PropertyInvesting.net: Property Investment Special Reports

275: Cars - The Absurdity and Necessity

PropertyInvesting.net team

Absurdity and Necessity of Cars  One can’t help pondering how absurd it is that we all dash around, spending half our lives in a car. One side of us thinks it’s a real shame, huge inefficient polluting cars – dangerous – noisy - unhealthy – costly – and stressful bein stuck in so many traffic jams. The other side of us might thinks – freedom, prestige, power, fun, exploration and the bigger the better – put a DVD on and cruise all day - with very little effort.

Size of Cars Doubles  It’s also interesting to ponder the absurdity of the size of cars this decade. Back in the late 1960s, a 1.3 litre 50 BHP Triumph Herald was an average car. They made the MG Midget, a 1.1 litre Sports Car! Now it seems the average car has a 2 litre turbo changed engine, is 160 BHP and is more than double the size! It’s not uncommon to see 4 litre BWM 4x4 or Toyota that look like lorries and are taller than a man – driving around the same narrow city streets used by horse and cart in Victorian times. Then there are the “space wagons” or people carriers with no people in them that just seem to get bigger every year –  bigger than a 1970s Transit van!  Car parkings places no longer have spaces that fit these gigantic cars. And yes, we like big cars too – most people do. Can’t remember driving a car of less than 2 litres in the last 15 years – and one feels the lack of oomph without the turbo! When we look back in 15 years time, we'll probably think it was a bit crazy of us to drive these pertol powered monsters.

Pros and Cons of Cars: We thought we’d do some analysis on the disadvantages of cars – outlined at the end of this report. Then consider the advantages. The reason why we did this was to try and get a balanced view – as context to the biggest global economic threat of our time – Peak Oil.  Yes, we are very serious. Peak Oil production we believe was July 2008, and from now on, the world will never produce more than it did that month.  But something does not stack up. Listen to this – it will blow your mind. And re-confirm why we expect oil prices to sky-rocket in the next few years.

The China Syndrome -  500 million new cars!   China currently has 25 million cars and a population of 1.5 billion. The IMF recently forecast that by 2050, China will have 525 million cars. Anyone that thinks this is outlandish should consider their own country that they live in. In the UK for example, there are 25 million cars and a population of 60 million. 500 million cars is only one car for every three people. Remember the Chinese dont have large families either - so they can't share like a family of six. The UK uses a total of 1.6 million barrels of oil a day. 70% of this is for diesel and petrol for cars-transport – that’s 1 million barrels of oil a day, for 25 million cars.

Another 20 million barrels a day please Sir  If and when China increases its car usage by 500 million cars, it will according to our calculations, assuming the same petrol consumption per car as at present, require an additional 20 million barrels of oil a day!  Meanwhile the world produces 85 million barrels a day – and we believe this is on a bumpy plateau and will start to decline significantly in about 3 years time. Where are the extra 20 million barrels a day going to come from? We haven’t got a clue. It’s a very serious issue – believe us! Anyone that thinks we can find an alternative to power cars quickly is kidding themselves – it would take 25 years to convert a country’s fleet of cars to alternative power. Even if there was a mass conversion to electric cars starting now, the electricity needed to be generated to power 500 million cars would be astronomical – and the CO2 and environmental lobby say no coal. So how will the world reduce CO2 emissions when oil will start running short soon and the Chinese will be driving 525 million cars by the year 2050! We have no answer again. Nuclear power seems the most CO2 friendly, but most projects get canned because of environmental concerns.... 

Why shouldn’t the Chinese have cars  And if we think the Chinese shouldn’t be driving cars – just like the developed western world – think again. Why should they not aspire to what we have? Do you think they will stop because we want CO2 emissions moderated?  Do you think they will let the western developed nations take oil supplies before they do?

Political Dimension   To keep the Chinese Leadership in power and prevent social unrest, economic progress will be required and overall increases in prosperity for Chinese citizens – and this also means allowing people to drive cars. The Chinese will take as much oil, gas, coal and other fuel as required to make this happen. The competition for these resources has only just started to heat up – and in part caused the $147/bbl in July 2008. Yes, the Chinese will eventually start converting to electric cars, but they will also use coal-to-oil technology, coal-to-gas technology and anything-else-technology and fuels that can be mustered up to fuel the growing fleet of cars for the masses. If they are not as wealthy as the Malaysians by 2030 we would be very surprized, and the Malaysians have almost as many cars per family as the Europeans.

Fuel Prices Will Rise   Expect fuel prices to rise from now onward – it has only just started. And for those in the UK that cry – "how can this be – we already pay too much" – look no further than the Chancellor and The Prime Minister who have increased fuel tax to 66% despite the UK being self sufficient in oil (up until 2006), and have extracted a gigantic 60 billion pounds a year in diesel and petrol fuel tax from the UK consumers. Oh, and that's a tax on after tax pounds being spent. If you take into consideration most employees pay about 45% tax on income (combining income tax and national insurance) - the actual real amount of tax being paid on fuel is about 85% - because we are taxed then taxed on after tax income!  Because there are 25 million vehicles on the road, that's a staggering 2,374 pounds per vehicle per year in fuel tax alone. So the good news is, if oil prices double, your petrol price at the pump will only rise by 25%, because most of it is tax!

Property Investors Take Note  For all property investors, the particularly relevant aspect of this is that property close to major wealth creating urban and town centres will hold their value far better than a property in poorer far flung regions with remote access by car. Access to electric rail stations – for fast commute to London and other major cities will also help sustain high property prices in these areas. Even better, new high speed electric train services will see property prices rise higher – e.g. Stratford, Ebbsfleet, Ashford, Canterbury, Folkestone, Ramsgate. By 2020, Crossrail and a High Speed line to Birmingham will help property along these rail lines. Birmingham city centre could prosper eventually, despite the recent manufacturing decline (what's needed is some electric car, rail and battery factories!). 

Pros and Cons  Enclosed below are the pros and cons of cars - to give a balanced view - both sides of the argument for cars. Overall - we think the pros will win the day in China. We are almost sorry to say the pros outweigh the cons for most people and governments in the world. One has to be realistic - the car is not going to go away. Instead, as countries industrialise, their car usage will explode. Think of Brazil, Russia, the Middle East, Africa, India, China - they will also have increasing car concentrations and busier roads - have you ever heard of a country with fewer cars than years ago? It's not going to happen. If massive fuel shortages occur, the crisis will lead to a technological scramble - this could be nuclear power to electric (with wind and gas as a bridge) - we do not know though until it happens.  The days of cheap fuel are over. And again, all those that say it's already expense, the only expensive thing about UK petrol and diesel is the tax! (it would be 20% of the price if there was not tax). If we all thought the tax revenue was being wisely spent or invested, it might feel better.