DETROIT — Soaring gas prices pushed the Detroit Three auto makers to the brink of bankruptcy. Now gas prices have plummeted, but the companies may start wishing they would soar again.
Chrysler LLC, Ford Motor Co. and General Motors Corp. are betting their futures on hybrid and battery-powered vehicles that will arrive as soon as next year, but persuading Americans to pay the thousands of dollars more that such vehicles will cost will be a tough sell.
"Last year, when we were talking about the [Chevrolet] Volt and various environmental technologies, I said the worst thing that could happen is if we were to produce all of these expensive, environmentally sound cars and just when we bring them out, the gas price goes back down to $1.50 (U.S.) a gallon," said Bob Lutz, GM's vice-chairman and product czar.
Lo and behold, the price of gas in the United States has fallen to around that level, just as the Detroit Three and their rivals use the North American International Auto Show to unveil fleet after fleet of gas-electric hybrids or battery-powered cars and crossover utility vehicles.
"We're having trouble moving our hybrids," Mr. Lutz said. "Everybody is having extreme difficulty selling hybrids."
That didn't stop Toyota Motor Corp. from launching the new generation of its Prius hybrid-electric car yesterday and promising fuel economy of 50 miles a gallon (21 kilometres a litre) versus 46 miles a gallon (19 kilometres a litre) for the old model. Prius sales plunged 45 per cent in the U.S. market in December, the same month Toyota said it was putting the brakes on plans to assemble the cars in a brand-new factory in Mississippi.
Last year, when the price of gas spiked above $4, Prius was selling out, and Honda Motor Co. Ltd. was setting monthly records for sales of its Civic compact car.
Robert Nardelli, chairman of Chrysler, talked about the reverse trend at the show on Sunday, even as his company unveiled its hybrid-electric vehicles.
"If you went back six months ago, SUVs were dead," Mr. Nardelli said.
But at the moment, 35 per cent of Chrysler customers trading in their sport utility vehicles are buying new ones, he said.
"That's much higher than anyone would have expected," he added.
It also underlines the difficulties the Detroit companies have had trying to sell small cars in recent years in the United States when the price of a gallon of gasoline was lower than the price of a bottle of water.
Small cars have always been a tough sell in the land of the open road. But more of them are coming to the U.S. market as well, in tandem with more of the traditional hybrids and plug-in hybrids, which are vehicles that can travel a typical commuting distance of 160 kilometres or less on a single electrical charge, and are backed up with a small gasoline engine.
While there's high consumer resistance to gasoline at about $1.40 (Canadian) a litre or more than $4 (U.S.) a gallon in the United States, there's also driver reluctance to pay higher vehicle prices.
The costs of batteries alone for plug-in hybrids could be in the $6,000 to $8,000 range, said Bill Pochiluk, president of automotive consulting firm Automotive Compass LLC.
"There is a belief that the industry can somehow do all this for nothing," Mr. Lutz said. "It is going to be thousands and thousands of dollars."
Nonetheless, senior executives of all three Detroit companies are betting heavily that the slump in energy prices is temporary and they are vowing to stay the course with the two-pronged strategy of developing new technologies and selling more small cars.
That's partly to fulfill a promise made to the U.S. government to become more energy-efficient and reduce the country's dependence on imported oil.
"We are going to pay more for gas," said Alan Mulally, president of Ford Motor Co., which is undertaking a massive redevelopment of its North American vehicle assembly operations to slash SUV production and boost output of small cars. Ford's European-made Fiesta subcompact will be manufactured and sold in North America by next year.
"This is an absolutely long-term commitment," Mr. Mulally said.
There are even whispers about Washington bringing in a tax on gasoline, although Mr. Mulally would not even approach advocating such a measure when pressed by reporters at a private dinner on Sunday night.
Low gas prices will have an impact on what the Detroit Three are trying to achieve, warned John Murphy, auto industry analyst for Merrill Lynch & Co. Inc. in New York.
"Consumers left unconstrained will drive larger, less efficient vehicles if gas prices remain relatively low, which will retard the development of green technology that is already under way," Mr. Murphy said.
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NO MORE GAS?
The hottest acronym at the North American International Auto Show this week in Detroit isn't GM or BMW, it's NmG.
NmG stands for No More Gas, the name of the flagship vehicle from Myers Motors, a one-passenger vehicle that costs less than $30,000 and, according to its makers, can travel up to 1,400 kilometres on $20 of fuel.
At the annual automotive showcase, car makers from around the world have announced plans to accelerate their development of gas-electric hybrids, plug-ins and electric-only cars in a nod to a potential future where vehicles will get better mileage and produce fewer harmful greenhouse-gas emissions.
The U.S. Department of Transportation considers Myers's three-wheel NmG a motorcycle under the law, but the company prefers the moniker PEV, or personal electric vehicle.
Myers says the NmG is capable of reaching speeds of more than 75 miles an hour (120 kilometres an hour) and can regain 80 per cent of its charge from a standard outlet in six to eight hours.
It is powered by 13 12-volt batteries - six under the hood and seven under the driver's seat - that the company says are completely sealed "valve-regulated lead acid" cells, which require "no maintenance."
Company owner Dana Myers has acknowledged that his NmG vehicles are not ready for the public just yet; his firm lacks the ability to mass produce them. He dreams one day, however, of bringing the cost of a single vehicle under $20,000.
The company is at the auto show at the request of the Progressive Automotive X-Prize, a contest to develop vehicles that get 100 miles a gallon (42 kilometres a litre) or more.
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"10 things that need to happen to support an electric fleet"
1. address Range anxiety
Will the electric car kill the road trip? Consumers will need to be assured that their new electric vehicles can carry them anywhere they want to go. Hybrids run on gas when their batteries get low and need a charge, recharging the batteries as they go. Electric car models on display in Detroit this week, however, have a range of only about 140 kilometres on a six-to-eight hour charge, not even enough to drive from Edmonton to Red Deer.
2. fix Power grids
GM and a collection of U.S. and Canadian utilities - including BC Hydro and Hydro-Québec - have established a joint effort to determine the best way to tap into the existing power grids to recharge electric cars. Still, municipalities must establish a system to get electricity out to thousands of recharging stations and determine whether the current infrastructure is capable of handling the new load.
3. find Shelf space
It's not just auto manufacturers and dealerships that will be forced to rethink their businesses to suit electric cars. Whether it's Canadian Tire or auto wrecking yards, anyone who sells auto parts will need to devote significant new shelf space to replacement batteries, testers, chargers and other equipment.
4. Park and charge it
Charging your electric car at home is one thing, but what happens when you're stuck downtown and need a boost? In conjunction with a California start-up, officials in Tel Aviv are putting in hundreds of charging stations across the city. The goal is to place 100,000 charging towers in parking spaces by 2010, with at least one every 40 kilometres. Still, to support a radical shift to electric vehicles, parking garages would need to be upgraded to include charging stations.
5. get Government help
Many people will need added financial incentives. U.S. president-elect Barack Obama has said he would consider such incentives to encourage consumers to switch to hybrids and electric vehicles. London has experimented with offering free parking to electric cars.
6. reduce cost of batteries
Currently, auto makers say the batteries that power electric cars are too expensive. Battery makers, however, won't increase production, thereby lowering prices, until the auto industry starts buying more batteries, creating a vicious cycle that is preventing costs from dropping and keeping the price of the electric vehicles higher than gas-fuelled cars.
7. make it locally
One of the selling points of electric cars is that they will reduce North American dependence on foreign oil. Although GM has said it is going to open a new U.S. battery plant to build cells for its Chevy Volt, unless auto and auto parts manufacturers in the United States and Canada begin producing the bulk of their own batteries, foreign dependence may simply shift from one industry (oil) to another (batteries).
8. cut car costs
Now that fuel prices have returned to about $2 a gallon, demand for hybrids is slipping as the U.S. economy worsens and consumers look for less-expensive cars that run on traditional fuel. GM's Chevy Volt is expected to cost about $40,000, making it more expensive than competing models that run on gas.
9. train mechanics
New technology requires new training. Although many mechanics can effectively diagnose what ails a particular car by hooking it up to a computer, many auto repair businesses will be forced to spend thousands, if not millions, of dollars to retrain their staff to fix electric vehicles.
10. reduce Allegiance to the internal combustion engine
Although the most recent electric cars being touted by the world's largest automotive companies claim to handle and drive like their gas-powered counterparts, many consumers remain unconvinced. Many North Americans are still enamoured of gas-guzzling SUVs and powerful sports cars that run on traditional fuels.
Matt Hartley
© The Globe and Mail
