2008 Management Briefing Seminars - DAY 3

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Day Three – Optimism Prevails
By Steve Purdy
TheAutoChannel.com
Detroit Bureau

We heard a lot about environmental impacts and fuel efficiency today. The wringing of hands over government mandated CAF� fuel economy standards may be irrelevant, according to Amory Lovins, chairman of a respected think tank in Colorado called the Rocky Mountain Institute. He thinks that high fuel prices will abrogate the need for government intervention because consumers will demand that, and perhaps even greater, fuel economy in their cars. “Markets will outpace regulation,” he insists. Even if fuel prices drop temporarily, he continues, they will remain volatile and consumers have been shocked into the assumption that prices will stay high.

Lovins, a scholarly fellow to be sure, recommends that government could have a more positive and productive impact on the problem by offering “feebates” (extra tax on gas guzzlers and rebates on gas sippers). The extra taxes and rebates would cancel each other out and be revenue-neutral in the end.

In addition to advanced powertrains Lovens reflects the prevailing notion here that weight reductions will also be a major factor in bringing the automobile into the mainstream of modern thinking. GM has announced, and been lauded for, their intention to use much more aluminum and high tech materials to lighten cars into the near future. Lovens quotes Henry ford – “Weight may be desirable in a steam roller but nowhere else. Whenever anyone suggests to me that I might increase weight or add a part, I look into decreasing weight and eliminating a part!”

Beth Lowery, GM’s environmental, energy and safety policy guru, agrees with the tax credit angle. She thinks the government should help ease the transition to alternative fuel vehicles by offering financial incentives and by enforcing a single fuel economy standard so that manufacturers would not have to deal with multiple state standards.

Speaking of alternative energy, the Automotive News daily report has a story about Ford’s Dagenham, England engine plant adding a third wind turbine to continue supplying 100% of its electricity needs. Small diesel engines come out of that plant to supply the European Fiesta, Fusion and Focus. The new wind turban makes 1.8 megawatts worth of electrons.

The auto industry is still scrambling to come up with a breakthrough in battery technology – a battery that can store and release more energy without getting so hot it would set your garage on fire when you pull in. A consortium of the Detroit 3 automakers has been working on that problem and recently awarded a contract to Johnson Controls worth $8.2 million to continue the research. Mary Ann Wright, Johnson Controls’ CEO, told the assembly that these research efforts should be rethought to “include manufacturing and preparing the supply base for future technologies.” In the meantime, I’m sure, her people will get busy on that multi-million dollar grant.

What about diesels, you ask? That’s certainly one of the alternative powertrain issues in the hopper here in Traverse City but we’re not hearing much about it. Diesels still seem to remain a sort of back-burner issue. Bosch CEO, Peter Marks, is quoted by Automotive News as predicting that by 2015 the US market will include about 15% diesel equipped cars. In Europe, as most of you automotive enthusiasts know, more than a half of automobiles of all classes are powered by diesel engines. With diesel fuel costing close to 20% more than gasoline it’s hard to justify the extra cost of that engine in the US.

I’m always amazed at the way numbers can help clarify things. We fret about the spike in gasoline prices and commiserate about the “pain at the pump,” but the real cost of fuel, and the cost of driving, is about the same as it was in 1970 when we adjust for inflation and calculate in all the other relevant numbers. And, try to keep in mind that even at over $4/gallon were paying about half the amount for gasoline as most of the developed world. Perhaps Sam Nun was correct. Maybe we are a nation of whiners.

We had a brief lesson in politics today. John DeCicco, Senior Fellow of Automotive Strategies at the Environmental Defense Fund, talked about how the auto industry can be heard in Washington. We know what a hard time the Detroit 3 bosses had just getting a meeting with the president. “Step up,” DeCicco recommends. “Embrace the climate issue and lather it on.” His perception is that policy makers tend to blur energy and climate issues. Tax credits and incentives haven’t worked and it’s time to consider a “carbon cap.” In doing so, he continues, we must bring into the discussion the “cacophony of voices,” like agriculture, industry and others, to solve the problem.

We said “optimism prevails” in our subtitle today but I suppose this commentary so far belies that characterization. Rest assured that, with very few exceptions, we’ve not heard voices here expressing anything other than the view that the industry is smart, resourceful and fully able to meet the huge challenges.

Stay tuned for more insights tomorrow.