Over the past three and a half months, gas prices have fallen about 35%, giving consumers some much needed relief during the current economic downturn. While this is good news for many in the short-term, low fuel prices can be troubling in the longer-term.
Just a short time ago, there was a razor-sharp focus on initiatives to fight the high-cost of fuel and energy: Chevy moved forward with their Volt electric car; and other auto-makers took steps to realign their manufacturing so that they produce fewer trucks and SUVs and more smaller, gas-efficient automobiles. Likewise, energy producers started a number of alternative energy projects such as wind or solar farms.
However, if prices for energy commodities such as gas and oil remain low, many of these recently announced initiatives are at risk of being scaled back or killed off entirely. In general, smaller cars are less profitable for auto-makers; and newer technology such as hybrids and electrics are a lot more expensive to manufacture. Along a similar vein, alternative energy tends to be more expensive as well. While the return on investment (ROI) for many of these projects looked good when oil was over $100 a barrel and gas was at $4 a gallon, that’s not necessarily the case now. Ultimately, companies may need up having to take on the expense of “unwinding” these projects and we will continue to be dependent upon foreign countries for much of our energy needs.
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