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Observers Speculate on Fiscal Crisis's Impact on Drivers & Auto Industry
Oct 17, 2008 (From the CalCars-News archive)
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Will the US auto industry have the resources to build much better cars? Will they begin to favor plug-ins? If companies merge, what happens to their plans? If a global slowdown keeps oil prices low for several years, will consumers and carmakers go back to gas-guzzlers? No one knows. Here are a range of comments and highly-compacted excerpts on these topics:

  • Cash-Strapped Drivers
  • Car Makers Often Do Best Work With Their Backs Against the Wall
  • Economic Turmoil May Force Automakers To Focus
  • Electric Cars To Dominate Green Car Race
  • GM-Chrysler Merger and Hybrid Cars
  • Will Hard Times Mean Greener Cars?
  • Silver Lining: Crisis Forced US to Confront Bad Habits


ANA CAMPOY IN WALL STREET JOURNAL:
"Cash-Strapped Drivers Scrimp Despite Cheaper Gas"
October 10, 2008
http://online.wsj.com/­article/­SB122359292105920987.html

KANSAS CITY, Mo. -- Gasoline prices here have tumbled even more than in most places, to less than $3 a gallon, but drivers say they still aren't filling up their tanks and zooming down the highways. Instead, the sour economy is prompting them to stick to their new fuel-efficient ways, a pattern that is likely to hold across the country even if gas gets cheaper. This means demand for oil will probably continue to slacken, putting more pressure on petroleum prices. "There's been a sea change in people's attitudes in terms of gasoline consumption," said Michael Right, a spokesman for the auto club AAA in Missouri. "The economic situation is not conducive to spending more money on energy."

Though gas prices dropped in August, Americans didn't return to their gas-guzzling ways. Gasoline demand remained an average of 1.9% lower than in 2007, weekly data from the Department of Energy shows. Last week, gas demand was off 5.5% versus last year, although at least part of the decline is probably related to disruptions caused by hurricanes Ike and Gustav. These continuing declines in demand are coming in the face of far lower prices -- on Thursday, the national average stood at $3.403 a gallon, according to AAA. In Kansas City, where relatively low taxes usually keep prices well below the national average, the price for a gallon of regular averaged $2.877. But for many residents that isn't low enough to return to their old ways, especially in light of the current state of economy. The unemployment rate in Kansas City now tops 6%, with some of the city's largest employers in the manufacturing, construction and financial industries shedding jobs.


JOSEPH WHITE IN WALL STREET JOURNAL
"EYES ON THE ROAD: Industry Slump May Benefit The Auto Makers That Survive;
Car Makers Often Do Best Work With Their Backs Against the Wall
October 13, 2008
http://online.wsj.com/­article/­SB122367066649923931.html

Whatever doesn't kill the auto industry just could make it stronger. Last week was one of the darkest weeks for auto makers around the world since the early 1980s. Both General Motors and Ford Motor on Friday issued denials that they plan to seek bankruptcy court protection, as their stocks touched lows not seen since the 1950s. At Friday's prices, someone with $8 billion or so lying around could have bought all the public stock in both companies, and had change left over.It isn't just the Detroit companies that are struggling. Toyota has idle workers at its new pickup truck plant down in Texas -- a huge facility that is now -- and will be for some time -- unnecessary. Toyota has enormous resources to weather the storm that GM, Ford and Chrysler do not.

Car makers often do their best work when their backs are against the wall. The auto industry's history is marked by design and technology breakthroughs spurred into production by a crisis that shattered status-quo strategies. The 1932 Ford was a response both to the Depression and sinking sales of the aging Model A. The Deuce Coupe is still revered as a classic and is a favorite of hot rodders.

Now, all the major car makers are reassessing the risks and rewards of technology and designs aimed at fuel efficiency and clean operation. The ones that get to market first with genuine innovations (affordable hybrids, high-mileage family haulers, highly profitable small cars made in America) will find a faster way out of the wreckage. The 2010 model year already is shaping up as a banner year for innovative vehicles -- including the Honda Insight hybrid -- which Honda says will start below $20,000 -- the long promised Chevy Volt plug-in hybrid, possibly a plug-in version of the Prius, and promised electric vehicles from Chrysler and Nissan. None of this will be easy. The hardest challenge of all may be simply making it through 2009.


JOHN O'DELL IN EDMUNDS GREEN CAR ADVISOR:
Economic Turmoil May Force Automakers To Focus Their Green Solutions R&D
October 10, 2008
http://blogs.edmunds.com/­greencaradvisor/­2008/­10/­
economic-turmoil-may-force-automakers-to-focus-their-green-solutions-rd.html

The ongoing economic crunch may accomplish for alternative fuels what an ambivalent marketplace and bipolar political system haven't been able to do: Thin the herd and get everyone working toward the same goal. So far, automakers and fuel and energy companies have been wandering all over the place in the search for replacements for crude oil and improvements in vehicle fuel economy.

Some favor a particular approach - Toyota Motor Co. and hybrids, for example. Others, like General Motors Corp., sample everything, spending part of their R&D budgets on fuels like ethanol, part on hydrogen, a little bit on improvements to the gasoline engine and the rest on battery-electric vehicles. But with an already cash-strapped auto industry staring at double-digit declines in annual new-vehicle sales for the next few years, money for ongoing projects is going to be harder to find than a tree-hugger at a McPalin rally.

Alex Molinaroli, head of Johnson Controls' hybrid battery unit, is one of a growing number of industry watchers who believe that automakers are soon going to have to exert some discipline, pick a technology for long-term alternative fuel and powertrain solutions, and stick with it.

As you might expect, Molinaroli favors battery-electric technology, and says he believes the bulk of the industry has swung to his way of seeing things. "You see the long-term R&D effort focused on the electric car, that's where the real strategic efforts are," he told an interviewer for Reuters news service earlier this week. "Automobile manufacturers are not going to be able to afford to keep investing in all these different technologies." Indeed statements supporting that thesis have come lately from General Motors, Nissan, Chrysler, Renault, Peugeot, Mitsubishi and Daimler, among others.

Some are more EV-intense [than] others, but all have announced plans to launch electric vehicles in the next few years and most are involved in battery development ventures aimed at perfecting the lithium-ion batteries specialists say will be necessary to effectively electrify a large part of the transportation fleet. Even companies like Toyota and Ford that aren't visibly pursuing fully electric cars are working on conventional and plug-in hybrids that use electric motors, power batteries and, in the case of plug-ins, electricity from the commercial power grid.

Among major global players only Honda, which is sticking with conventional hybrids and hydrogen-electric fuel cell cars, seems to have turned its nose up at the idea of rechargeable battery-electric cars.


NICHOLAS GROOM IN REUTERS:
Electric cars to dominate green car race
October 7, 2008
http://www.reuters.com/­article/­GlobalEnvironment08/­idUSTRE4970DM20081008

It will be years before demand for hybrid cars in the United States and Europe is big enough for battery manufacturers to make money from that business, but electric cars are nevertheless poised to dominate the market for greener vehicles, the world's largest car battery maker said on Tuesday. Johnson Controls Inc's hybrid battery business will be profitable "within five years," according to its president, Alex Molinaroli. He added that demand for fuel-sipping hybrid cars, while strong, must get much bigger before the company's investment in the technology will pay off.

According to Molinaroli, however, automakers already hard-hit by a weak global economy and declining auto sales will not be able to keep funding all of those technologies. "The automobile manufacturers are not going to be able to afford to keep investing in all these different technologies," he said. "You see the long-term R&D effort focused on the electric car. People talk about fuel cells, but I don't really see the kind of energy and effort around that that I see around the electric power train."

Given the promise of lithium-ion batteries, many companies are investing heavily in that technology, and Molinaroli said he expects the industry to consolidate. In particular, he said newer companies without other battery or automotive businesses to support the high cost of developing an emerging technology would likely be swallowed up by established players such as Johnson Controls. "We don't have an approach today that we are going to invent everything ourselves," Molinaroli said. "We're going to always be looking."

Despite its focus on hybrid growth in the world's biggest auto markets, Molinaroli said electric car growth could be faster in China, where electric vehicles akin to golf carts will replace transportation such as bicycles and scooters rather than SUVs. Speedy growth of electric cars in China would be an added benefit to the company's business plan, Molinaroli said. "Anything that we do in China -- even though it's in our business plan -- would really be kind of upside to what our current plan is," Molinaroli said.


HYBRIDCARS.COM EXPERT PANEL:
"GM-Chrysler Merger and Hybrid Cars"
October 13, 2008
http://www.hybridcars.com/­carmakers/­gm-chrysler-merger-and-hybrid-cars-25137.html

On Friday, media organizations started running stories about a possible merger of General Motors and Chrysler. We wondered what such a merger would mean for the future of domestic hybrid and plug-in cars-so we asked a panel of auto industry analysts. Here's what they had to say.

QUESTION: How much can Detroit's financial woes be blamed on a reliance on gas-guzzlers and dragging heels on hybrids?

"More than half. I predicted $11 billion in losses per year from having wrong products." - Walter McManus, auto economist, University of Michigan "Detroit's over reliance and gas guzzlers is perhaps best viewed as a 'straw that broke the camel's back' when the camel was already weakened by many other financial factors unrelated to fuel economy. And now the crippled camel is getting trampled by an elephant in the form of a car market and world economy that is in major recession as far as auto sales are concerned." - John DeCicco, senior fellow, Environmental Defense

QUESTION: Could a merger of Detroit companies mean sharing resources to build a more competitive domestic program for hybrids and plug-in vehicles?

"I don't think mergers between automakers are the answer for faster hybrid-electric and plug-in hybrid electric vehicle development. Now, if one (or more) of the Detroit Three starts shopping for battery companies and brings the development of critical hybrid components in-house, then things could get really interesting. That would be a signal that they are serious about electric-drive vehicles." - Reid Heffner, associate, transportation practice, Booz Allen Hamilton

QUESTION: Asian car companies already own more than 85 percent of hybrid market (and just about all of global hybrid battery production). Are Detroit's woes all that relevant to growth of hybrid market?

"I wouldn't count Detroit out yet. So far, GM and Ford have been leaders in the development of plug-in hybrids. I guess the question that remains is how big a bet Detroit is willing to make on advanced vehicles. If they bet big, they could lead the transformation of an industry, and make it happen quickly. Given their financial condition, they may have no choice but to place some big bets.",- Reid Heffner


KEVIN KELLEHER IN EARTH2TECH:
Will Hard Times Mean Greener Cars?
October 13, 2008
http://earth2tech.com/­2008/­10/­13/­will-hard-times-mean-greener-cars/­

So the need for innovation in new, more fuel efficient (and hopefully cheaper) automobiles hasn't changed much this tumultuous month. After all, the $25 billion loan package that Congress approved late last month, ostensibly to shore up automakers as demand dries up, was actually proposed a year ago to help them meet fuel efficiency standards. Writing for the WSJ Online, Joe White wrote: Car makers often do their best work when their backs are against the wall. The auto industry's history is marked by design and technology breakthroughs spurred into production by a crisis that shattered status-quo strategies. The 1932 Ford was a response both to the Depression and sinking sales of the aging Model A.

GM would surely love [to add] the Chevy Volt to that historical list. But the problem is that the automakers still seem to be at sea when it comes to producing dramatically new and appealing models. If they showed us this little during the oil rally, why should we expect better now that R&D budgets are certain to be slashed? Some hope, it seems, could lie in that $25 billion. Much of the money may be spent on retooling plants to produce new cars that better suit these changing times. Also encouraging is that the companies are more willing to team up with university research departments to explore new technologies. U.S. automakers have so far been discouragingly slow to transition from their old ways and find new improved ones. It's not clear that will change, but who knows? There is nothing like a ride along the edge of a maelstrom to concentrate an executive's mind.


FAREED ZAKARIA IN NEWSEEK:
"There Is a Silver Lining: The crisis has forced the United States to confront bad habits developed over the past few decades. If we can kick those habits, today's pain will translate into gains."
From the magazine issue dated Oct 20, 2008 http://www.newsweek.com/­id/­163449

The financial industry itself is likely to shrink, and that's not a bad thing, either. It has ballooned dramatically in size. Curry points out that "30 percent of S&P 500 profits last year were earned by financial firms, and U.S. consumers were spending $800 billion more than they earned every year. As a result, most of our top math Ph.D.s were being pulled into nonproductive financial engineering instead of biotech research and fuel technology. Capital expenditures went into retail construction instead of critical infrastructure." The crisis will stop the misallocation of human and financial resources and redirect them in more-productive ways. If some of the smart people now on Wall Street end up building better models of energy usage and efficiency, that would be a net gain for the economy.


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