Watch CBSN Live

For Automakers, the Strategic Petroleum Reserve Really Is Strategic

It never fails: gas prices start to edge into uncomfortable territory for Americans -- $5 a gallon -- and cries emerge for the government to unleash the mighty Strategic Petroleum Reserve (SPR) to ease pain at the pump. This is usually just economic-policy theater, but as oil heads north of $100 a barrel, there's actually a good reason for the Department of Energy to turn on the spigot: support for the auto industry.

First off, I don't think there's going to be a gas crunch this summer, as there was in 2008. But for the carmakers and the Obama administration, taking that prediction on faith might be risky business right now. There's a recovery on in the auto industry, but it's still fragile, and it's worth remembering that the Treasury still holds significant stakes in both General Motors (GM) and Chrysler.
With Congress exhibiting extreme hostility to further stimulus packages, including another round of cash for clunkers, President Obama needs to figure out ways to keep post-IPO GM cranking along -- and to set up Chrysler for an IPO later this year. That's where the SPR comes in.

Stimulus is strategy when an industry is on its knees
The SPR currently holds roughly 727 million barrels of two different grades of oil -- one better suited for gasoline refining and another for diesel and heating oil. Under even stressful but temporary oil spikes -- gas at $5 a gallon, say -- it would be dumb to tap the SPR. Oil-producing countries could raise their production to even out the supply-demand imbalance and overcome any market speculation or irrational consumer behavior. Fear of scarcity would fade.

The SPR has only been tapped twice: during the 1991 Gulf War and in 2005 following Hurricane Katrina.

Past oil spikes, however, haven't occurred right when two of the Detroit Three automakers were just coming out of bankruptcy. This is where the strategic part of the SPR comes into play. In 2009, it took the Cash for Clunkers program to get the automakers back on their feet and the consumer economy restarted.

Since there ain't gonna be a C4C repeat in the 112th Congress, the administration needs to find other ways to keep the recovery going -- and hasten its exit from the positions it holds in both GM and Chrysler. Opening the spigot on the SPR is the perfect solution: stimulus by another name.

We have met the enemy and it might be the oil companies
Higher gas prices aren't going to trouble the big oil companies. They made tons of money in 2008 and will look to make tons more in 2011. The SPR is irrelevant to their business needs.

The automakers, however, are still uniquely vulnerable to high gas prices, which can crush sales and crater profits. They've all taken valuable, if still tentative, steps to escape their gasoline dependence, but for now, the considerable contribution they make to the U.S. economy requires stable prices at the pump.

Additionally, Detroit needs to be able to start selling some large cars, trucks, and SUVs in decent numbers this year and next in order to maintain the nice quarterly profits it has begun racking up. This doesn't mean that electric vehicles, plug-ins and hybrids will be sidelined.

To the contrary, it means that the domestics will have the money they need to invest in R&D -- read, innovation that will get them off gas. Nothing could be more strategic than that.

The American people own the oil and have invested in the automakers
Viewed this way, using some of the SPR now to moderate gas prices and beat back the fear that another Gas Spike of 2008 is headed our way constitutes an ongoing investment in the U.S. auto industry, above and beyond the billions we've already put in.

Bailout opponents won't like this idea, but the fact is that Uncle Sam still owns substantial chunks of the U.S. car business and need to support the investment. For the taxpayer, this is a can't-lose move. Folks get moderately lower gas prices -- they own the SPR, after all -- and stand to receive a return on their investment in the automakers sooner.


Photo: Wikimedia Commons
View CBS News In
CBS News App Open
Chrome Safari Continue
Be the first to know
Get browser notifications for breaking news, live events, and exclusive reporting.