My local "drug" dealer, also known as Sonny's Sunoco, as regular readers may recall, likes to play roulette with prices. It's not unusual for me to see the numbers on his display board switch three or four times a day, apparently depending upon how his personal trading is going on the spot market.

So I was surprised to see the figures hold steady, this weekend, at $3.79 a gallon of regular, more than 40 cents below the peak price he was demanding of us petrol junkies just a month before. All across the country, the AAA reports, prices are falling, and are now averaging barely $4 a gallon.

(Of course, who would have thought we'd breathe a collective sigh of relief when fuel prices were "only" $4?)

Why the sudden dip? No, it's not because the Saudis are suddenly feeling guilty, nor is it the result of a sudden sense of social responsibility in the ExxonMobil boardroom. It's apparently nothing more than a sign that Adam Smith was right. The invisible hand of the market seems to be working.

As fuel prices soared, in recent months, Americans began cutting back on their driving, whether by carpooling, cutting out unnecessary trips, switching to more fuel-efficient vehicles, or canceling their cross-country vacations. Whatever the reason, the nation sucked down 2.4 percent less fuel during the previous four weeks than it did during the same period in 2007. And that's helped drive down the price of crude by more than $20 a barrel since its July 3 peak of $145.31 - to a Friday close of $123.26.

Of course, that seemingly direct link between fuel consumption and fuel prices could work against us, if motorists wind up driving more now that fuel is, ahem, affordable again. Relatively, anyway. What was $72, on average, in 2007, is still expected to be $127 a barrel in 2008, and $133 next year, according to the energy Information Administration.

But unlike years past, when the laws of supply and demand were pretty much directly impacted by what happens on U.S. shores, the situation has changed dramatically in recent years, as more and more of the emerging world discovers the automobile.

China has become the world's third-largest motor vehicle market, behind only Japan and the U.S., and with millions more cars and trucks taking to the road each year, its appetite for petroleum has soared. The same thing is happening in India, Russia, and, well, much of the world. But while usage is soaring, supply has held relatively steady.

The situation is compounded, warns an article in today's New York Times, by the fact that consumers in many of these emerging markets aren't actually feeling the real pain of petroleum's record run-up. Indonesia, for example, is spending 4 percent of its entire economic output in the form of fuel subsidies, helping maintain gasoline prices of around $2.30 a gallon. In Malaysia, the subsidies amount to 7.5 percent of economic output.

China is spending about $40 billion to subsidize fuel costs, though it did allow gasoline prices to rise significantly on June 21. As the Times notes, that immediately drove down world oil prices by a whopping $4 a barrel. There's the possibility of still further increases in Chinese gasoline prices after the upcoming Olympics. Observers expect the government to wait rather than risk protests that could be picked up by the world's media, descending on Beijing.

While subsidies might ease the burden on third-world consumers, the problem is that low prices do the same thing, in places like China and India, that cheap gas did in America, it encourages consumption and limits the viability of conservation. And with little growth in global petroleum supplies, the fast-rising demand from these markets will continue to push up the cost of crude, even if Americans maintain their newfound focus on fuel efficiency.

My personal tale of two cities started last week in Dusseldorf, where I spent a couple of days driving the new Benz GLK, and is concluding this week at the wheel of the 2008 smart fortwo in San Francisco.

The smart's a funny car, one that inspires a Euro ecstasy in some drivers, and mortal loathing in others--like Motor Trend's Frank Markus, who gets all animated when you try to defend the little two-seater: "The only thing that car excels at is being short!" he sputters.

Being short, though, is a real advantage in a place like San Francisco, where I've easily seen a dozen coupes and cabriolets in just two days. Parking is horrific here; usually, I can't go a single trip without getting at least one ticket (score: already taken care of this week), and spaces are so valuable that the half-car length of the fortwo is a boon when you're just trying to squeeze into a legal spot and make a dinner happen.

The downsides to the smart's convenient size are vast, though. Crosswinds are the biggest problem; in a 20-mph gust across the 101, I was blown halfway into the next lane at 65 mph. The self-shifting manual gearbox is a downer, interrupting a decent head of steam to take its shifts. The brake pedal has an altogether different feel from the light steering and is nearly impossible to modulate smoothly.

The biggest problem in angry traffic is size. Drivers think nothing of cutting off the little smart as if it were sport. Crossing the Bay Bridge, at least three drivers tried to punt me into the middle lane while merging--one with a wicked grin on his face.

As long as you keep it within city limits at city speeds, the smart proves out its name, though it's not a cheap answer to any problem and not a great fuel miser, either. It does get attention everywhere, and it's a visible sign of change in an era when the word is more important than the meaning.

Earlier this month, I asked if you thought smart was a success. After spending more time in one, I'm inclined to say it is--but I need to ask a smarter question next time.

Listening to the latest news from Ford Motor Co., as it rolls up a record, $8.7 billion loss and its plummeting market share, it's hard to imagine a time when the very name "Ford" was as synonymous with cars as the word "automobile."

The reason was simple: the Model T. Otherwise known as the Tin Lizzie, it is the car that put America on wheels. It wasn't pretty, nor was it fast or particularly comfortable. But it was inexpensive and relatively easy to operate. And it sold by the millions, especially after the company's eponymous founder, Henry Ford I, came up with the concept of the moving assembly line.

Born on a farm in the Detroit suburb of Dearborn, Ford was an inveterate tinkerer, racer, and entrepreneur. It took him three tries to launch a successful company, and even that third attempt might not have made it had he not come up with the Model T, which went on sale exactly 100 years ago.

Production began at a small factory, on Piquette Road in Detroit, and contrary to conventional wisdom, those early flivvers were built pretty much like every other car of the day, one at a time, bits of pieces of body, chassis, and engine sprawled across the brick Piquette Plant's wooden floor. Even then, demand grew so rapidly, Ford moved production to an all-new building, designed by the legendary architect Albert Kahn in 1910.

It was one of the biggest factories of its day and featured a variety of breakthroughs, including a roof designed to flood the plant with natural light. But the real breakthrough came soon afterward, when one of his employees, William "Pa" Klann, came back from visiting Chicago's stockyards. There, animal carcasses were rolled from one station to another, each worker assigned to slice off a particular cut of meat.

Initially skeptical, Ford gave his nod and the factory bosses tied ropes connecting a line of partially assembled bodies, pulling them through the plant, where workers would bolt on one piece at a time, until they had a fully assembled Model T.

By 1914, they had the process down so precisely that a new flivver rolled out of the Highland Park plant about every 60 seconds, the assembly process taking just 93 minutes per Model T. In fact, Ford was assembling the Tin Lizzies so fast that by the end of the decade, it produced 9 of every 10 cars sold worldwide. And it didn't even need to advertise between 1917 and 1923.

The Model T set a whole chain of events in motion. Even as the car made it possible for much of America to afford wheels, it helped create a new middle class. In the early days of the auto industry, employees were worked so hard and paid so poorly, that turnover in the plants often ran to 300 percent or more annually.

Historians still argue over why Ford approved the $5-a-day wage. Was it to create a market for his new cars, or to reduce turnover? Probably both, as it helped stabilize the workforce while also boosting sales. Ford was also a proponent of good roads - which would help workers move out of the tenements of the cities, often beyond the reach of the day's streetcars.

While even the cheapest cars cost north of $2,000 when the first Model T appeared, Ford brought the first flivver into the showroom at $850, and as he perfected his mass production techniques, he continually cut the price, to $500, $450, and in its final years, to just $300 - about what a typical Highland Park Plant worker could earn in four months.

While Ford may today have a reputation as an innovator, he could be incredibly cantankerous and stubborn. Early on, he offered an array of color choices, but in 1913, he went to black alone. Why is another point of debate. It dried faster than the other primitive paints of the day - which could sit in warehouses for days, creating the potential for scratches, scuffs, and contamination. But the tight-fisted Ford may have simply been trying to save a few bucks. "Actually, he just wanted an economical and durable color that could be applied easily," his great-grandson, Edsel B. Ford II, told the Detroit Free Press.

Ford's obdurate nature began to hurt the company, in the 1920s, as competitors began to figure out how to challenge the Model T's stranglehold on the market. Among the most effective competitors was General Motors and its new CEO, Alfred P. Sloan. He famously boasted that GM would build "a car for every purse and pocketbook," and in just about any color that the public wanted, one could add.

Sloan also introduced the concept of styling at GM, a sharp contrast to the function-is-form philosophy of the Model T. And by the mid-1920s, that broke Ford's stranglehold. With his son, Edsel I, pleading for change, Henry finally approved the new Model A, shutting down Highland Park on May 26, 1927, for a lengthy changeover.

The new car helped regain some of Ford's faltering momentum, but the company's dominance was broken. GM became the new king of the hill, a position it held until this year, when the Japanese giant, Toyota, was able to grab global sales leadership for the first half of the year.

As my earlier blog suggested, there's not much good to talk about in automotive circles, these days. But occasionally, something positive slips through the whining and bitching. And in this case, the news comes from Ft. Lauderdale, Florida, home to the automotive mega-retailer, AutoNation.

In a truly rare bit of good news, the retail giant brought in better-than-expected second-quarter earnings, which, in turn, earned it an 11 percent surge in its stock price - even as the overall market took a tumble.

Now, before you wonder how AutoNation could defy gravity, it didn't. Its net income dipped 34 percent, year-to-year, to $51.8 million, or 29 cents a share, from $79.3 million, or 38 cents. But when you consider what's happening in the new car market, overall, that's downright miraculous.

And according to CEO Mike Jackson, things look as good as one could expect for the rest of what is likely to be a miserable year for the industry, thanks to planned cost cuts of about $100 million.

Might as well keep the bad news coming. In this case, it's Chrysler rolling up a wave of red ink - $431 million, to be precise, during the second quarter of the year.

The decision to release financial data came as something of a surprise; as part of the privately held Cerberus Capital Management, the automaker has not been required to provide the figures since last August, when it was sold off by former German parent, Daimler AG.

Comments by CEO Bob Nardelli suggest Chrysler lost about $1.7 billion last year. Officials insist that the April-June 2008 numbers were not all that bad - they certainly looked good in light of Ford Motor Co.'s record $8.7 billion second-quarter deficit - and that they have a "clear strategy" for turning things around. Yet industry analysts are generally more concerned about Chrysler's viability than they are about either Ford or General Motors, which is running deeply in the red as well.

Chrysler sales were down a punishing 22 percent during the first half of 2008, as demand for models like the big Ram pickup and Jeep Grand Cherokee stumbled. Light trucks traditionally account for about two-thirds of the Detroit maker's total volume. But it has had a rougher time regaining traction on the passenger car side of its lineup than either Ford or GM. A number of recent models, such as the Sebring sedan, have fallen short of expectations, partially as the result of poor reviews, but also due to low scores in recent quality reports - such as J.D. Power and Associates' Initial Quality Survey, where Chrysler ranked well below industry average.

Its cross-town rivals have substantial overseas operations, which are helping prop up the weak U.S. market; both Ford and Chrysler are turning to smaller passenger cars and crossovers developed overseas to rebuild their lineups, moving away from trucks. But Chrysler sold off most of its foreign operations decades ago, and it has struggled to set up new operations overseas. The smallest of Detroit's Big Three is now turning to competitors, such as Nissan, and the emerging Chinese maker, Chery, to supply it the small cars American consumers are demanding.

But in the meantime, Chrysler is paring away, announcing, just this week, new plans for large cuts in its white-collar workforce.

While the company insists it is well positioned to survive the current U.S. downturn, observers continue to question how long Cerberus' patience will last if Chrysler's performance doesn't improve soon.