March 1, 2009
Motor City Blues: The Big Three Automakers Face a New Reality
Can the Big Three automakers stave off bankruptcy, kick their addiction to gas guzzlers, and create the next generation of cleaner, greener vehicles?
In Detroit the sky is falling—literally. As a chastened Big Three offered subdued presentations at this year’s North American International Auto Show, a massive Pentastar, Chrysler’s logo, toppled into the crowd from an overhead display. It doesn’t take an augur to divine the symbolism there. According to industry analysts, the collapse of one or more of the Detroit manufacturers is a distinct possibility in the next year. As a way out of their troubles, Ford, Chrysler, and General Motors have told Congress they’re retooling for a greener future, rolling out the hybrids and electrics that consumers have clamored for—and the industry itself has resisted—for years. But can an industry teetering on the edge make good on its promises?
The cars that the Big Three have touted are unlikely to pay off in the short term. They might in fact put the companies deeper into the red. G.M.’s Chevrolet Volt, expected for 2010, has received the most attention of the next-generation hybrids.
The battery holds enough charge to drive 40 miles before a four-cylinder gasoline engine kicks in, giving the car a range of perhaps 640 miles. For the urban commuter, it seems to satisfy both environmental and practical concerns, at least until the day when a nationwide plug-in infrastructure makes the gas engine obsolete. But with a $40,000 price tag and an initial run of 10,000, it will likely end up as what the industry terms a halo car, creating good press and positive brand associations but not pulling its financial weight.
More from Metropolis
There’s a widespread sense that these cars are goodwill gestures aimed at placating a skeptical Congress. Nick Cappa, a Chrysler spokesman, told me that funding its electrified ENVI power train, which is similar to the Volt’s and is expected to be incorporated into a vehicle by 2010, is essential to the company’s future. “If you don’t invest in R & D, you won’t have a future product, a future power train.”
And yet he couldn’t say if the overall capital investment in ENVI and other fuel-efficient programs is going up or down. If Chrysler were as committed as it claims, there would be no question. Similarly, when President Obama announced that he would allow California and 13 other states to set their own tailpipe regulations and at the same time called for higher fuel-efficiency standards, G.M.’s response was tepid: “We look forward to contributing to a comprehensive policy discussion that takes into account the development pace of new technologies, alternative fuels and market and economic factors.” In other words, this is hard work—get off our back.
Even if Detroit is able to find the money to put these cars on the production line en masse, there’s the question of whether they’ll be able to sell them. When gas was at record highs, there seemed to be an opening for smaller, more fuel-efficient cars. As prices have slid back down along with consumer spending, demand has noticeably slackened. Sales of the Prius, Toyota’s popular hybrid, dropped 45 percent in December, a much steeper decline than for trucks and SUVs. Although oil and gas aren’t likely to remain this cheap, the up-front premium on electrics and hybrids will remain daunting to many consumers. “If you’re the affluent individual who wants to make a statement, it’s one thing,” Ron Pinelli, president of the industry-analysis firm MotorIntelligence.com, told the New York Times. “If you’re Joe the Commuter, you’re not going to spend $40,000 on an electric car. It’s insane.” And that’s after a Senate-approved $7,500 subsidy for hybrids.
If there is a bright spot here, it’s the salutary effect moments of crisis can have on automotive innovation. Stewart Reed, a car designer and the chairman of the Transportation Design department at the Art Center College of Design, in Pasadena, California (as well as a consultant for American and Asian automakers), doesn’t share the grim view taken by most analysts. “At a time like this, it’s my sense that designers get a surge of creative fight,” he says. Reed points to promising developments among a group of small California start-ups, such as Fisker, Tesla, and Aptera, which are developing high-performance electric cars that rethink the vehicle architecture, innovations that will help speed along the development of less rarified cars. The all-electric Tesla Roadster goes from 0 to 60 in 3.9 seconds flat—you just have to be willing to pay around $109,000. And since the clean-car companies are not immune to the financial pressures of the larger economy, that price isn’t likely to fall in the near future. Battery technology, the biggest hurdle to lowering the cost of electrics and hybrids, recently got a substantial investment from Warren Buffett, but many R & D outfits are having a hard time with funding. “If we weren’t in this big chill economically, you’d have all the major companies involved working at a dramatic pace,” Reed says. “Most of the technologies are ready for prime time. It’s just a matter of product optimizing and bringing it to the market.”
And that’s bound to happen—it will just take longer than Detroit is willing to admit to bring electrics and hybrids down to an affordable price. Ford, the only automaker not asking for bailout money, has laid out the most detailed plans, which include a long overdue focus on smaller cars as well as a push to put a range of hybrids and electric cars on the road in the next few years. But its long-term financial health remains shaky, particularly in the face of huge development costs. These cars require substantial investment, sober judgment, and nimble corporate cultures that Detroit has so far failed to demonstrate. Assuming that the Big Three haven’t shrunk to the Little One-and-a-Quarter by next year, they’ll probably have a few new green models to crow about. But unless they stop hedging their bets with the same old fleet of bulked-up trucks and SUVs, don’t expect to plug in your car anytime soon.
Good Is Sustainable
Good Is Accessible
Good Is Functional
Good Is Well Made
Good Is Emotionally Resonant
Good Is Enduring
Good Is Socially Beneficial
Good Is Beautiful
Good Is Ergonomic
Good Is Affordable
The New Reality