Car Culture

It's a Long Road to Profitable Fuel Economy in the U.S.

By Warren Brown
Sunday, June 28, 2009

The best myths are sometimes planted in academic studies, one of which was delivered last week by the University of Michigan Transportation Research Institute.

The 35-page tome, "Fixing Detroit: How Far, How Fast, How Fuel Efficient," argues that the Obama administration's push for more vehicle miles per gallon could return domestic car companies to profitability.

The study also says many of the domestic industry's current problems stem from its habitual underestimation of U.S. consumer demand for fuel-efficient cars.

That failure, according to study co-authors Walter McManus and Rob Kleinbaum, caused U.S. automobile manufacturers to lose market share to foreign rivals -- especially to those from Japan.

Kleinbaum, a former GM employee who is now a consultant to the Transportation Research Institute, accused his former company of myopia in matters fuel economy:

"For years [GM] has discounted consumer research results when calculating the benefits of improving fuel economy. . . . If GM had followed its own market research results over the last three decades, [GM] would not be in Chapter 11 [bankruptcy reorganization] today."

The study and its core argument -- that fuel economy is a profitable opportunity in the United States missed by domestic car companies who ignored U.S. consumer demands for better vehicle mileage -- constitute rich topsoil for environmentalists who have long made the same claim. But it gets washed away in a market flooded with cheap gasoline, here defined as a gallon of regular unleaded priced below $4.00.

Remember May 2008?

Back then, when regular unleaded gasoline prices hit that $4 tipping point, U.S. motorists were screaming for better fuel economy. Toyota, the God of Green Motoring, finally began turning toward profitability with U.S. sales of its gas-electric Prius hybrid sedan -- a car largely made possible by money earned from sales of Toyota sport-utility vehicles, trucks and other high-horsepower rides in the United States.

Giddy with the possibility of actually being able to earn money on U.S. sales of fuel-efficient vehicles, Toyota scrapped plans to build a sport-utility truck plant in Tupelo, Miss. Instead, the company said it would build a Prius plant in that place.

But U.S. gasoline prices tumbled in the fall of 2008. Plans for the Mississippi Prius plant were shelved. A globally collapsed economy crushed worldwide car sales in general. But it shredded U.S. sales of the most fuel-efficient models in particular.

Overall car sales in the U.S. market were down 34 percent in May, compared with May 2008. Gas-sippers, mostly small cars that get 30 miles per gallon or better in combined city/highway motoring, practically tanked. Here are some examples:

Chevrolet Cobalt, being marketed with big discounts, down 52 percent May 2009, compared with May last year;

Ford Focus, down 54 percent;

Honda Civic, 61 percent;

Toyota Corolla, down 55 percent.

How bad is bad for U.S. sales of fuel-efficient small cars? Give me a drum-roll, please: The GM-made Chevrolet Aveo gets 27 miles per gallon in the city and 34 miles per gallon on the highway. It's cute and reasonably safe. (Size matters in car-to-car crashes.) It starts at $11,965, and GM is having a hard time giving them away.

There is a 380-day supply of Aveo cars in a market where a 60-day supply of saleable inventory is considered "normal."

This isn't the first time that dreams of profitable fuel-efficient motoring have been sideswiped in an America drunk on cheap gasoline. History gives us the example of the now-defunct American Motors, a company that thrived for a few decades with nifty, wonderfully rattle-free fuel sippers such as the Nash Rambler and Rambler American, but was buried in the dust of the nation's seemingly unending horsepower wars.

The problem is one well-known to domestic and foreign car companies doing business in this country. Absent high gasoline prices, most U.S. buyers go for more horsepower, bigger cars and trucks.

Toyota didn't make billions selling fuel efficiency in the United States. It cleaned up selling sport-utility vehicles, luxury sedans, sports cars and trucks. Toyota lost billions -- $4.6 billion in the fiscal year ended in March -- only when sales of its muscle-flexing rides went limp in a U.S. market whipsawed by radically fluctuating fuel prices. Tougher consumer credit in tandem with those fuel-price gyrations didn't help.

Honda, which has yet to introduce an eight-cylinder car in the United States, nonetheless has done exceptionally well selling six-cylinder sport-utility models such as its Honda Pilot and Acura MDX, and hot, six-cylinder versions of its Honda Accord mid-size sedan.

Maybe the day will come when domestic and foreign car companies can turn handsome profits in America selling small cars that get better than 30 miles per gallon. But that is not likely to happen without a sensible federal policy affecting the price of gasoline in a way that makes consumers pay more attention to how they use the stuff.

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