What if the Oil Stops
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|Edwin Black||April 6th 2009|
This continuing coverage of America’s oil crisis arises from the The Plan: How to Save America When the Oil Stops—or the Day Before (Dialog Press). Buy it here.
Amidst charges that embattled American Honda is systematically suppressing its compressed natural gas (CNG) vehicle program, the company has suddenly fueled that impression by throwing into bankruptcy its wholly-owned CNG refueling company, Fuelmaker.
Toronto-based Fuelmaker was arguably the linchpin of CNG’s future as a bridge solution to alternative fuel. The firm manufactured and distributed the essential refueling appliance that allowed home-based and fleet refueling of CNG vehicles worldwide, including the Honda Civic GX heralded as the “greenest car in America.”
Fuelmaker appliances at home or at companies excised the need for traditional neighborhood filling stations. The compact, home garage-based CNG refueler was called the Phill. The commercial version called the Vehicle Refueling Appliance could fast fill several vehicles. Some 14,000 Fuelmaker devices around the world, many with fast fill storage capabilities added, are now suddenly stranded by Honda’s action.
Fuelmaker employees, CNG industry leaders, and CNG advocates who learned of the move on the weekend are all outraged. The details, pieced together by this reporter, are as follows:
Last Thursday, April 02, 2009, without notice, American Honda called its loan to Fuelmaker, according to Fuelmaker and Honda employees familiar with the facts. Honda in essence owned and controlled Fuelmaker through a so-called “numbered corporation.” A “numbered corporation, almost unheard of in the U.S., is a commercial entity especially enabled under Canadian law that exists without a recognizable name, identified only by a number. Calling the multi-million dollar note allowed American Honda to walk into a Canadian bankruptcy court and throw Fuelmaker, its own alt-fuel company, into receivership. The well-known receivership firm Alvarez and Marsal was then called in to liquidate everything as fast as possible.
That day, April 2, a lone Alvarez and Marsal receiver, Melanie MacKenzie, arrived at the company offices with the necessary papers. All Fuelmaker employees were abruptly fired without severance or warning, and given just a few hours to gather up their belongings and leave the premises. All Fuelmaker operations were suspended without notice to dealers, clients or suppliers. All assets were immediately placed on the auction block for liquidation.
“I think it is unconscionable,” stated one shocked Fuelmaker employee, who declined to have any name published for fear of retaliation from Honda. Explaining the fear of Honda, the employee stated, “I don't trust those guys. I don't trust them as far as I can throw them. They have lied to me every which way.” One employee added, “Quite simply, Honda has used the bankruptcy courts to avoid paying its employees severance. We were all absolutely blind-sided.”
An American CNG industry source who regularly works with Honda and has defended the company in the past, conceded, “It’s clear. Honda is doing their best to minimize the CNG market. What else can I say.” A Canadian CNG industry source sent cross-border emails, obtained by this reporter, protesting, “Nothing has been communicated to customers and we can expect that dealers will soon be dealing with very irate customers who cannot get parts,” adding, “This was handled very poorly and all of the former 60 employees are left with nothing.”
Torrance, California-based American Honda is the U.S. branch of the fabled Japanese car company. Honda’s glistening record of excellence was severely tarnished after widespread allegations that it was consciously suppressing its advanced Honda Civic GX, a CNG vehicle designed to work with the home-refueling unit manufactured by Fuelmaker. The company refused to manufacture more than about 90 Civic GX cars per month in 2008, and would mainly sell those few cars to select dealers in New York and California. A long list of alt-fuel advocates lined up to purchase the car, especially during the nerve-wracking triple-digit per barrel oil prices of 2008. But Honda would not increase production.
In one much-publicized case, the Spokane Community College tried for a year to buy a single Honda GX to train a cadre of alt-fuel specialists to help America get off of oil. Honda adamantly refused to sell the school even one car. In response to media revelations about the affair, a senior Honda executive posted snide remarks in a CNG chat room which included enough four-letter words to require multiple “expletive deleted” notations by the moderator. In a bizarre twist, the Honda exec also mocked the assassination of President John F. Kennedy as part of an effort to marginalize media reports. Later, Honda corporate spokesman apologized for the conduct.
Then, in an embarrassing revelation in late fall 2008, Honda internal communications were published showing the carmaker was artificially manufacturing a Honda GX shortage for the summer of 2009. First the company suspended GX production altogether, then it announced it would double annual output to 2,000 vehicles. But by enforcing a tight quota, Honda ensured that a shortage would occur, which it acknowledged in a fax to dealers. The company made clear it was refusing to make enough vehicles to satisfy the market demand that had mushroomed as part of the escalating movement to break the national oil addiction.
Critics accuse Honda of mere token Civic production inasmuch as the company generally sells more than 1.5 million vehicles annually, and in 2008 would only produce 1000 CNG cars. Even though its sales plunged last year, Honda still sold 1,428,765 vehicles. There are more than 8 million CNG vehicles worldwide, but only Honda makes them in America.
The same criticism leveled against Honda for refusing the build and sell cars was lodged against Honda-controlled Fuelmaker for declining to sell the Phill refueling units in most locales that wanted them. The combination of no car and no refueler ensured that production and sales were suppressed. One executive in the Honda-Fuelmaker combination with knowledge of sales quipped, “Suppression? That's True. I can't tell you the number of times we could not sell product because the cars were not made available.”
Critics have suggested that Honda refused to produce more Honda GX units because as consumers fled to alternative vehicles, sales of the company’s most profitable gas guzzler cratered. These included the Ridgeline and the Pilot, both among the most fuel inefficient vehicles in the nation. These models in some instances suffered more than a 40 percent decline in one month during last year’s oil price run-up.
Honda’s conduct was further challenged during a much-vaunted push by T. Boone Pickens to proliferate natural gas vehicles. Pickens’ company, Clean Energy, tried to purchase Fuelmaker for $17 million, which would break the shackles imposed on the CNG market. But at the last minute, the deal fell apart, reportedly because Honda refused to provide the ordinary financials required in due diligence.
“Honda wanted to sell the company to any of several investors,” confirmed an employee at the Honda-Fuelmaker combination with access to financial information. Clean Energy was just one of the firms that showed interest, the employee added. “But they always screwed up the negotiations. Honda attorneys always ended up pissing people off.” The employee asked that no name be used for fear of retaliation by Honda, a common refrain of those interviewed for this story.
One disheartened Fuelmaker technical support manager sent an email, obtained by this reporter, protesting to bankruptcy receiver MacKenzie, “We are convinced that Honda of America does not understand or appreciate the impact of ceasing all FuelMaker activities without considering some type of contingency plan for existing users who require parts and services to maintain their equipment until such time as they can make alternate fuelling arrangements.”
In Ontario Canada alone, more than 300 FuelMaker stations serve a variety of fleets, including such special purpose off-road vehicles as ice resurfacers and forklifts. Many of these vehicles are exclusively fueled by natural gas and “are totally dependant on the FuelMaker equipment that refuels them,” according to a Canadian Fuelmaker service employee. More one thousands forklifts and 100 ice resurfacers will be effected. Ice resurfacers require refueling every two days. “If a defective refueling system is not repaired in this time frame,” a Fuelmaker service expert confirmed in a written statement circulated to dealers, then “ice grooming operations cease and municipalities have no choice but to cancel tournaments, events and bookings for their arenas. There is no alternate vehicle that can be used to carry out the functions of an ice resurfacer.” He added, “Forklifts carry approximately four hours worth of fuel on board. There are often dozens of them in factories running 24 hours per day. Immediate response to breakdowns in forklift applications is critical. Without forklifts, factory operations grind to a halt in very short order.” Ironically,” the email pointed out, “Two Honda of Canada auto plants in Alliston and their main parts supplier Simcoe Parts Supply directly across the street, jointly operate close to 100 forklifts and make use of four large FuelMaker refueling stations.”
An email distributed by a Fuelmaker employee to CNG circles in North America about the effected Honda factories in Canada harshly chided Honda management. “How ironic that Honda of America in their infinite wisdom,” stated the email, “is now crippling two of their own auto plants because they refuse to exercise responsible management of their affairs!”
One Fuelmaker employee reported about conversations with shocked customers. “When they heard FuelMaker had gone bankrupt they were absolutely livid towards Honda of America that provisions for spare parts and repair services had not been considered as part of the wind down,” he stated.
According to a written statement drafted over the weekend by an executive in the Honda-Fuelmaker combination, and obtained by this reporter, “FuelMaker alone had three full-time service technicians covering over 250 stations in Ontario. Each technician handled 2-3 service calls per day. Therefore between 3 PM Thursday afternoon when operations at FuelMaker ceased and now, Sunday morning, there are at least fifteen calls that have gone unanswered and therefore fifteen facilities with dedicated natural gas vehicles that are in serious trouble RIGHT NOW! Ontario represents only a fraction of the world population of equipment. In twenty years, FuelMaker manufactured over 13,000 compression units and sold them in more than thirty countries. Most of those units are still in operation today. The Ontario market represents less than 10% of the world market so as you can imagine, what I am describing above is also happening all over the world.”
Safety sources in Canada wondered if makeshift solutions to the disappearance of spare parts and service would pose an explosive hazard. “There is a serious risk,” wrote one source involved in addressing refueling safety, “that someone is going to cobble together a substandard countermeasure to a problem that arises because they can't get parts and their facility and vehicles are totally dependant on their FuelMaker refueling equipment.”
Several employees worried over a safety crisis caused by Honda circulated a note calling for a rescue plan to salvage at least the service aspect. Even if no more refueling devices are produced, the ones out there need service and spare parts, stated an employee not wishing to provide a name so as not to jeopardize on-going efforts with Honda. One email asking for a rescue meeting declared, “Time is of the essence. This meeting must take place as soon as possible. Please do your best to make it happen.”
Fuelmaker president John Lyon confirmed to this reporter, “Fuelmaker management was aware that American Honda was trying to sell its Fuelmaker stock and intellectual property to a company that would provide the synergies necessary to move Fuelmaker to the next step of efficiency and profitability. This was public knowledge.” But Lyon added, “We were shocked to learn this week from a third party (not Honda) that American Honda was planning to put Fuelmaker into bankruptcy and sell the assets. I feel badly for the dedicated Fuelmaker employees who were all terminated on Thursday without notice or severance. Also I am concerned about the suppliers and Fuelmaker’s customers who are left without any support. Hopefully someone will see this as an opportunity and come to the rescue. It is a sad day for the NGV industry, the environment and energy security,” Lyon concluded.
“This is a real setback for the NGV industry,” agreed Richard Kolodziej, director of the leading CNG trade group, Natural Gas Vehicles America. “Natural gas home refueling is a significant benefit for residential customers. The idea is so compelling that we fully expect another manufacturer to enter the market soon.”
Some Honda business partners held out hope that somehow good reasoning prevailed. “It is disappointing but I am not surprised,” asserted a senior executive with AutoNation, the country’s largest owner of new car dealerships, and a strong advocate of alternative fuel vehicles such as the Honda GX. “With the price of gasoline at $2,” the AutoNation executive continued, “and the economy the way it is, things have changed.” But he added, “Everything for Honda does, they have a solid reason. When you deal with Honda you deal with a thoughtful reasoned company.”
Ironically, nearly all key players contacted stated they had been kept in the dark about Honda’s plans for Fuelmaker, including the declaration of bankruptcy. Many stated they only learned of the bankruptcy from this reporter. This included key executives at Fuelmaker in Toronto, senior alternative fuel program managers at Honda in California, knowledgeable industry experts, dealer sources, customers, and CNG advocates.
Honda senior vice president John Mendel, contacted at a dealer event in Los Vegas, claimed he was not aware of the bankruptcy. He stated he would have a corporate spokesman call back within moments. No call came. When contacted again, he hung up the phone after this reporter identified himself.
Honda is scheduled to attend the Alternative Fuel Vehicle Institute National Conference in Orlando on April 19-22. But no Honda source would confirm whether the company was still attending. Alternative Fuel Vehicle Institute Director of Education and Business Programs Kimberly Taylor did not respond to repeated emails and phone calls about the conference. In the past the conference has been criticized for being under the sway of leading corporate funding sponsors such as GM and Ford who have a record of undermining alternative fuel vehicles.
A disconsolate Fuelmaker employee offered a final epitaph: “Phills certainly are dead. The entire company is now dead.” One executive in the CNG field that regularly works with Honda, added, “This sudden bankruptcy certainly plays into the idea that Honda is trying to kill the CNG vehicle market.”
Edwin Black is the New York Times best selling investigative author of IBM and the Holocaust, Internal Combustion and The Plan: How to Save America When the Oil Stops—or the Day Before (Dialog Press). More information about The Plan can be found at www.planforoilcrisis.com.