I read an interesting article in the SF Chronicle this morning titled Energy and America's Future and it just so happens that Titus and I were talking about this via AIM last night, so I thought I'd start a topic on it.

In the 1980's the American auto industry took a huge hit when Japanese cars came on the scene in a big way, and personally I'm not sure if Detroit has recovered from that blow even today. I would still argue that Japanese cars are still of higher quality and are more reliable than American cars even today.

However, I think the American auto industry has another chance with developing hybrids and true alternative fuel engines. The price of crude oil closed at $55.17 last Friday and it is hovering around $54 as of market opening today, I think it would be foolish to assume the price of oil is going to decrease. I know that the area I live in has some of the highest prices in the nation, but prices are up to $2.60 - $2.70 for regular depending on where you go as of yesterday. It seems to me that American auto companies just don't get it:


To me it looks like the Japanese are poised to strike another huge blow to the US auto industry, and this one may be fatal. Some of you may not be too excited about the Prius, but I happened to be watching Regis and Kelly the other day (don't ask me why) and I saw the line up of hybrid vehicles for 2005. They included - a hybrid Honda Accord, A Hybrid Lexus SUV and in 2006 the Hybrid Lexus LS (the first luxury car) will be released. GMC also has plans for a hybrid heavy pickup, but the fuel economy is only marginally better than the original and 3k more expensive. One thing you should notice there is that the vast majority of the cars are Japanese designs and we aren't talking Pruis like enviro-hip designs, these are popular models of cars driven by tens of thousands of people.

General Motors and Ford are both in the top 5 of the Fortune 500 companies, I think that is cause for serious concern in terms of the health of our economy if these car makers are falling behind the curve.

The article also discusses what Bush and Kerry have proposed doing to incentivize alternative fuels, I personally don't think either is going far enough:


Questions for debate:
1. Are American consumers "speaking" to the market, or are hybrids, alternative fuel cars and better fuel efficiency just fads that will pass?

2. Are we risking the livelihood of the American auto industry (and of our economy) if car makers don't heavily invest in hybrid technology and true alternative fuels now instead of later?

3. Do you believe the plans proposed by Bush and Kerry are adequate or do you believe that we should go much further and off some significant tax breaks for investment and raise fuel economy standards?

I think that given the current boom in the economies of China (and to a lesser extent Brazil and India) we are going to see a large increase in the demand for (and hence price of) oil. There are also environmental arguments for improving fuel efficiency, as increased fuel milage would reduce carbon dioxide emissions.



Well, the technology exists to make cars more fuel efficient or move onto hybrids...so when it becomes an issue, changing the design of cars in America wouldn't be too much of an issue.



- - although I am in favour of raising fuel economy standards, I am not sure if a hand-out to the auto industry is the way forward here. Customer demand should provide enough incentive....although I do think the exemption on SUV's should be scrapped, because it distorts the market. Besides SUV's are a bit silly.

I would disagree with you here, yes the technology exists but it isn't like anyone can just go out and pick up a blue print and start building hybrid cars. There are patents involved and the production facilities for these cars will also have to be modified. It is one thing to know about the concept of hybrid vehicles, but the application is a completely different story. There are at least 2 or 3 current philosophies on how hybrid vehicles should work right now, and all of them are being pioneered by Japanese companies. The Prius for example is entering its second generation and is much better than the first.

To use a similar example, America basically pioneered many of the ideas that have enabled the internet age we live in. If it were easy to just pick up technology and start manufacturing a product then why is the majority of the world run on Microsoft Windows, Cisco Routers and Dell, IBM and Sun computers? If things worked the way you were suggesting then we would have all kinds of foreign competitors for these things. The fact that we don't suggests a few things, the important ones being high barrier of entry and insurmountable market presence.

To bring this back to cars, if American companies don't start working on this right now, they are going to get beat by the Japanese companies and they'll always be a few steps behind if they are able to follow at all. When you think "hybrid" (or in the future, hydrogen) you won't think Ford or GM, you'll think Toyota, Honda and Lexus - that is market presence.


Again I disagree, consumer demand alone isn't enough. The people currently buying hybrids are doing so primarily because they care about the earth and they want to make a statement of sorts, they aren't doing it because they are the best cars on the market. Hybrids are at a minimum $3000 to $5000 more expensive than a comparable combustion engine vehicle. Furthermore, you simply aren't going to make that up in fuel savings unless you commute excessively or the price of gas goes up a lot more.

Therefore, these cars just aren't going to be taken up by the average middle class family, they will remain sort of "elite" for lack of a better word.

Now, if the government were to offer some significant tax breaks to individuals - say price difference plus 20% or something (6000 at the upper end of the scale) - then you might stand a good chance of seeing average people heading out to buy these hybrid vehicles.

As far as corporate tax breaks go, I personally would prefer the government incentivize american auto companies to make the investment, but I can see the other side of the coin. It seems to me that these companies just dont get it™ and are in danger of becoming obsolete by not staying ahead of the innovation curve. That has been typical of the American auto industry since the 80's and maybe it is time they started taking a hit in their business to wake up. However, if the government doesn't bribe them a little bit with tax incentives, it is going to have an impact on the economy. Many states rely heavily on auto manufacturing for revenue and jobs and they'll be in deep trouble which will in turn hurt our economy. The business person inside me would like to give these old auto companies a taste of reality and a good slap to the face, but I think we have an obligation to jobs right now and I think we need to foster innovation (even if we have to drag people kicking and screaming) or America itself risks falling behind.

If I were CEO of Ford or GM I'd be putting all my R&D dollars in this right now and set an agressive production schedule (not something like 2010), but maybe these old dinosaurs just don't see the end, they are blinded by their assumptions.

This is an exercise in supply & demand and an easily consumed economics discussion.

1. As we have all seen, the hybrid idea has only marginally sifted into the American Automobile industry. The current consumers are still purchasing low fuel economy vehicles such as SUV's, large pick-ups, and sports cars (such as the new mustangs flying off show room floors). There are still plenty of consumers that have no desire for low HP vehicles such as these hybrids. Honda's ventures into hybrids may be effective in the long-run and also internationally, yet in the current American market, I don't see the hybrids selling like typical combustion engine products. I have also seen multilple commericals for Honda's new hybrid Civic and haven't really heard any comments socially.

Places like the west coast, where gasoline prices have increased to extreme amounts may be an exception. However, I believe the vast majority of America isn't ready to switch to alternative fuel sources, more explanation to follow.

2. In terms of everything I've read, I believe that both GM and Ford have invested in the technolgy for alternatively-fueled automobiles, but have chosen to stick to the current market conditions. A great example of how this worked is the fact that Coca Cola diversified it's research into low-calorie solutions years prior to selling them, and were ready when demand peaked. As Atkins products and other diet solutions were becoming the norm, here came Coke with C2, etc. Our automobile industry still swamps that of any single nation's, and our GDP still composes nearly 1/3 of the world's. The American economy does have a stake in the automobile industry, but because in America there is still a large demand for pick-ups, etc with large engines, burly power plants, and towing capacity, it's easy to see where the values of the consumer lay. In terms of international trade, I am confident that demand will be even slower for hybrid vehicles.

In terms of quality and the reference to American auto's in the 80's, you've missed a large portion of the discussion. Honda and Toyota do make automobiles that are both high in value and quality. However, there are plenty of low end Asian automakers such as Kia and Hyundai (not to mention defunct Daewoo). Perception has drastically changed since the 80's in reference to the bread and butter of Japanese automakers, economy cars and mid-sized family sedans. This is illustrated by sales swinging back and forcing car makers such as Mitsubishi to spend every nickel they have in promotions and advertising. This also doesn't broach the topic of sports cars and trucks (both light and full-sized). American auto makers have always held the predominant portion of Sports car sales as well as pick-up sales in America.

3. Fuel economy standards are important, and our reliance on diesel fuels in terms of national transportation/distribution is disturbing. This being said, it doesn't just address consumer sales but commercial applications as well. If I were the EPA or a resident of capitol hill, I would have an ear to the ground on how to move away from such dependence. Buses and public service vehicles are beginning to move to fuels such as hydrogen, but this trend should be all encompassing for vehicles that incur few accidents.

Respectfully aevans, that is because of where you live. I lived in Texas for 25 years and in Dallas for 4 there is a huge difference in attitude and world view between Texas and the West Coast. It isn't so much about the price of gas as it is responsibility toward the environment. I probably pay about $5 more a tank than most of you, that doesn't keep me up at night worrying if I can pay my bills. I would choose to buy a hybrid because of the statement, not because of the economics. My only qualification is it would have to have a roof rack and be a small-ish sedan


You are absolutely right, but it isn't because of dislike of the technology, it is because it is not economically feasible for most people. As I said, most hybrid vehicles at 3K to 5K more expensive, and until recently haven't been the most attractive cars to drive. People aren't going to give up their 4 door sedans to drive a Prius for more money than they paid for their old car when little benefit is realized. Furthermore, I imagine maintenance on these cars is probably more expensive as well and you certainly can't do it yourself.


I don't think that it has, especially considering all the cars you just listed (including Daewoo) are Korean and not Japanese. The most popular cars in America are still cars like the Civic, Accord, Camry etc. I think Mitsubishi might be hurting a little bit, but there are still plenty of Nissans on the road even though they haven't really weighed in on this yet.


You very well may be correct, but I would argue that is the reason why we need the government to step in and influence consumer demand for these vehicles. The most important thing America is built on and will continue to thrive upon is innovation, and I see this as a battle we are losing right now and not just a matter of economics. Given the right incentives people will change, but the car companies can't or won't sacrifice their margins a little bit to make that happen.

Well, I will have to argue with a few little facts in terms of sales in America. I do agree that California and Texas differ in attitude in terms of consumer purchasing and values. However, as I have mentioned previously, I travel professionally and work in the marketing analysis industry. This being said, here are this year's numbers month by month in terms of sales by automaker:
http://www.cars.com/carsapp/national/?srv=...ellers0704.tmpl

This shows that GM and Ford are still holding the reigns. American models are also fave's on the list of new models:
http://www.cars.com/carsapp/national/?szc=...2005_leads.tmpl

Don't know what else to say. The 80's idea that Japanese cars are better hasn't translated into sales.

I'm sure that you have a unique perspective on it, but I will say this that report doesn't seem to be an apples to apples comparison when you are lumping in the sales of eight widely varying models/brands and then comparing them to two or three models/brands. However, I didn't intend to turn this into a Japanese cars are better than American cars discussion.

The primary points I wanted to address have to do with whether we are in danger of losing competitive advantage and getting beat to the punch on innovation if the American auto industry doesn't react to this hybrid trend.

I think it is several factors...fuel prices...consumer opinion and some regional influences/advantages. I know in my area being a massive metro area with a massive metro sized commute one of the advantages currently to owning a hybrid is the HOV lane access.



Who is we? society? As in are you asking should the government be in a hybrid/ alternative fuel war? No I hope this progresses privately.


I can't see why not the US govt manipulates the market all the time in order to present more favorable conditions for certain industries.

I meant "we" as in "American society". I am not suggesting that the government get involved in some kind of hybrid war, I am suggesting they goad American car companies on a bit. I don't even think they should be spending billions of dollars in tax revenue on it, but they could certainly encourage the industry with targeted tax breaks. The government frequently does this with new industries, and as a matter of fact the very concept of having different tax rules for corporations is a way of encouraging big enterprises and big risks. If corporations had the same tax rules as individuals, a lot of large enterprises wouldn't be nearly as attractive.

Questions for debate:
1. Are American consumers "speaking" to the market, or are hybrids, alternative fuel cars and better fuel efficiency just fads that will pass? An interesting question, because it serves to answer itself. Fewer than 1 in 100 vehicles sold in this country is a hybrid. It appears as though the American consumer is speaking, and the market IS listening.

2. Are we risking the livelihood of the American auto industry (and of our economy) if car makers don't heavily invest in hybrid technology and true alternative fuels now instead of later? GM and Ford both have substantial and increasing investments in hybrid technologies. GM has opted to focus on developing next generation vehicles that are very different from what we have now, so they aren't taking the approach of "drop a hybrid powerplant into the Impala and call it a day." Ford is taking a dual approach, establishing a modest presence in the market, in an untapped realm, while also pursuing basic R&D. Both firms are focusing most of their efforts on fuel cells, not on the interim "hybrid" designs offered by the Japanese.

3. Do you believe the plans proposed by Bush and Kerry are adequate or do you believe that we should go much further and off some significant tax breaks for investment and raise fuel economy standards? Fuel economy standards are not the barrier, nor the support. Total cost of ownership, still higher for hybrids, much less fuel cells, along with the lack of infrastructure to support full blown fuel cells, are the barriers. The Japanese automakers, because of their protected home market, are essentially funding their hybrid technology research based on THEIR market, the US market is simply gravy. Japan, by virtue of its much higher population density, is both more amenable to using hybrids (which have inferior performance characteristics for suburban/rural driving), and will have an easier time transitioning to the hydrogen economy. If the US government addresses these three factors: Japanese protectionism, hydrogen distribution infrastructure, and hydrogen production, THEN the US automakers will invest heavily. The real key is #3, which, frankly, means nuclear power. Neither Bush nor Kerry has shown any real desire to get out in front and push for the building of the dozens of nuclear power plants that fuel cells will require.

I think you are misreading the data Bikerdad, please tell me how a 6 month waiting list for a Hybrid car isn't significant? I'll grant you that not many of them are sold right now, but up until this year there were only two models, and neither was very desirable to drive. In 2005 and 2006 there will be several more being offered in popular model cars. Pre-orders are already coming in for them.

I don't see people lining up around the block to buy the new Ford Focus or something, how can you dismiss the six month wait and the fact that next year's shipment will be doubled to 100K?


Inferior performance? I think you may be confusing hybrid cars with electric cars. First of all, most people use their cars to run errands and commute to work. If you live in any city of some size that basically amounts to sitting in traffic for hours on end. Hybrids are ideal for this situation because many of them accelerate based on the electric motor at low speeds and shut the engine off completely during idle. This is where you get the biggest fuel savings. For all intents and purposes, suburban driving is basically the same as city driving, with maybe fewer stops. For most designs, once a certain speed has been reached, the car is powered solely by the combustion engine. I'm not sure how you can make an argument that a hybrid wouldn't be suited for city and suburban driving with no performance loss unless you enjoy drag racing from the line or something.

Regarding rural driving, and I'm assuming you mean off road driving, you may have a point but that is only because there are no SUV's on the market right now. I don't think anyone would advise taking a Prius off-road.

Clearly, you haven't considered either the upcoming Ford Mustang, or the recent PT Cruiser. The annual production run of both in their FIRST year is more than double the total number of hybrids anticipated for next year. And yes, people ARE lining up for Mustangs.


I don't mean off-road driving, I mean high speed driving, in a wide variety of conditions. As or the suburban driving, one of the most imporant aspects of suburban driving is being able to accelerate quickly so you don't get plowed by the SUV doing 50+ on the boulevard, or 70+ on the freeway. This is not nearly as important of a consideration for city driving (note: I did not say it is "not a consideration"), where speeds are generally much lower. I agree that hybrids are theoretically superior for urban driving, only problem is, fewer than a quarter of our vehicles are primarily "urban."


ADDENDUM: Looks like GM is working to Terminate the problem...