The Car of the Future -- but at What Cost?
Hybrid Vehicles Are Popular, but Making Them Profitable Is a Challenge
Tuesday, November 25, 2008; Page A01
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."