The last “People’s Car”

2009 Tata Nano

The Tata Nano “People’s Car” is the most important vehicle to have been produced in the last ten years.

Most have hailed it as a triumph for the developing world, but a recent article in the UK’s Independent newspaper paints the Nano with a different brush, as a car that has the ability to change the course of the human race.

Certainly not light-hearted banter — especially when the Nano is no more threatening to look at than the average Ikea lampshade. But there is much cause to fear the Indian micro car, as the article explains.

Yet the roll-out last month of this neatly-designed 625cc vehicle has implications that go far beyond India’s roads. As much as any single event can do, the production of the Nano marks a potential tipping-point for the entire planet. For it is not just a car. It is a symbol of the coming-of-age of mass consumerism in the developing world.

Mass consumerism? Many of the Nano’s customers still live on under $10 per day. Minimum wage in China ranges from $0.25 USD per hour to $0.60 per hour. By Western standards, these paltry incomes could barely buy an iPod Nano MP3 player after a year of saving, let alone a car. And yet, people are saving for low-cost transportation like the Tata Nano.

Every auto-producing Western nation has driven their economies from the start of the 20th Century to today from the driver’s seat of “People’s Cars.” For example, the United States had the Ford Model T; Britain the Austin 7 and Morris Mini; France the Citroen 2CV; Germany the Volkswagen Beetle; Italy the Fiat Topolino, 500, and Panda.

Personal transportation and the mechanization of work has long been tied to a rise in gross domestic product (GDP.) And how do you mechanize work? By burning fossil fuels. The problem we now face in the West is that with our economies so closely tied to a reliance on oil, “peak oil leads to peak GDP.” The truism, as written by Jeff Rubin in the book “Your World Is About To Get A Whole Lot Smaller,” is simple: more oil supply can’t come on line in response to increased demand if nature is limiting the supply.

Economic activity goes hand in hand with energy use. If you want to grow the economy, you need to burn more energy — that’s precisely why dwindling oil reserves pose such a threat to global economic growth. If instead the economy falters and begins to contract, less energy is used and hence its price will fall. That doesn’t mean that triple-digit oil prices were a temporary aberration, but it does give a sense of how hard it is to keep the world economy running on cheap oil and it should make it pretty clear what happens to oil prices when the recession is over.

Rubin continues:

Other than lulling us into an unjustified sense of optimism about the future direction of oil prices, a global recession will do absolutely nothing about the unavoidable fact that oil production is nearing a plateau while oil consumption around the world is still rising.

This year, China is on track to outsell the United States to become the largest auto market in the world, at 11 million units. Most basic cars list at less than $6000 US — and struggling US automaker General Motors says that China now accounts for 25 per cent of their global sales. Want to sell more cars there? It’s simple: make more affordable ones, like the iconic Beetle and Mini, that are within the reach of more people in developing nations.

General Motors is doing just that, by exploring what they call a “Bare Necessity Car” and “Bare Necessity Truck” for world markets, and soliciting feedback from consumers on exactly what they’d need in a basic vehicle. You can bet the initial interest stems from protecting market share for lower-priced vehicles, as Tata will soon sell the Nano in North America, undercutting the lowest-priced Chevrolet by thousands of dollars.

The other reason? To capture a slice of the insatiable auto markets of the developing world. In the US, such a basic car would be sold as a “green” vehicle, even General Motors says so.

We knew from our research that people wanted an extremely efficient vehicle that was also low-cost and green. But what was really eye-opening … was that people seemed to desire extreme efficiency even if it meant making small sacrifices/trade-offs. The idea of a back-to-basics, bare-necessity approach to designing a vehicle made sense.

Unfortunately, being more efficient actually creates more problems with regard to oil consumption. Rubin explains that a few economists argued after the OPEC oil shocks of the 70s that improvements in energy efficiency would lead to a paradoxical conclusion: increased oil consumption. It sounds crazy, but it’s true.

As improvements in energy efficiency lower the price of consuming energy, more energy will be consumed, as predicted by the economists’ standard theory of a downward-sloping demand curve. That is, while efficiency reduces demand for energy, reduced demand in turn reduces the price of energy. The effect is that you end up getting more energy for the same price. So you naturally end up using more.

And using more energy means more economic activity — more driving and building and manufacturing and, inevitably, shopping. So if an efficient economy can consume more energy for the same price, it also gets more economic growth for the same price — and that means still more stimulus to energy demand from a stronger, growing economy.

What does this have to do with the Tata Nano? It already gets 50 mpg. As opposed to in North America, where vehicles still consume the same amount of gasoline as they did 30 years ago — even though engines were roughly 30 per cent less efficient — modern technology has allowed low-cost cars of the present and future to consume far less gasoline. More driving on a litre (or gallon) of fuel equals more energy consumption. And as Rubin said above, more efficient economies can grow more for the same price of fuel.

But the price of fuel isn’t the same. Chinese and Indian drivers enjoy massive fuel subsidies that artificially reduce the price of fuel in those countries. In China, drivers pay 61 per cent less for fuel than American drivers do. This promotes more economic development. And let’s not forget that the majority of vehicles on the roads in developing nations would barely qualify as mid-sized here in the West. According to an article by Reuters, our “paradox” of increased efficiency leading to increased consumption holds true.

Countries such as China, India and the Gulf nations, whose retail oil prices are kept below global prices, contributed 61 percent of the increase in global consumption of crude oil from 2000 to 2006 […]

If that’s not enough for you, the Chinese government is considering subsidies for buyers of alternative fuel and high efficiency models. They’re not stupid, again, because increased efficiency leads to increased oil consumption — and more economic growth.

Am I saying that getting getting billions of people in developing nations onto four wheels is a bad thing? No. But ones that run on fossil fuels, yes. The West still consumes far more energy per capita than the rest of the world: our 27 barrels of oil per capita compared with China’s two and India’s less than one barrel per capita. To say that the developing world shouldn’t have access to personal transportation is hypocritical when the rest of the world consumes so much more oil.

What I am saying is that the “People’s Cars” of the future must not repeat the same formulae as ones in the West. The Independent article quotes Lester Brown, head of Washington, D.C.-based Earth Policy Institute as saying that at current rates, China’s GDP will equal that of the U.S. by 2030 — with severe implications.

If we assume China will have three cars for every four people, as there now are in the US, then to provide sufficient roads and parking spaces the government of China would have to pave an area comparable to what it now plants in rice. What’s more, by 2030 China would need 98 million barrels of oil a day whereas the world is currently producing 85 million barrels a day and may never produce more. “What China is teaching us,” writes Brown, “is that the western economic model – the fossil-fuel-based, automobile-centred, throwaway economy – is not going to work for China. If it does not work for China, it will not work for India.”

Back to the point about mass consumerism. The West is the epitome of a consumer economy, an example of apparent prosperity the developing world is all-too-eager to aspire to. Rampant oil consumption, vehicle use, and a throwaway society are all legacies inherited from the rapid industrialization, scientific achievements, and countless military conflicts waged over the last 100 years.

It’s not about trashing capitalism, bemoaning high energy use, or insisting that drivers migrate to hand-assembled hamster-powered hempmobiles. It’s about learning from the gas-guzzling past and rapid technological achievements in personal transportation, and leading developing nations by example. It’s about quickly and effectively reducing our energy usage by moving to a more efficient way of life, depending on needs — not wants.

Leading by example means weaning our economy off of fossil fuels, and quickly transferring our know-how to the developing world. Whether locally-produced biofuels, wind and solar, or geothermal energy provides power for millions of machines that will drive them forward, “People’s Cars” of the future will be very region-specific — and will be the only vehicles on sale. There will be fewer vehicles sold, and the ones sold will be not only more efficient, but longer-lasting. Companies will learn how to retrofit older vehicles with sustainable technology, providing the ultimate form of recycling to consumers.

Vehicles across the globe will get less distinctive, sure, but the fuel saved can be used instead to keep the most significant, beautiful, and popular vehicles of the 20th Century running for our grandchildren to enjoy. Until every car is a “People’s Car,” we run the risk of not only running out of oil far more quickly than we could have imagined due to accelerating demand in developing nations, but fighting over how little of it we have left.

One thing is for certain: in a future where resource scarcity will affect billions of people, it’s clear we in the West have already used up our fair share of oil.