The High Cost of High MPG

Since the AXP is all about incentivizing and publicizing highly fuel-efficient (and thus very-low-emitting) vehicles, you might not think we have much sympathy for OEMs who have difficulty getting much past 20 or 25 MPG on average.  But far be it for us to lecture (after all, we haven't built a car ourselves yet, unless you count that converted wagon from third grade...).  The millions and even billions of dollars, yen, and Euro's that have been poured into powertrain development over the decades make clear how hard this task really is.  While one has to take the huffing and puffing about this that emanates from Nagoya, Stuttgart, and Detroit with large doses of skepticism, the challenge remains immense. 

If you don't believe the OEMs -- or even the think-tanks and analytical labs like ORNL -- there is some recent quasi-independent confirmation of this from the cold hard world of Wall Street.  As Alex Taylor recently wrote in Fortune (and Alex is always very well informed), the private equity firm Cerberus, which is in the final stages now of buying Chrysler from its German parent, is very worried about the new tighter MPG regulations Congress is considering.  In fact, he writes, "the moneymen from Cerberus behind the private equity buyout for Chrysler are said to be threatening to walk away from the deal if the new requirements go through."  Whether Cerberus believes Chrysler's own publicized punumber of $6,000 or more per vehicle to meet the standards we can't say, but the possibility that the biggest automotive deal of this millenium could go South based on what might seem to us a minor tightening of CAFE tells you how worried they may be.  Of course, for them it is all about making more or less money, so it is hard to feel sympathetic.  What is striking, however, is of all the issues Chrysler has to face: UAW contract talks in the Fall, gigantic underfunded retiree health care liabilities, an overbuilt dealer network, and brands that have weak appeal (as a result of which many Chryslers are sold primarily to fleets rather than to individual customers)... the only one Cerberus sees as a deal-breaker is the MPG challenge.

The point of all this?  First, we at AXP are under no illusions as to how hard the task we've set for our entrants is.  And second, we are going to be very, very proud of the winner, knowing as we do what an achievement victory is going to be.

Comments

[Ken Fry]

My view is a bit less charitable toward the Detroit auto companies. Every large auto company already produces a small number of fuel-efficient cars that can easily meet the proposed standards. A few models go well beyond the proposed standards. Today. No need to wait ‘til 2020, when the proposed standards would be in full effect. No R&D required. Even a 1953 MGTD meets the proposed standards.

However, if Detroit expects to sell the same outdated, overweight model mix they sell today, of course they'll have a hard time. I believe they'd have a hard time making a go of it by selling horseshoes, too. Will Toyota fail to thrive because of tightening standards? Hardly. The standards represent opportunities for bright, innovative, companies, and threats to companies without vision. Can Detroit wake up and develop a vision? History says no. In thirty years Toyota has gone from nearly non-existent in the US market, to the world leader. While Detroit whined and complained about emission standards and CAFE standards, Toyota got to work.

The new standards present even more opportunities for innovative companies to thrive, and for horseshoe makers to dwindle.
Cerberus is right to be worried. Where, after all, is Chrysler's equivalent to a Prius, or a Camry Hybrid, or a Honda Civic Hybrid?

[Carl Guichard]

I am in full agreement with Ken. As an Engineer of twenty years for the world's largest aerospace company I can attest that the designs that we released for production were driven by far out-reaching requirements that were levied by our customers. Our customers demanded the most reliable, durable and most efficient vehicles. Vehicles that we thought we couldn't build, but we did. However, for the automotive field the customer has no mechanism to levy the requirements and this leads to the requirements for automobiles being generated internally by business management.

If we, the customer's voices were being heard for the past twenty five years and acted on, then every manufacturer would be creating highly efficient, long lasting vehicles like the AXP teams desire. Instead we are recieving what the business managers of such companies as Cerberus want, and that business goal doesn't want inovation it wants more profit.

Please also remember:"Hear one side and you will be in the dark, hear both and all will be clear." Lord Chesterfield

[J. Rouleau]

Glenn's comments hint that it costs additional money to create a more fuel-efficient vehicle. It doesn't. Efficiency is simply one of the design goals that a manufacturer trades off in the design cycle... if the manufacturer even bothers to make it an explicit goal.

Automobile manufacturers introduce newly designed vehicles every year, and every year those vehicles are designed for one sole purpose: to incite someone to buy it by being just a little newer and better than his last automobile. All other design decisions are subservient to this goal. Cerberus, too, will manage profitability by minimizing design/mfg change and maximizing advertising impact. If they can continue to whip up market demand for the Hemi, then there's no need to change the production line to a more fuel-efficient engine, they'll just make more guzzling V-8s next year.

Lower operating costs for the buyer (efficiency) simply isn't a strong enough incentive to reprioritize design goals ... yet. When fossil fuels become expensive enough, consumers will cry for more less thirsty vehicles, and automakers will amaze us with new and innovative ideas to save fuel.

[Bob Bruton]

Having spent the last 25 years in the retail (dealer) side of the automobile industry. I can tell you it is rare when the manufacturer gets it right. Fuel-efficient cars are rarely eye appealing and often time’s junk after only a few thousand miles. Engines so underpowered that most consumers are afraid to drive them on busy freeways.

In order for this whole thing to work, companies will have to get consumers to respond to, “Green is Cool”, green is fun to drive and you look great driving it! If we continue to pour out cars that most people don’t want to be caught dead in, or the mind set of the consumer is people will presume I’m not keeping up with the “Jones’s”. It will be difficult if not impossible to get the market to change.

We are noticing a significant positive reception by consumers to go “Green”. The one big problem we have is most of the technology is based on Ethanol. What we save in green house gas emissions. We loose in MPG. Consumers are not going to respond to paying more often at them pump. The sizzle will soon fade for ethanol, when consumers realize yes I pay less at the pump, I am just at the pump more often. So where is my savings? It will be an uphill battle for manufacturers to convince consumers it’s good for the planet at the cost of the consumer’s pocket book.

This project will change the archaic automotive business forever. Thank you!

[Stephen]

As a previous commenter noted, it is all about design goals. After all, another measure of a drivetrain's efficiency is the power output it can achieve. Car manufacturers seem to have no problem with innovation that has increased this by multiples over the years. For example, the Porsche 911 Turbo (930 model) of the 80s pushed out 300 BHP from a 3 liter engine, while the equivalent model today (997) pumps out 480 from a 3.6 liter unit. The displacement has increased by 20% which the power output has gone up by 60%. Clearly there has been a gain in efficiency, but it has not been channeled into reducing consumption.

Even if power outputs were held constant, and the same efficiency innovation was channeled into reducing consumption instead, substantial gains would be attainable without any major departure from current industry practices.

And if it could be agreed upon that 120 BHP or so provides more than enough performance for any family car or sedan, then it would be simple to make larger gains even faster.

The fact is that every time someone buys a car - even if it is just a later version of the same model - they want it to be faster, smoother, bigger and more luxurious than the one they are trading in. While the car manufacturers continue to be fed these inputs, they will find it difficult to channel gains in efficiency into cars that genuinely consume less fuel.