The Car of the Future -- but at What Cost?

Ford chief executive Alan Mullaly, with a Fusion Hybrid, a car that could be pivotal in the company's future plans. (By Gerald Herbert -- Associated Press)

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."