundits were convinced that energy consumption and economic growth could proceed only in lockstep, thus making scarcity and future shocks inevitable. In a controversial article in Foreign Affairs, Lovins argued back then that there was an alternative "soft" path: if governments, companies, and individuals embraced energy efficiency and other demand-related approaches, then economic growth could be decoupled from gas-guzzling. He was widely ridiculed at the time as naïve or worse, but history has vindicated him. Thanks to public policies like gasoline taxes in Europe and automobile fuel-efficiency standards in America, the world did indeed embrace a soft energy path, and another oil shock was avoided for two decades.

But as the memories of those earlier oil shocks have faded in America, so too have those virtuous policies. The American economy is now much less energy efficient than its chief international rivals, and the average fuel economy of new cars in the country is close to a twenty-year low. Even Henry Ford's Model T got better gas mileage a century ago than today's average new car! The oil and car industries may be spending a fortune on R & D, but their mind-set remains incremental and risk-averse. They are clearly not innovating with the vision and verve they showed back during the golden age of the automobile a century ago.

But now, Lovins has devised a concept car that he hopes will spark a revolution in the motor industry and "revive the spirit of Henry Ford and Ferdinand Porsche." For a decade, a crack team of engineers brought together by Lovins beavered away in a hideout high in the Rocky Mountains. They came up with the Hypercar, a sleek new automobile powered by a fuel-cell, zero-emissions engine. This engine takes oxygen from the air and hydrogen from its tank to create a chemical reaction that produces electricity and water, the only by-product.

This alone would be unremarkable, given that all the world's carmakers are now into fuel cells. The difference with the Hypercar vision is that it takes a holistic approach. The entire body is to be made of composite plastics. The transmission and steering are entirely electronic, which removes the need for clunky mechanical parts. Instead of a steering column and wheel, there will be game-machine joysticks, as in the cockpit of the latest Airbus jets—where a "fly-by-wire" system largely replaces heavy hydraulic and mechanical controls. The result is a big car with a fuel economy comparable to 100 miles per gallon of gasoline, far higher than today's most economical diesel or hybrid-electric cars can achieve.

Can this be serious? Actually, the technologies that Lovins champions are not really far-fetched. Carbon composites, electronic controls, and even fuel cells are feasible today. The reason they have not been much used in cars is that established carmakers have invested vast sums in conventional manufacturing technology, plants for stamping old-fashioned steel assemblies, and the like. This has made them reluctant to embrace radical approaches; they pooh-pooh the Hypercar as fanciful and irrelevant. Undaunted, Lovins has put the key concepts for his car up for grabs as open-source material, hoping that fresh thinkers outside the conventional car industry will pick them up. He has also set up a new company, Fiberforge, that is promoting advanced composites to the critical suppliers of parts and assemblies to the automobile industry; if they adopt his ideas, Lovins may be able to do an end run around the incumbent giants.

What makes him so tenacious? One reason is that Lovins knows from experience what it means to take on and defeat a giant, well-connected, and obstinate global industry. He cut his teeth as an environmental thinker during the fiery antinuclear battles a few decades ago, working closely with David Brower, the founder of Friends of the Earth (immortalized by John McPhee in Encounters with the Archdruid). But a deeper motivation is his desire to change the world for the better, which he inherited from his parents. "They taught me always to strive for self-improvement and to help others," he says with characteristic modesty. Despite his recognized genius, Lovins frequently gives credit to past mentors, praises rivals and predecessors alike, and often quotes great thinkers. "Sometimes having a new idea simply means stopping having an old idea," which he attributes to Edwin Land, is one of his favorites.

With that philosophical bent and a mischievous tendency to poke at authority, Lovins was destined to be a troublemaker in whatever field he ended up going into. That should have been physics, given his natural abilities in that field, but energy captivated his attention. He became convinced early on that global warming was going to be a major problem (he wrote his first paper on it back in 1968) and saw energy as "the master key for leveraging changes in the world." When Oxford University refused to let him write his doctoral thesis on energy issues, he dropped out to pursue his investigations on his own. That spirit of rigorous independent inquiry and an endearing earnestness are still evident in the graying Lovins: "Why do I keep doing this? Because I've got all this curiosity and an atticful of knowledge that I'd like to apply to improve the world."

Dreamer though he may be, even Lovins is enough of a realist to accept that radical change will not come easily, given the sheer complexity of the product involved. The everyday automobile is a blend of art and science so elaborate, he acknowledges, that "it is beyond baroque: it's rococo."

Beyond Baroque

The auto industry is so big and complex that it is different from any other manufacturing enterprise. The industry's 60 million vehicles produced per year consume the lion's share of the 85 million barrels of oil produced every day around the world. It employs millions around the world and accounts for $1 in $10 of the American economy. The management thinker Peter Drucker dubbed autos "the industry of industries." For a hundred years, it has been more than that: the automobile is capitalism on wheels.

It may not seem like it now, with Detroit mired in losses and losing ground to Japanese, South Korean, and European competitors every year. The stars of capitalism today work in the technology and media industries. But a hundred years ago, the exciting young industry was automobiles, and the emerging stars of free enterprise were no longer the nineteenth-century barons called Rockefeller, Carnegie, Mellon, or Morgan.

They were the band that followed in the footsteps of Henry Ford. There was Willie Durant, Wilfred Leland, Ransom Olds, the Dodge brothers, Charlie Nash, and Louis Chevrolet. They all started little car companies that would become part of the Microsoft of its day: General Motors. Durant started his business life as part owner of a roller-skating rink in Flint, Michigan. He moved into the nascent auto industry, forming GM in 1908, and proceeded to buy up twenty-five small start-up car companies in the space of eighteen months. He lost control to his creditor banks after two years, only to win it back a few years later, before being squeezed out in 1920, when the legendary Alfred Sloan took the wheel. Durant lost a fortune in the Wall Street crash, declared bankruptcy in 1936, and ended his days running a bowling alley back in Flint, with scarcely a dime to his name. Along the way, he had founded the company that was to lead the industry. By 1926, Ford was overtaken by GM, as Sloan realized that customers wanted a variety of models, not plain-old, utilitarian Tin Lizzies.

Another star of the young auto industry was Walter P. Chrysler, a former railroad engineer who by 1916 became the best-paid executive in the auto industry, working at Buick and later Willys. He was a larger-than-life character. He bought a huge estate at Great Neck on Long Island, with a 30-foot swimming pool, an eight-car garage, and a waterfront of 450 feet on Long Island Sound, equipped with a 150-foot pier to reach his yachts. By 1925, he had his own car company, the Chrysler Corporation, born of the ailing Maxwell Company, which he had revived using his manufacturing skills to develop the 1924 Chrysler car. "I gave the public not only quality, but beauty, speed, comfort in riding, style, power, quick acceleration, easy steering, all at a low price," he said.

Heading for Divorce

Today the car industry in America seems at first sight a million miles from such glamour. It looks more like a pension system with a car and credit business on the side. Its relations with its lifelong partner, Big Oil, are also looking tattered, as the auto industry seeks alternative energy sources.

This is leading to an outpouring of innovation and entrepreneurship. High-tech millionaires in Silicon Valley think Big Auto and Big Oil could be unseated by disruptive technology. Tesla Motors, a California upstart funded by the men behind Google and PayPal, has picked up on Amory Lovins's ideas on lightweight composites and come up with a sizzling, all-electric sports car that is greener than a Prius and faster than a Ferrari.

That is impressive, but there's more to the coming revolution than a few rich dreamers on the West Coast. Consider the sorts of things popping up all round the world. The most visible in America, Japan, and Europe is that Toyota gasoline-electric hybrid, the Prius, which transforms fuel economy by hitching battery electricity to the internal-combustion engine—the best example of the traditional industry embracing new thinking. With a hybrid system, a small gas engine packs the punch of a big one without paying the price of lower gas mileage. But enthusiasts in California have already discovered how to hack into these cars so they can also be plugged into the grid overnight. Everyday motoring of up to 30 miles can be done purely on electric power, with the engine only a reserve in case the battery runs low. These hackers are even forcing Toyota to move ahead with better batteries so that standard plug-in hybrids can roll off its assembly lines.

Buses have been spotted on the streets of Seattle, Chicago, and other American cities that produce nothing out of their tailpipes but clean water vapor. They use hydrogen fuel cells, which make electricity by mixing the gas with oxygen. GM is working on a mass-production, fuel-cell sedan that it could bring to market in 2010, if enough gas stations get around to supplying hydrogen, extracted on-site from piped-in natural gas. The streets of Shanghai have become so clogged with cars and the air so thick with pollution that locals are turning to smart electric bikes. On the outskirts of the city, China's own Detroit is not just making conventional autos but is working with hundreds of labs around China to leapfrog from polluting internal-combustion engines to fuel-cell cars that emit no pollution or carbon-dioxide greenhouse gas to add to global warming. In Brazil, virtually all new cars can run not just on gasoline but also on ethanol made cheaply in that tropical country out of sugarcane. The midwestern states are pushing hard for such biofuels to be made available across America, with the ethanol made out of corn. One day, plant waste might become an economical source of ethanol, one that won't need another raft of farm subsidies.

Toyota is beating Detroit by being the first big automaker to make great strides in fuel economy. European firms such as Mercedes and BMW are pursuing a parallel path with economical new diesels that don't pollute like the dirty old puffers Detroit used to make: because they get many more miles per gallon, they contribute less than gasoline cars to global warming. In India, one of the world's newest volume carmakers, Tata Motors, part of a huge family conglomerate, is now working furiously on a revolutionary $2,000 car with fantastic gas mileage, perhaps three times that of the average new American car.

There has not been such effervescence in autos since the early days of the industry, when nine out of ten autos were battery powered. Over ten years, internal-combustion vehicles gradually began to assert themselves over steam and electric cars, winning a third of the market. Ten years later, helped by the invention of the electric-starter motor, the internal-combustion engine won the race because gasoline packed more power per gallon, though Henry Ford was canny enough to ensure his Model Ts could also run on the ethanol that midwestern farmers could brew from corn. Now a similar power struggle is taking place to power the car of the future.

As the green revolution gathers pace, it will force change on the oil and auto industries, rendering useless hundreds of billions of dollars' worth of assets. No wonder both industries have fought to block progress on environmental advances. No wonder Texas and Detroit are scared that the initiative has been seized by nimbler foreign rivals, from the automakers of Asia to the energy giants of Europe. The meltdown that Detroit has been going through for a decade is changing America. Henry Ford not only gave Americans wheels, he gave the world its first (and possibly last) blue-collar middle class. In return for backbreaking, monotonous work on his assembly lines, he paid wages good enough to allow working men to own homes in the suburbs that were springing up because of the transportation freedom brought by the car. Consolidation of the industry into the Big Three preserved this good life until free-trade globalization brought foreign competition.

Robbed of their oligopoly power, GM, Ford, and Chrysler got into financial difficulties that still dog them. Tens of thousands of workers in the midwestern states of Michigan, Illinois, and Ohio lost their jobs and were left with little prospect of finding equally well-paying alternatives. This alone is one of the reasons much of Middle America is standing still economically. It goes a long way toward explaining how lower-middle-class incomes have been left behind in the explosion of wealth that new industries and businesses have brought to millions of Americans.

Automobiles, the Love Affair of the Century

Modern America and the automobile grew up together. But like so many early-twentieth-century Americans, it was born elsewhere. "Automobile" is a French word. The nursery of the industry was France. In 1900, just seven years after the French people gave the United States the Statue of Liberty as a belated centennial birthday present, René Panhard and his partner Emile Levassor gave us the modern motor car. They defined the way it looked before Henry Ford. They arranged the système panhard, the basic fore-to-aft formation of radiator, engine, clutch, gearbox, prop shaft, and rear axle. This was far removed from the German Daimler-Benz horseless carriage, which had a gasoline engine turning a belt drive to the wheels.

Serendipitously, the French flavor went further: half of GM's brand names, so etched into the minds of Americans, are French. Detroit (it means "narrows" in French) was founded by Antoine de la Mothe Cadillac, a French soldier fighting the British colonists who later governed Louisiana. Cadillac died, disgraced, after a spell in the Bastille prison, little knowing how his name would live on. Louis Chevrolet was a Swiss-French racing car driver who came to the United States to drive a Fiat in an early auto race in New York in 1905. He formed the Chevrolet Motor Company and never went back. Then there's Pontiac—the French name of the chief of the Ottawa tribe of Native Americans. All these French names became synonymous with American capitalism as the auto industry accelerated the twentieth century into unheard-of prosperity.

The 1920s marked the emergence of the modern auto industry. Will Durant put together Olds, Buick, Chevrolet, and Cadillac to form GM, which in 1926 outsold Ford. When he was struggling with the banks, it was another bunch of Frenchmen, the DuPont clan (immigrant French aristocrats who had become the leading industrial family of late-nineteenth-century America, making gunpowder), who bailed him out, making a second fortune from their investment. Henry Ford gave the world the technology for the cheap, rugged car—you could have any color you wanted, he loved to quip, so long as it was black.

Durant's GM, especially after he was replaced at the top by Alfred Sloan in 1920, took the opposite tack. Sloan's idea was to offer a selection of models, one for every purse. Styling would differentiate one year's cars from the next year's crop. So buyers would be encouraged to trade in their old car for a new one that demonstrated their growing affluence. Both Ford and GM opened credit businesses so that ordinary Americans no longer had to save up to buy their autos: installment purchasing, invented in 1915, was at the heart of the burgeoning industry. Assembly-line production raised efficiency and wages—up 26 percent in real terms between 1920 and 1929.

Others followed Henry Ford in paying good wages for the hard, repetitive work. By the end of the decade, output from Detroit had gone from 1.9 million cars in 1920 to 4.5 million in 1929. Automaking had become the biggest industry in the country. It launched another industry in the form of the dealer networks that spread across all forty-eight states to sell cars. Car dealers became big players in each local business community and gained great political clout at the state level, as witnessed by the laws that preserve their franchises.

The Wall Street crash and the Great Depression sent car production down to a quarter of its boom production. It would not regain its 1929 peak until after the austere years of World War II, in 1949. During the war, Detroit became Bomber City, as its factories turned to meeting military needs for warplanes and three million trucks and tanks for the war in Europe and Asia. It was the first motorized war. After the Normandy landings by the Allies, 3-ton trucks designed by GM in Detroit were carrying German soldiers (in Opel-badged vehicles), American GIs in Chevrolets, and British troops in Bedfords. GM's German subsidiary, Opel, even shipped dividend checks to its parent throughout the war.

With the war ended, ten million veterans headed back home, and the auto industry began its remarkable boom. In the decade from 1945, the number of cars on American roads doubled to fifty million, and Detroit was working flat out, producing three million cars a year. Returning GIs wanted wheels and an individual home out in the suburbs, away from the grime of crowded cities. Ironically, the same thing is happening in China right now, as the ordinary Chinese gain the freedom to buy homes and as crowded downtown apartment buildings are razed for new office developments in the booming cities of the coastal eastern provinces.

The Asphalt Age

Just as the auto was the symbol of the Roaring Twenties, so it became the icon of the new era of postwar affluence, that long boom that went from the peace of 1945 until the Yom Kippur War of 1973 and the first oil shock. While Europe shivered in the ruins left by the war, and while China followed thirty years of war with a bloody revolution that brought the communists to power, America saw an age of affluence that reached much more of the population than did the fitful flare of the 1920s. Real incomes went up by nearly a fifth between 1947 and the start of the 1960s. Income-tax relief on 100 percent mortgages put the single-family suburban house in reach of millions. A deposit of $100 and three years to pay put a cheap car in the driveway. By the late 1970s, there was one car for every two Americans. Three decades later, there are over 250 million cars for 300 million Americans, and the three-car garage is standard in many suburbs.

All these cars needed roads. Federal funds were freely available to top up state spending on new roads to carry the growing tide of traffic. Starting with Detroit, New York, and Chicago, new, fast routes were constructed to clear access to the city from the suburbs. By the early 1950s, cities such as Philadelphia, Pittsburgh, Baltimore, New Orleans, and Boston did the same, as 12,000 miles of such urban expressways were built. Meanwhile, rail-track mileage shrank to half what it had been at its peak, in 1916. The apogee of the Asphalt Age was the creation of the interstate highway network, crisscrossing America from coast to coast, from Canada to Mexico. In June 1956, President Dwight Eisenhower signed the act that created the National System of Interstate and Defense Highways at a total cost of $100 billion, financed out of gas taxes.

It still stands as the biggest peacetime government investment program. The Pentagon and defense industry had long lobbied for roads to link military bases in inaccessible places. Propaganda posters of the time emphasized how useful the roads would be for mass evacuations in the event of nuclear strikes by the Soviet Union. City leaders signed up for the program when they learned that as much as half of the cash would flow through the coffers of city halls. No wonder Charles E. Wilson (nicknamed Engine Charlie), president of GM, proclaimed in 1957, "What's good for the country is good for General Motors, and vice versa." The automobile had become the essential tool for modern living.

With the thousands of acres of new suburbs came suburban shopping malls, supermarkets, and freeways. Between 1950 and 1970, the number of suburban shopping centers grew from a few hundred to over three thousand. Holiday Inns started springing up everywhere by the side of the new roads. At the huge, sprawling junctions of the interstates, up sprang truck stops, motels, warehouses, gas stations, and diners. Soon it was possible to cross America without seeing one single city center.

All this happened just as the mechanization of farming was causing a decline in employment all across the southern states. Soon, thousands of poor black families were cramming into old jalopies or hauling battered suitcases onto Greyhound buses to take the interstate highways up north to find jobs in cities such as Chicago, Detroit, Cleveland, and New York. Seeking cheap accommodations, they moved into areas blighted by the carving out of great expressways.

It is tempting for many environmentalists, sentimentalists, and liberals to lay blame for the negative effects of this huge transformation of the face of America on the hood of the automobile. But the fact is, as even Jane Jacobs (a widely respected analyst of American cities) argued, autos per se were not to blame for the decline of cities. She wrote (in The Death and Life of Great American Cities, 1961), "The present relationship between cities and automobiles represents one of those jokes that history sometimes plays on progress. The interval of the automobile's development as everyday transport has corresponded precisely with the interval during which the ideal of the suburbanized anti-city was developed architecturally, sociologically, legislatively, and financially." She maintained that automobiles themselves are "hardly destroyers of cities."