Watch your back and hold on to your wallet whenever you see industry, government and greens singing off the same sheet music: it's usually the consumers or taxpayers who are about to take it in the shorts. There's a quid pro quo here somewhere: probably billions more in federal "modernization" payments to automakers for "re-tooling" their facilities, which the President alluded to in his SOTU speech.
And as for the car-buying consumer? They're screwed. One recent report indicates that this will add $5,000 to the sticker price of a new car. But those future car-buyers weren’t represented, much less taken into consideration, by the unholy trinity touting this “deal.”
Showing posts with label automakers. Show all posts
Showing posts with label automakers. Show all posts
Thursday, January 26, 2012
Thursday, May 21, 2009
Fatal Conceit
It might be tempting to joke that Barack Obama's unilateral overhaul of federal fuel economy standards (isn't Congress supposed to have a say in such matters?) is a full employment program for crash test dummies, and trauma room physicians, since the lighter, less-crashworthy vehicles that result will almost certainly increase the risk of serious injuries and fatalities for motorists. But it really isn't a laughing matter that the Automaker-in-Chief is treating the rest of us like crash test dummies.
And dummies Americans are if they aren't alarmed by the ramifications of what's going down in Washington and Detroit, where federal tax dollars and raw power are being used to coerce a consensus on Obama's latest regulatory onslaught -- a point made by The Denver Post's David Harsanyi in this excellent column.
It's interesting that the reflex-regulators in the Democratic Party will spare no public expense or government effort in trying to ameliorate some statistically insignificant public health threats on the one hand, while shrugging off the additional safety risks that result from the federal government's meddling with fuel economy standards on the other.
If there's a 1 in 6 million chance that trace levels of arsenic in drinking water could theoretically give someone cancer someday, as determined by lab rats, the regulate-firsters are demanding that something be done, no matter the costs and burdens of compliance, no matter the tenuousness of the causal links involved. Yet the well-documented fact that lighter vehicles are also more dangerous vehicles -- meaning that forcing motorists into smaller, lighter vehicles increases their risk of serious injury or death on the roadways -- has never been a deterrent to those who believe they can save the planet by making use all drive Yugos.
Kudos to USA Today for at least noting that Barack's Obamamobile won't come without trade-offs, not just in higher costs but also in lives lost:
"The National Academy of Sciences, Insurance Institute for Highway Safety, Congressional Budget Office and National Highway Traffic Safety Administration have separately concluded in multiple studies dating back about 20 years that fuel-economy standards force automakers to build more small cars, which has led to thousands more deaths in crashes annually. Even though the standards were updated in recent years to reduce the incentive for automakers to sell more small cars by allowing different fuel-economy targets for different vehicles, the fastest way to make cars more fuel-efficient is to make them smaller. Some safety experts worry that the administration's green focus could reverse progress made in reducing the highway death toll.
But otherwise, there's been precious little mention of Obama's fatal conceit in the "mainstream" media. A panel "discussion" on the subject on CNN Tuesday had a former colleague of mine, Sam Kazman, who heads up the Death by Regulation Project at the Competitive Enterprise Institute, trying to make this very point, while being snapped at and sneered at by the host and 5 other panelists, none of whom took these points seriously. "No bias"? What bull.
If Obama had done something that carried even the slightest chance of endangering polar bears or spotted owls, these same panelists would be gnawing their fingernails and wringing their hands. But the fact that people might die as a result of Obama's regulatory zeal just didn't compute. The possibility that misdirected government action might actually cause harm or decrease public safety just boggles their minds -- it's like a pony pondering a Rubik's cube. But that's America for you.
The Obamatons deny that these mandates put Americans at risk.
"The Obama administration maintains the new fuel standards can be met without forcing more small cars into the market. "Because every (size) category has to get more efficient, if the soccer mom wants to buy her minivan, it will be a more fuel-efficient minivan. If someone wants to buy a big SUV, it will be a more fuel-efficient SUV," said Carol Browner, director of the White House Office of Energy and Climate Change. She said companies can use advanced technologies to improve fuel efficiency without dramatically changing their fleets."
Right, right: All we need to do is order companies to comply, and throw enough money at the problem, and anything is possible. We put a man on the moon, didn't we? (Well, yes, back in 1969 -- but we'd have a hell of a time repeating that feat today).
This is Field of Dreams policy-making: Mandate it and it will happen. Just like we'll be generating 20 percent of our electricity from windmills by 2025. Just like we'll grow our way to energy independence with ethanol. Just like we'll find a better way to store nuclear waste than Yucca Mountain. Just like we'll reduce America's "carbon footprint" to 1990 levels by 2020 -- or whatever the pie-in-the-sky promise of the day is. And just like we'll erase the federal budget deficit tomorrow by passing $3 trillion budgets today.
Carol Browner says there's nothing to worry about because the mandates apply across the board. Everyone will be downsizing simultaneously. But surely she's heard of something called the used car market. Not everyone can simultaneously get into a sleek new Obamamobile, especially since these mandates will come with a hefty price tag, so many bigger, heavier, gas-guzzling Bushmobiles will remain on the road for decades to come. And what happens when one of these lighter, more fuel-efficient Obamamobiles meets head-on with a bigger, heavier, gas-guzzling Bushmobile? Riders in the Obamamobile in most cases will get the worst if it.
And dummies Americans are if they aren't alarmed by the ramifications of what's going down in Washington and Detroit, where federal tax dollars and raw power are being used to coerce a consensus on Obama's latest regulatory onslaught -- a point made by The Denver Post's David Harsanyi in this excellent column.
It's interesting that the reflex-regulators in the Democratic Party will spare no public expense or government effort in trying to ameliorate some statistically insignificant public health threats on the one hand, while shrugging off the additional safety risks that result from the federal government's meddling with fuel economy standards on the other.
If there's a 1 in 6 million chance that trace levels of arsenic in drinking water could theoretically give someone cancer someday, as determined by lab rats, the regulate-firsters are demanding that something be done, no matter the costs and burdens of compliance, no matter the tenuousness of the causal links involved. Yet the well-documented fact that lighter vehicles are also more dangerous vehicles -- meaning that forcing motorists into smaller, lighter vehicles increases their risk of serious injury or death on the roadways -- has never been a deterrent to those who believe they can save the planet by making use all drive Yugos.
Kudos to USA Today for at least noting that Barack's Obamamobile won't come without trade-offs, not just in higher costs but also in lives lost:
"The National Academy of Sciences, Insurance Institute for Highway Safety, Congressional Budget Office and National Highway Traffic Safety Administration have separately concluded in multiple studies dating back about 20 years that fuel-economy standards force automakers to build more small cars, which has led to thousands more deaths in crashes annually. Even though the standards were updated in recent years to reduce the incentive for automakers to sell more small cars by allowing different fuel-economy targets for different vehicles, the fastest way to make cars more fuel-efficient is to make them smaller. Some safety experts worry that the administration's green focus could reverse progress made in reducing the highway death toll.
But otherwise, there's been precious little mention of Obama's fatal conceit in the "mainstream" media. A panel "discussion" on the subject on CNN Tuesday had a former colleague of mine, Sam Kazman, who heads up the Death by Regulation Project at the Competitive Enterprise Institute, trying to make this very point, while being snapped at and sneered at by the host and 5 other panelists, none of whom took these points seriously. "No bias"? What bull.
If Obama had done something that carried even the slightest chance of endangering polar bears or spotted owls, these same panelists would be gnawing their fingernails and wringing their hands. But the fact that people might die as a result of Obama's regulatory zeal just didn't compute. The possibility that misdirected government action might actually cause harm or decrease public safety just boggles their minds -- it's like a pony pondering a Rubik's cube. But that's America for you.
The Obamatons deny that these mandates put Americans at risk.
"The Obama administration maintains the new fuel standards can be met without forcing more small cars into the market. "Because every (size) category has to get more efficient, if the soccer mom wants to buy her minivan, it will be a more fuel-efficient minivan. If someone wants to buy a big SUV, it will be a more fuel-efficient SUV," said Carol Browner, director of the White House Office of Energy and Climate Change. She said companies can use advanced technologies to improve fuel efficiency without dramatically changing their fleets."
Right, right: All we need to do is order companies to comply, and throw enough money at the problem, and anything is possible. We put a man on the moon, didn't we? (Well, yes, back in 1969 -- but we'd have a hell of a time repeating that feat today).
This is Field of Dreams policy-making: Mandate it and it will happen. Just like we'll be generating 20 percent of our electricity from windmills by 2025. Just like we'll grow our way to energy independence with ethanol. Just like we'll find a better way to store nuclear waste than Yucca Mountain. Just like we'll reduce America's "carbon footprint" to 1990 levels by 2020 -- or whatever the pie-in-the-sky promise of the day is. And just like we'll erase the federal budget deficit tomorrow by passing $3 trillion budgets today.
Carol Browner says there's nothing to worry about because the mandates apply across the board. Everyone will be downsizing simultaneously. But surely she's heard of something called the used car market. Not everyone can simultaneously get into a sleek new Obamamobile, especially since these mandates will come with a hefty price tag, so many bigger, heavier, gas-guzzling Bushmobiles will remain on the road for decades to come. And what happens when one of these lighter, more fuel-efficient Obamamobiles meets head-on with a bigger, heavier, gas-guzzling Bushmobile? Riders in the Obamamobile in most cases will get the worst if it.
But they'll go to their graves, or to the emergency room, with their minds at ease, knowing that they've done their part, and made the ultimate sacrifice, in order to help curtail greenhouse gases.
Unless Super President can revoke the laws of physics -- which just might be possible in his case -- the next round of government-mandated downsizing will lead to more fatalities than would otherwise occur. But apparently this, in the eyes of Obamatons, is an acceptable price to pay for lowering our dependence of foreign oil (which won't happen, in all honesty, because an ever-increasing number of American drivers will continue to push demand for oil and gas higher, even if they all drive Obamamobiles, overwhelming any efficiencies realized through these mandates) and reducing our carbon treadprints.
Hey all you crash test dummies out there! Don't forget to buckle up. There's one messy car crash waiting at the end of the Obama thrill ride.
Wednesday, December 3, 2008
All Roads to Ruin -- and Perdition -- Run Through Washington
Can Washington save the automakers? Should Washington save the automakers?
Perhaps a better question -- one posed in the thought-provoking piece below -- is whether the Big 3 can survive Washington's "help," given the straight jacket of strings that will come attached. The piece also underscores a point I made last week: that a history of meddling by the Experts on Everything inside the Washington Motor Company contributed significantly to the industry's plight -- just as it contributed to the larger economic car crash that's unfolding.
I don't endorse all the writer's conclusions -- especially his view that the company's are owed a bailout because of the burdens Washington imposed -- but his analysis is otherwise sound.
But enough of my commentary. Here's the piece:
Can the Big Three survive a bailout?
By Jack Nerad
IRVINE, California (CNN) -- The Big Three automakers yesterday presented impressive plans to Congress that justified their need for bridge loans to help them regain their competitiveness in light of a vehicle market that has crashed into a wall.
Such loans won't simply help support a vital portion of American industry, they will help prevent a much greater potential economic disaster. The commercial and strategic importance of the auto sector simply cannot be overestimated.
That being said, we are reminded of the old phrase, "Watch what you wish for; you might get it." Because as we watched the chief executives of the Detroit automakers make their second trek to Washington to seek loans from the federal government that could stave off disaster, we have to ask the unexpected question, can the Big Three survive a federal bailout?
An undiscussed but critical part of whether government intervention will succeed is determining whether the inevitable strings attached to the federal funds will bind the Big Three into untenable positions like Gulliver in Lilliput.
Loan assistance from the federal government that tries to control the companies too tightly, that forces them to bring to market vehicles that the public may not want, might simply assure that they fail somewhat later rather than sooner. And in that scenario the American taxpayer and consumer is the biggest loser.
That question must be asked because the historical dynamic between the federal government and the domestic auto industry is a relationship that has been, at best, rocky and often openly antagonistic.
Jump back to 1975 and the institution of the Corporate Average Fuel Economy requirements designed to limit our reliance on foreign oil in the wake of the Arab oil embargo. Instead of simply limiting foreign imports or adding federal taxes to fuel costs to give consumers an incentive to buy more fuel-efficient vehicles, the government instituted byzantine regulations that required American manufacturers to build (or at least market) fuel-efficient cars just so they could continue selling the cars and trucks they were already known for.
Since the United States had always been a country of "cheap gas," (a tradition that continues, by the way) American car companies were not geared up to build small, fuel-efficient cars, but foreign manufacturers were. The result was that Americans were almost forcibly exposed to import vehicles, and many American consumers liked what they found.
The CAFÉ regulations accompanied by inexpensive gasoline were analogous to plopping consumers into the middle of a giant candy store and then forcing the candy manufacturers to somehow persuade a percentage of consumers to buy broccoli instead.
When all was said and done, the CAFÉ rules ended up giving a strong leg up to the Big Three's import competitors, putting their market share on an upward curve that hasn't ceased climbing.
Of course, having helped push American consumers into import cars, albeit inadvertently, the federal government then tried to reverse the trend through new intervention.
At the urging of the U.S. government, the Japanese manufacturers adopted "voluntary"
restraints on their exports of vehicles to the U.S. beginning in 1981. The goal was to give U.S. companies "breathing room" so they could catch up to the Japanese in producing small, fuel-efficient vehicles. (Sound familiar?)
Again, this might have seemed a worthy plan at the time, but it had several unintended consequences that ended up doing much more harm to the domestic manufacturers than good. In the short term it limited supply of popular Japanese-built vehicles, which resulted in windfall profits for the dealers of the top imports, helping those brands establish very strong dealer networks.
It influenced the import manufacturers to move up-market both by building more expensive vehicles and by establishing luxury brands like Acura, Lexus and Infiniti. And it gave strong impetus for the import manufacturers to build plants here in the United States. Today a large percentage of the "import brand" share of the U.S. market -- more than 50 percent of the total light-vehicles sold here -- are vehicles built by Americans in foreign-managed factories on U.S. soil. Ironically, to counteract this, the Big Three automakers have increasingly moved production from the U.S. to lower-labor-cost countries like Mexico.
So what are the implications of this history lesson? The first takeaway is that a portion of the woes the domestic Big Three are suffering today are the result of current and past federal government policies, so it seems fair that they be accorded government assistance now in time of dire need.
But equally important, while the Big Three automakers might well be accused of not correctly gauging the needs and desires of the American buying public, one group that is demonstrably much worse in that endeavor is Congress. If the U.S. government were a car company, it would not only be deep in the red, but also have miserable customer satisfaction scores.
So a second takeaway is that doing the wrong thing -- and by the wrong thing we mean attaching assistance to a web of politically motivated strings to federal loans -- will only lead to a bigger catastrophe down the road.
If Congress acts to aid the ailing Big Three car manufacturers -- and I strongly suggest it should -- then it is equally important that the domestic carmakers be allowed the latitude to conduct their business based on the dictates of the American consumer, not the politicians.
The opinions expressed in this commentary are solely those of Jack Nerad.
Editor's Note: Jack R. Nerad is Executive Editorial Director for Kelley Blue Book and kbb.com, and co-host of "America on the Road," heard on more than 300 radio stations. In the 1980s he served as Editor of Motor Trend magazine. Nerad is the author of "The Complete Idiot's Guide to Buying or Leasing a Car," "Chevrolet Corvette: The Power & the Glory," and his latest book, "The Complete Idiot's Guide to Hybrid and Alternative Fuel Vehicles," published recently by Alpha Books.
Perhaps a better question -- one posed in the thought-provoking piece below -- is whether the Big 3 can survive Washington's "help," given the straight jacket of strings that will come attached. The piece also underscores a point I made last week: that a history of meddling by the Experts on Everything inside the Washington Motor Company contributed significantly to the industry's plight -- just as it contributed to the larger economic car crash that's unfolding.
I don't endorse all the writer's conclusions -- especially his view that the company's are owed a bailout because of the burdens Washington imposed -- but his analysis is otherwise sound.
But enough of my commentary. Here's the piece:
Can the Big Three survive a bailout?
By Jack Nerad
IRVINE, California (CNN) -- The Big Three automakers yesterday presented impressive plans to Congress that justified their need for bridge loans to help them regain their competitiveness in light of a vehicle market that has crashed into a wall.
Such loans won't simply help support a vital portion of American industry, they will help prevent a much greater potential economic disaster. The commercial and strategic importance of the auto sector simply cannot be overestimated.
That being said, we are reminded of the old phrase, "Watch what you wish for; you might get it." Because as we watched the chief executives of the Detroit automakers make their second trek to Washington to seek loans from the federal government that could stave off disaster, we have to ask the unexpected question, can the Big Three survive a federal bailout?
An undiscussed but critical part of whether government intervention will succeed is determining whether the inevitable strings attached to the federal funds will bind the Big Three into untenable positions like Gulliver in Lilliput.
Loan assistance from the federal government that tries to control the companies too tightly, that forces them to bring to market vehicles that the public may not want, might simply assure that they fail somewhat later rather than sooner. And in that scenario the American taxpayer and consumer is the biggest loser.
That question must be asked because the historical dynamic between the federal government and the domestic auto industry is a relationship that has been, at best, rocky and often openly antagonistic.
Jump back to 1975 and the institution of the Corporate Average Fuel Economy requirements designed to limit our reliance on foreign oil in the wake of the Arab oil embargo. Instead of simply limiting foreign imports or adding federal taxes to fuel costs to give consumers an incentive to buy more fuel-efficient vehicles, the government instituted byzantine regulations that required American manufacturers to build (or at least market) fuel-efficient cars just so they could continue selling the cars and trucks they were already known for.
Since the United States had always been a country of "cheap gas," (a tradition that continues, by the way) American car companies were not geared up to build small, fuel-efficient cars, but foreign manufacturers were. The result was that Americans were almost forcibly exposed to import vehicles, and many American consumers liked what they found.
The CAFÉ regulations accompanied by inexpensive gasoline were analogous to plopping consumers into the middle of a giant candy store and then forcing the candy manufacturers to somehow persuade a percentage of consumers to buy broccoli instead.
When all was said and done, the CAFÉ rules ended up giving a strong leg up to the Big Three's import competitors, putting their market share on an upward curve that hasn't ceased climbing.
Of course, having helped push American consumers into import cars, albeit inadvertently, the federal government then tried to reverse the trend through new intervention.
At the urging of the U.S. government, the Japanese manufacturers adopted "voluntary"
restraints on their exports of vehicles to the U.S. beginning in 1981. The goal was to give U.S. companies "breathing room" so they could catch up to the Japanese in producing small, fuel-efficient vehicles. (Sound familiar?)
Again, this might have seemed a worthy plan at the time, but it had several unintended consequences that ended up doing much more harm to the domestic manufacturers than good. In the short term it limited supply of popular Japanese-built vehicles, which resulted in windfall profits for the dealers of the top imports, helping those brands establish very strong dealer networks.
It influenced the import manufacturers to move up-market both by building more expensive vehicles and by establishing luxury brands like Acura, Lexus and Infiniti. And it gave strong impetus for the import manufacturers to build plants here in the United States. Today a large percentage of the "import brand" share of the U.S. market -- more than 50 percent of the total light-vehicles sold here -- are vehicles built by Americans in foreign-managed factories on U.S. soil. Ironically, to counteract this, the Big Three automakers have increasingly moved production from the U.S. to lower-labor-cost countries like Mexico.
So what are the implications of this history lesson? The first takeaway is that a portion of the woes the domestic Big Three are suffering today are the result of current and past federal government policies, so it seems fair that they be accorded government assistance now in time of dire need.
But equally important, while the Big Three automakers might well be accused of not correctly gauging the needs and desires of the American buying public, one group that is demonstrably much worse in that endeavor is Congress. If the U.S. government were a car company, it would not only be deep in the red, but also have miserable customer satisfaction scores.
So a second takeaway is that doing the wrong thing -- and by the wrong thing we mean attaching assistance to a web of politically motivated strings to federal loans -- will only lead to a bigger catastrophe down the road.
If Congress acts to aid the ailing Big Three car manufacturers -- and I strongly suggest it should -- then it is equally important that the domestic carmakers be allowed the latitude to conduct their business based on the dictates of the American consumer, not the politicians.
The opinions expressed in this commentary are solely those of Jack Nerad.
Editor's Note: Jack R. Nerad is Executive Editorial Director for Kelley Blue Book and kbb.com, and co-host of "America on the Road," heard on more than 300 radio stations. In the 1980s he served as Editor of Motor Trend magazine. Nerad is the author of "The Complete Idiot's Guide to Buying or Leasing a Car," "Chevrolet Corvette: The Power & the Glory," and his latest book, "The Complete Idiot's Guide to Hybrid and Alternative Fuel Vehicles," published recently by Alpha Books.
Tuesday, November 25, 2008
Would "Washington Motors" Do Better?
An excellent piece in today's Washington Post poses the question: Can the know-it-alls in Washington do a better job of building an innovative and profitable car company than can the panhandlers in pinstripes from Detroit? Washington seems to think so, judging from all the critiques auto company execs endured when they came grovelling, and all the conditions politicians want attached to any bailout money.
The short answer, of course, is that any car or car company designed according to Washington's specifications would be an Edsel -- just as everything else Washington touches becomes an Edsel. Hasn't anyone in Washington ever heard of the GAZ-M20 Pobeda, which was just one clunky and archaic result of Soviet central planning? And an argument might even be made that the meddling Washington's already done in the industry, in terms of the regulatory burdens and fuel economy and safety mandates it's imposed, contributed mightily to the uncompetitiveness of this American industry (a point made by Holman Jenkins in The Wall Street Journal).
But the long answer, for those who want it, is as follows:
The Car of the Future -- but at What Cost?
Hybrid Vehicles Are Popular, but Making Them Profitable Is a Challenge
By Steven Mufson
Many members of Congress believe they know what the car company of the future should look like.
"A business model based on gas -- a gas-guzzling past -- is unacceptable," Sen. Charles E. Schumer (D-N.Y.) said last week. "We need a business model based on cars of the future, and we already know what that future is: the plug-in hybrid electric car."
But the car company Schumer and other lawmakers envision for the future could turn out to be a money-losing operation, not part of a "sustainable U.S. auto industry" that President-elect Barack Obama and most members of Congress say they want to create.
That's because car manufacturers still haven't figured out how to produce hybrid and plug-in vehicles cheaply enough to make money on them. After a decade of relative success with its hybrid Prius, Toyota has sold about a million of the cars and is still widely believed by analysts to be losing money on each one sold. General Motors has touted plans for a plug-in hybrid vehicle called the Volt, but the costly battery will prevent it from turning a profit on the vehicle for several years, at least.
"In 10 years are they [at GM] going to solve the technological problems with respect to the Volt? Sure," says Maryann Keller, an automotive analyst and author of a book on GM. "But are they going to be able to stake their survival, which is really more of a now to five-year proposition, on it? I'd say they can't. They have to stake their future on Malibus, the Chevy Cruze, and much more conventional technologies."
U.S. automakers faced a barrage of demands last week that they provide evidence and assurance that they would use federal bailout money to transform their companies to produce automobiles of the future, using advanced technologies and featuring hybrid or plug-in vehicles. And in his "60 Minutes" interview on Nov. 16, Obama said that before backing a big loan package he wanted to be sure "that we are creating a bridge loan to somewhere as opposed to a bridge loan to nowhere."
But there's no guarantee that the new business model would be any more viable than the current one. Automobile experts estimate that the battery in a plug-in vehicle could add at least $8,000 to the cost of a car, maybe considerably more. Most Americans will be unwilling to pay the extra price, especially if gasoline prices languish around $2 a gallon.
That's why one of the mysteries about GM's plans to introduce the Volt in 2010 is how much it will cost to buy one. "What's the Volt going to cost? I would be happy to answer that if you can tell me the price of oil in 2010," said Robert A. Kruse, GM's executive director of global vehicle engineering for hybrids, electric vehicles and batteries. "I can tell you to the penny what it will cost GM, but pricing is much more related to market conditions."
The hurdles ahead for the Volt and other cars with new technologies pose dilemmas for automakers trying to gauge a market that is still very young for cars that don't exist while trying to stay in business during a downturn.
"These are hard choices," said Toyota chief technology officer Bill Reinert, part of the Prius design team. "Do you bet on lighter, smaller, more fuel efficient but ultimately less profitable cars or do you hold back a little on technology development and look at new versions of existing cars."
Many experts say that gas guzzlers will not fade away as long as Congress fails to impose higher taxes on gasoline to steer people toward fuel-efficient cars.
"You'd think from reading the media that we have had a burial ceremony at Arlington cemetery for the last pickup truck," said James Womack, a management expert who has written about the automobile industry. "I can easily imagine three years from now when public is focused on a new set of priorities . . . that this whole thing would go poof."
Eager to reduce U.S. dependence on foreign oil, Obama proposed a $7,500-a-vehicle tax credit for plug-in vehicles during his presidential campaign. Roughly half of Americans don't earn enough to take advantage of such a big tax credit. (A head of household would need to earn almost $50,000 to have a federal tax liability that large.) Many others don't have the cash to purchase an expensive vehicle then wait for a federal refund. To spur sales of new vehicles, the price must be reasonable at the point of sale, say many industry experts.
Womack warned that it takes time to design a new vehicle, change assembly lines and then turn a new product into a profitable one. "For anything that's really new it's still about four years," he said. "To get your money back, you need to make that product for eight to 10 years with only cosmetic changes."
Helping automakers over that hump may take more money and patience than Congress or its taxpaying constituents have.
The experience of Tesla Motors, a Silicon Valley sports car maker, illustrates the challenges of making a radically new automobile. Founded by a group of high-tech multimillionaires, Tesla has been trying to become the first new successful American car company since Chrysler, which was founded in 1925.
Tesla's founders set out to make all-electric vehicles. The company's first: an all-electric sports car with a price tag of $109,000 that can go from zero to 60 mph in a bracing 3.9 seconds. As of a week ago, only 63 had been delivered to customers; a couple of dozen were nearly ready and the company has about 1,200 back orders.
"The reason we started with a $100,000 sports car is that when technology is new it tends to be expensive," says Elon Musk, the co-founder of PayPal who is the chief executive of and a big investor in Tesla. "It just takes time to optimize the right design and work up to economies of scale. . . . Why we didn't start with a Honda Civic is that it would be a $70,000 to $80,000 Honda Civic."
With a chassis made by Lotus in England, body parts made by a French carbon fiber firm Sotira and battery parts from Taiwan, Tesla has had supply-chain problems ranging from customs delays to a fire in the tunnel that goes under the English Channel. Initially a two-speed vehicle, the early Teslas were rough on transmissions, which have been eliminated in new single-speed versions. Recently Musk has hired some veterans from the Detroit automakers to smooth out production problems.
"For sure, this game looks a lot easier than it really is," said Jon Lauckner, GM's vice president of global program management. "You've got to get 3,000 parts all together in one place to assemble a vehicle."
Tesla isn't any different from the Detroit Three in one regard: It too is looking for government assistance. Eager to make a luxury sedan as the next in what it hopes eventually will be a full line of electric vehicles, Tesla Motors has applied for $400 million in low-interest federal loans under the $25 billion loan package approved by Congress a year ago.
But GM and other car companies, while preparing plug-in vehicles, are more likely to live or die based on the sales of conventional cars that get better fuel efficiency through improved transmissions, reduced weight or hybrid technology. GM says it will offer nine hybrids for sale by the middle of next year. Reinert says that Toyota will eventually offer hybrid versions of all its car models.
Still, production of the new cars will be limited. GM, for instance, plans to produce only a little more than 10,000 Volts in the model's first year.
"People ask us when will we produce not just 10,000 but 50,000," said Frank Weber, GM's global vehicle line executive and chief engineer for E-flex systems. "I say when the battery and power train costs have come down significantly." Weber added: "We never said this program in the first generation was there to make money. You cannot expect this type of technology to make money from day one."
The economic downturn has also changed the equation.
"Will the U.S. auto industry ever be as profitable as it was from mid-90s to the early part of this decade?" asks automobile expert Keller. Those days were "magic. It was like printing money for everybody. Everybody from Toyota and GM to Ford and Nissan were feasting on our desire to drive around in those giant vehicles."
But the industry has gone from feast to famine. Auto industry experts say that the basic problem is that the U.S. industry geared up to make 18 million cars and light trucks a year and that it will be lucky to sell 11 million this year. How far sales will climb back -- and when -- is anybody's guess.
"There's fluff and there's reality," Keller said. "The fluff is the Chevy Volt . . . That's not going to save GM in the next five years. What will save GM is more small sedans and more crossovers. That's what people are going to be buying."
The short answer, of course, is that any car or car company designed according to Washington's specifications would be an Edsel -- just as everything else Washington touches becomes an Edsel. Hasn't anyone in Washington ever heard of the GAZ-M20 Pobeda, which was just one clunky and archaic result of Soviet central planning? And an argument might even be made that the meddling Washington's already done in the industry, in terms of the regulatory burdens and fuel economy and safety mandates it's imposed, contributed mightily to the uncompetitiveness of this American industry (a point made by Holman Jenkins in The Wall Street Journal).
But the long answer, for those who want it, is as follows:
The Car of the Future -- but at What Cost?
Hybrid Vehicles Are Popular, but Making Them Profitable Is a Challenge
By Steven Mufson
Many members of Congress believe they know what the car company of the future should look like.
"A business model based on gas -- a gas-guzzling past -- is unacceptable," Sen. Charles E. Schumer (D-N.Y.) said last week. "We need a business model based on cars of the future, and we already know what that future is: the plug-in hybrid electric car."
But the car company Schumer and other lawmakers envision for the future could turn out to be a money-losing operation, not part of a "sustainable U.S. auto industry" that President-elect Barack Obama and most members of Congress say they want to create.
That's because car manufacturers still haven't figured out how to produce hybrid and plug-in vehicles cheaply enough to make money on them. After a decade of relative success with its hybrid Prius, Toyota has sold about a million of the cars and is still widely believed by analysts to be losing money on each one sold. General Motors has touted plans for a plug-in hybrid vehicle called the Volt, but the costly battery will prevent it from turning a profit on the vehicle for several years, at least.
"In 10 years are they [at GM] going to solve the technological problems with respect to the Volt? Sure," says Maryann Keller, an automotive analyst and author of a book on GM. "But are they going to be able to stake their survival, which is really more of a now to five-year proposition, on it? I'd say they can't. They have to stake their future on Malibus, the Chevy Cruze, and much more conventional technologies."
U.S. automakers faced a barrage of demands last week that they provide evidence and assurance that they would use federal bailout money to transform their companies to produce automobiles of the future, using advanced technologies and featuring hybrid or plug-in vehicles. And in his "60 Minutes" interview on Nov. 16, Obama said that before backing a big loan package he wanted to be sure "that we are creating a bridge loan to somewhere as opposed to a bridge loan to nowhere."
But there's no guarantee that the new business model would be any more viable than the current one. Automobile experts estimate that the battery in a plug-in vehicle could add at least $8,000 to the cost of a car, maybe considerably more. Most Americans will be unwilling to pay the extra price, especially if gasoline prices languish around $2 a gallon.
That's why one of the mysteries about GM's plans to introduce the Volt in 2010 is how much it will cost to buy one. "What's the Volt going to cost? I would be happy to answer that if you can tell me the price of oil in 2010," said Robert A. Kruse, GM's executive director of global vehicle engineering for hybrids, electric vehicles and batteries. "I can tell you to the penny what it will cost GM, but pricing is much more related to market conditions."
The hurdles ahead for the Volt and other cars with new technologies pose dilemmas for automakers trying to gauge a market that is still very young for cars that don't exist while trying to stay in business during a downturn.
"These are hard choices," said Toyota chief technology officer Bill Reinert, part of the Prius design team. "Do you bet on lighter, smaller, more fuel efficient but ultimately less profitable cars or do you hold back a little on technology development and look at new versions of existing cars."
Many experts say that gas guzzlers will not fade away as long as Congress fails to impose higher taxes on gasoline to steer people toward fuel-efficient cars.
"You'd think from reading the media that we have had a burial ceremony at Arlington cemetery for the last pickup truck," said James Womack, a management expert who has written about the automobile industry. "I can easily imagine three years from now when public is focused on a new set of priorities . . . that this whole thing would go poof."
Eager to reduce U.S. dependence on foreign oil, Obama proposed a $7,500-a-vehicle tax credit for plug-in vehicles during his presidential campaign. Roughly half of Americans don't earn enough to take advantage of such a big tax credit. (A head of household would need to earn almost $50,000 to have a federal tax liability that large.) Many others don't have the cash to purchase an expensive vehicle then wait for a federal refund. To spur sales of new vehicles, the price must be reasonable at the point of sale, say many industry experts.
Womack warned that it takes time to design a new vehicle, change assembly lines and then turn a new product into a profitable one. "For anything that's really new it's still about four years," he said. "To get your money back, you need to make that product for eight to 10 years with only cosmetic changes."
Helping automakers over that hump may take more money and patience than Congress or its taxpaying constituents have.
The experience of Tesla Motors, a Silicon Valley sports car maker, illustrates the challenges of making a radically new automobile. Founded by a group of high-tech multimillionaires, Tesla has been trying to become the first new successful American car company since Chrysler, which was founded in 1925.
Tesla's founders set out to make all-electric vehicles. The company's first: an all-electric sports car with a price tag of $109,000 that can go from zero to 60 mph in a bracing 3.9 seconds. As of a week ago, only 63 had been delivered to customers; a couple of dozen were nearly ready and the company has about 1,200 back orders.
"The reason we started with a $100,000 sports car is that when technology is new it tends to be expensive," says Elon Musk, the co-founder of PayPal who is the chief executive of and a big investor in Tesla. "It just takes time to optimize the right design and work up to economies of scale. . . . Why we didn't start with a Honda Civic is that it would be a $70,000 to $80,000 Honda Civic."
With a chassis made by Lotus in England, body parts made by a French carbon fiber firm Sotira and battery parts from Taiwan, Tesla has had supply-chain problems ranging from customs delays to a fire in the tunnel that goes under the English Channel. Initially a two-speed vehicle, the early Teslas were rough on transmissions, which have been eliminated in new single-speed versions. Recently Musk has hired some veterans from the Detroit automakers to smooth out production problems.
"For sure, this game looks a lot easier than it really is," said Jon Lauckner, GM's vice president of global program management. "You've got to get 3,000 parts all together in one place to assemble a vehicle."
Tesla isn't any different from the Detroit Three in one regard: It too is looking for government assistance. Eager to make a luxury sedan as the next in what it hopes eventually will be a full line of electric vehicles, Tesla Motors has applied for $400 million in low-interest federal loans under the $25 billion loan package approved by Congress a year ago.
But GM and other car companies, while preparing plug-in vehicles, are more likely to live or die based on the sales of conventional cars that get better fuel efficiency through improved transmissions, reduced weight or hybrid technology. GM says it will offer nine hybrids for sale by the middle of next year. Reinert says that Toyota will eventually offer hybrid versions of all its car models.
Still, production of the new cars will be limited. GM, for instance, plans to produce only a little more than 10,000 Volts in the model's first year.
"People ask us when will we produce not just 10,000 but 50,000," said Frank Weber, GM's global vehicle line executive and chief engineer for E-flex systems. "I say when the battery and power train costs have come down significantly." Weber added: "We never said this program in the first generation was there to make money. You cannot expect this type of technology to make money from day one."
The economic downturn has also changed the equation.
"Will the U.S. auto industry ever be as profitable as it was from mid-90s to the early part of this decade?" asks automobile expert Keller. Those days were "magic. It was like printing money for everybody. Everybody from Toyota and GM to Ford and Nissan were feasting on our desire to drive around in those giant vehicles."
But the industry has gone from feast to famine. Auto industry experts say that the basic problem is that the U.S. industry geared up to make 18 million cars and light trucks a year and that it will be lucky to sell 11 million this year. How far sales will climb back -- and when -- is anybody's guess.
"There's fluff and there's reality," Keller said. "The fluff is the Chevy Volt . . . That's not going to save GM in the next five years. What will save GM is more small sedans and more crossovers. That's what people are going to be buying."
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