Jul 24, 2005 (From the CalCars-News archive)
New York Times
July 24, 2005
The Green Machine That Could Be Detroit
By DANIEL AKST
IMAGINE that you are running a domestic automaker. Rising gasoline prices threaten your lucrative S.U.V. sales, a glut of car-making capacity promises ever more competition, and burdensome union contracts limit your ability to cut costs. Then there are the Chinese. They're beginning to put together the parts they've been making for years, and sooner rather than later, whole cars from China will arrive at scarily low prices.
What do you do? The easy answer is to follow the path that Detroit has taken for years. Grind out well-made but ho-hum vehicles and offer them at huge discounts. Let your debt rating fall below investment grade. And when California tries to impose mandatory reductions in greenhouse gases, you sue, even if some other states want the same stricter standards - and even if some consumers are lining up to pay hefty premiums for energy-saving hybrid vehicles that run on both gasoline and electricity.
Now I'm the first to acknowledge that without a C.E.O.-sized paycheck, I am far from qualified to run a major manufacturing business. But isn't it possible that Ford and General Motors are on the wrong path?
What if one of them decided to break from the pack? What if a major automaker decided to reinvent itself as the world's first and only green car company, producing only hybrid, clean-diesel and other high-efficiency vehicles? Not Birkenstocks on wheels, mind you, but enjoyable, functional cars that get great mileage.
Consider the advantages. Such a company could drive down the cost of producing hybrids by attaining economies of scale. It would be ready - nay, eager - to comply with stringent clean-air rules wherever they were imposed. It would be positioned to exploit the federal mandate for low-sulfur diesel fuel, which will open the door next year to cleaner-burning diesel engines. And it would no longer have to compete as much on price, because consumers have shown a willingness to pay more for more efficient cars.
So imagine that you're in charge of this company. From a marketing perspective, you're in heaven. To the environmentally conscious, you sell the prospect of saving the earth even as you appeal to the class vanity of affluent customers who might otherwise never dream of buying an American car. Are there many of these people? You may be surprised. As a proxy, consider the number of National Public Radio listeners: 26 million. Your motto with this crowd is simple: "Do the right thing."
But the beauty of your venture is that it can also appeal to meat-eating S.U.V. owners. To them, you sell self-sufficiency, patriotism and the war on terror - the satisfaction of telling foreign oil producers to take their oil and drown in it. And your motto can still be "Do the right thing."
Your vehicles will certainly have cachet. After all, hybrids are already de rigueur for some movie stars and their imitators in Los Angeles. Imagine having the brand that encapsulates enviro-chic all over the world. This is marketing that money can't buy.
But isn't there a danger here - that your company will become just a niche player? I don't think so. New vehicles with hybrid electric engines are expected to grab 3.5 percent of domestic sales by 2012, up from 0.5 percent last year, while clean diesels are expected to get 7.5 percent, up from 3 percent, according to J. D. Power-LMC Automotive Forecasting Services. Together, the projected total is 11 percent. For perspective, Toyota's market share last year was 12.2 percent and Honda's was 8.2 percent.
There was a hint the other day that Ford just might get it. In the automotive equivalent of those Peaceable Kingdom paintings in which predator and prey lie side by side, the Sierra Club joined Ford Motor to promote a new hybrid version of the Mercury Mariner sport utility vehicle. Unfortunately, Ford will make only a relative handful of the hybrid Mariners.
O.K., but aren't there technological barriers to building a clean car company? Could a major automaker retool itself this way culturally as well as physically? Sure it can. It would be costly, but there is precedent. The entire American auto industry retooled itself to emphasize quality, and it now makes some of the most dependable cars in the world. Maybe the best way for an automaker to manage this latest transition would be to build a new brand, the way G.M. once did with Saturn. In this new case, however, the brand would consume the parent company.
Business as usual isn't an option. Change is risky, but in this case the consequences of doing nothing are a sure bet - one that I personally wouldn't want to take.
Daniel Akst is a journalist and novelist who writes often about business.