Is Ford CEO wrong on hybrids and plug-ins?
Hybrid sales have tanked even more than realized
In the last few years the government has bought one quarter of all GM and Ford hybrids as hybrid sales, overall, have declined. And even more plug-in hybrids, such as the Chevy Volt, will be bought by the government.
But, if government subsidies and purchases are the key to hybrids and plug-ins, the US automotive business model is destined for a blow out according to Ford CEO Alan Mulally.
“He was saying, ‘You have to have a business that doesn’t need all these government incentives,’” said Karen Hampton , a Ford spokeswoman said, recounting the talk. “Incentives have a role to play when you’re trying to get new technology off the ground or change behaviors, but it’s not meant to be a permanent part of the business equation.”
Unfortunately, according to a gazillion studies on the subject, plug-ins have no chance of achieving any level of viability without massive, almost-permanent government intervention. And today’s hybrid car sales seem to prove that quite conclusively.
Today, hybrid sales are pretty much all about the Toyota Prius. Yet, the Prius isn’t even a top ten seller in the US. Take away government and fleet sales and less than 2 percent of conventional consumers are even interested in actually buying a hybrid, despite studies that suggest a significant percent of consumers are interested in hybrids - but ONLY as long as they don’t cost extra.
Unfortunately, today most auto consumers believe the Prius and other hybrids cost too much extra, especially up front. Ironically, despite costing twice as much as the Prius, the Chevy Volt will only save consumers $300 per year in fueling costs compared to the Prius according to the government.
What consumer wouldn’t want to save $300 per year for only an extra $20,000 up front?
Yet, perhaps Mulally is hitting upon an even a larger issue.
GM might be profitable today, but that doesn’t mean GM, nor any other US automaker, will be profitable tomorrow. Moreover, today’s profitability took tens of billions in government aid to achieve and billions more in government loans, grants etc. to build vehicles like the Volt. Plus, any Volt success will be dependent not just upon massive government incentives, but massive government purchasing.
The Volt is not going to run GM into deep profits. That’s for certain.
Regardless, years ago I would have attacked Ford’s CEO with a vengeance, believing he was both underestimating the potential of consumers and of hybrid and plug-in vehicles, but a decade of sales data has changed my tune. Sadly, the mountain of evidence supporting Mulally is essentially undeniable to any objective reviewer of the data.
Of course, that doesn’t mean Ford is offering a real solution, although I do give Ford some significant props for Ecoboost and its very big embrace of small cars like the the Fiesta and Focus. Nevertheless, the dangers of foreign oil dependence loom as large as ever, not to mention the snail’s pace economic recovery. It would take little to push US auto sales back to around 10 million units per year or less, and push the US auto industry back into bankruptcy.
Disappointingly, the Chevy Volt offers NOTHING to minimize such risk in the next decade, maybe even two. Even if a big gas spike, for instance, made the Volt more cost-effective, most US auto consumers simply wouldn’t be able to afford such vehicles since every other consumer product would also cost more. Even the significantly cheaper Prius would probably still be too expensive for most.
So what else can be done?
Inevitably, it seems to me that Mr. Mulally, possibly the best CEO in the auto industry – the same CEO that kept Ford out of bankruptcy and buoyed the entire US auto industry – is the most important voice in the US auto industry today. That CEO seems to be saying that the US auto industry is on a slippery slope. Dangers and risks are everywhere and too many of the solutions being put forth are mostly just cost-ineffective marketing gimmicks almost completely funded and supported by the government.
Consequently, much more comprehensive coordination between automakers and government – based on reality – seems desperately needed. Shareholder profits must be reconnected to national security in the short term and the long term, especially considering how indebted the US auto industry is to the government and taxpayers.
While outlandish, I’d love to see Mr. Mulally and Ford host – and challenge – the rest of the auto industry and the government to a conference on ending US foreign oil dependence by 2025. Certainly, such a moonshot might be entirely impossible to achieve, but it’s time to start thinking big and viable.