What companies come to mind when you say “hybrid car”? Probably Toyota, possibly Honda or Ford, but certainly not General Motors or DaimlerChrysler.
That public perception — based on the reality that Toyota has nearly half the market for the less-polluting, gas-electric vehicles — is just one challenge that the Big Three domestic carmakers face as they press their green credentials in 2006 and beyond.
Ford is furthest along among its peers, but even GM and DaimlerChrysler are approaching hybrids and other environmentally friendly vehicles in some fashion.
Why bother, though, especially when carmakers have headaches like lower sales and higher health care costs?
Unveiling a bigger hybrid push last October, Ford Motor Chairman Bill Ford summed up what other executives have also said: “We know that the days of unlimited, inexpensive gasoline are over, and we are planning our product lineups accordingly.”
And GM Vice President Larry Burns made this crystal-ball statement at the Tokyo Motor Show in November: “The world is on a trajectory where it’s becoming even more urgent to get this done — whether it’s 9/11, the Iraq war, the explosive growth of China’s economy or hurricanes that expose the vulnerability of energy infrastructures.”
Survival and ‘PR’ value
Environmentalists like Roland Hwang, a vehicles expert at the Natural Resources Defense Council, hope that talk is sincere. “Fuel efficiency is not about corporate responsibility,” he preaches, “it’s about survival.”
Ron Cogan, editor of the Green Car Journal, believes it is. “Hybrids are going to continue expand. … It’s a competitive market issue,” he says, adding that other green strategies include ethanol, diesel and hydrogen.
But Anthony Pratt, who studies powertrains for the research group J.D. Power and Associates, senses that while carmakers will go after the public-relations value of green credentials, they won’t make radical shifts in production volume.
J.D. Power estimates U.S. hybrid sales this year of 220,000 vehicles, or 1.3 percent of the total new vehicle market. In 2012, it forecasts, hybrid volume will be 756,000 vehicles, or 4.1 percent of new vehicles.
Domestic carmakers should see their share increase a bit, Pratt says, but Toyota is expected to still have 41 percent of the market.
Different strategies
Hybrids aren’t the only game in town, and the Big Three have shown that in how they’re approaching greener vehicles:
- Ford and SUV hybrids. The Escape Hybrid was the first gas-electric SUV sold in the United States, and Ford followed that up in 2005 with the Mariner Hybrid. Total 2005 hybrid sales by Ford were around 25,000, but Ford has said it intends to broaden hybrids to half its vehicle models by 2010 — selling 250,000 a year by then.
- GM and ethanol, fuel cells. Instead of taking on Toyota and Honda directly with hybrid sedans, GM is focusing on pickup trucks with limited hybrid systems and eventually full hybrids for large vehicles. It is also talking up corn-based ethanol and the longer-term prospects for replacing internal combustion engines with fuel cells. Cars can be made “dramatically simpler” with hydrogen and fuel cells, Burns said in Tokyo, noting that a fuel cell system has a tenth as many moving parts as an internal combustion engine.
- DaimlerChrysler and diesels. The company doesn’t sell a gas-electric hybrid yet, but it is big on diesel — especially its diesel Jeep Liberty, introduced in 2005, and it is also producing a few diesel-electric Dodge Ram pickups for commercial fleets. The focus on diesel comes from Daimler, the German company that acquired Chrysler, and Europe’s subsidies for diesel fuel. The technology has come a long way since the 1970s, when clunky engines and smoky tailpipes turned Americans off to diesels. Low-sulfur rules taking force this year will make diesel nearly as clean as gasoline, while providing 30 percent more fuel efficiency and the same reduction in greenhouse gases tied to global warming.
Toyota and Honda, for their part, seem intent on continuing to focus on hybrids while investing in fuel cells for the long term. Indeed, both have leased fuel-cell demonstration vehicles to private individuals — the only carmakers to do so.
Other carmakers in Japan are experimenting with an approach abandoned by the Big Three and Toyota several years ago: electric cars. Nissan unveiled an electric concept car that swivels, Subaru hopes to sell an electric minicar by 2008 and Mitsubishi is developing one for the Japanese market by 2010.
The new programs all use lithium battery technology, which is what cell phones and laptops rely on, instead of the nickel metal hydride batteries now used by carmakers for hybrids. Lithium batteries charge faster and provide a longer driving range, but are still more expensive than NiMH batteries.
Cogan, the Green Car Journal editor, believes that if lithium becomes a breakthrough technology, it would boost the concept of a plug-in hybrid — one that allows the driver to charge up through an outlet and run solely on electric power if so desired.
That potential is “pretty wonderful,” Cogan says, but a small company working on the concept figures it would come with a $10,000 premium. “That’s asking a lot,” Cogan says, since hybrids are already several thousand dollars more expensive than their gas-only siblings.
Automakers might be able to do it cheaper, Cogan notes, and DaimlerChrysler for one is considering a plug-in hybrid version of its Sprinter commercial van.
Trust fund around obstacles?
When it comes to gas-electric hybrids, Hwang of the NRDC feels that “Ford is the most on track” of the Big Three. “The question is whether they will stay committed and execute.”
That could prove difficult given industry headaches like health care and pensions.
In Ford’s case, another obstacle is the fact that it got a head start on its domestic peers by buying some hybrid components through Toyota. “By developing a system similar to Toyota’s they're constrained by the supplier,” Pratt says. That has already translated into parts shortages that had delayed Ford hybrid production.
The NRDC proposes a taxpayer-funded $10 billion trust fund to offset health care and pension costs as long as carmakers reinvest half the resulting savings in fuel-efficient vehicles.
The idea has backing from Sen. Barack Obama, D-Ill., and while it hasn't gotten much traction in Congress the United Auto Workers has written a similar concept into its new health care agreement with Ford.
Retired workers will start making monthly health care contributions and pay deductibles, saving Ford an estimated $850 million a year. In exchange, Ford must invest $900 million over five years in plant improvements and advanced technology, such as building hybrid and fuel cell vehicles.
The UAW expects to work on a similar agreement with DaimlerChrysler.
Merging alternatives
Pratt suspects the Big Three won’t invest significantly more in hybrids until and unless consumers start to see a quicker economic payoff. Right now, hybrids typically cost $3,000 to $5,000 more than gas-only siblings, which means it takes years for the higher mileage to cover that premium.
Where Pratt sees a bigger opportunity for those carmakers is with diesels and ethanol, a fuel with a big following among Midwest farmers and their lawmakers. Using ethanol can also significantly reduce emissions tied to global warming.
Diesel sales are 3 percent of the market this year, Pratt says, but could grow to 7.6 percent in 2012.
Ethanol, for its part, has gotten big advertising boosts, first from Ford and more recently from GM.
Cogan, like Pratt, also sees potential for ethanol, noting that automakers already have nearly two dozen models that can run on gasoline or ethanol. “There are 4 million on the road now,” he says, “and we’ll probably see another million in a year.”
“They're not mutually exclusive,” Pratt says of diesels, ethanol and hybrids. “I think in the future we’ll even see diesel hybrids or hybrids equipped to burn ethanol.”