The Parable of Samoa and the American Car Industry

Excerpt from Financial Express article on why Samoa decided to switch to driving on the right-hand side of the road.

Published: 01-Jan-2010

Early in September 2009, the small island nation of Samoa became the first since the 1970s to order motorists to start driving on the opposite side of the road. The Samoans have made this switch to help end their reliance on expensive imports from the US, where traffic moves on the opposite side of the road as compared to countries like India. With caveats aplenty, this tale encapsulates the two big auto developments of the year. First, the buzz really built up around smaller, cheaper and more fuel-efficient cars. Second, the US has ceded its position as the world’s biggest car market. There’s no doubt that the next decade’s narrative will be shaped by these two shifts.

To recap, in 2009, auto saw the best of times and the worst of times. The latter quality dominated early in the year, when the Detroit majors appeared in desperate need of life support. Italian carmaker Fiat controls Chrysler today, whose new chief executive Sergio Marchionne has voiced optimism in apocalyptic terms: “People who have lived through traumatic experiences where death may have been an option end up living their life differently.” GM survived by way of US government loans and a cash-for-clunkers programme, but its Saturn and Saab brands are headed towards the graveyard; new lifeblood has been injected only by the sale of a big stake in GM’s Chinese venture to Shanghai Automotive, which is also picking up a 50% share in GM’s India operations. Ford actually said no, thank you, to a government bailout. Its Fusion Hybrid has won praise.

This brings us to the good news coming out of 2009. The world’s gasoline infrastructure has achieved ubiquity over 100 years. But it may take a fraction of that time for an alternative fuel trajectory to come into its own. The Great Recession was bad; the failure to achieve a Copenhagen treaty for globally binding emission cuts was as bad or worse. On the flip side, efficiency standards are being reconsidered with great urgency everywhere. The US is moving ahead with new corporate average fuel economy rules, which will help cut both oil consumption and carbon emissions. India has committed to emissions intensity cuts, which entail mandating fuel-efficiency standards. These are already in place in China, alongside tax policies that incentivise demand for more efficient autos. For example, sports cars and SUVs attract a 40% sales tax as opposed to vehicles...

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