Does Detroit "Get it"?
CNN Article: Why aren’t Americans using less gas?
I have been wondering weather not the U.S. auto makers “get it”. I was reading this article which stated:
Reading the handwriting on the wall, manufacturers are gradually reshaping the fuel-consumption profile of their fleets. The most visible sign is the changeover from body-on-frame SUVs like the Ford (Charts, Fortune 500) Explorer to so-called crossovers - SUV bodies on passenger car frames - like the Ford Freestyle. A decade ago, the Explorer was one of the best-selling vehicles in the business and helped lift Ford to record profits. Today, Ford is losing billions and slumping Explorer sales are one of the reasons why. Observers figure that Ford will discontinue the current design at the end of its model run.
The answer for me is “yes”…. But there are some details to all of them.
I think Detroit “gets it” about as much as a B- student would. GM has made significant investments in alternative fuels selling several million flex fuel cars (the last I heard from GM was somewhere around the 2 Million units mark). I saw dozens of them on the road when I was back home in Detroit not long ago. But here in California (my current home), you don’t see them much - there are good reasons for this as E85 is much more prevalent in the midwest and northeast. This is a tremendous opportunity the Big 3 have made, but it’s slow. The article states that they have “gradually” changed the fuel economy of their fleet.
I think the public might need something faster to keep up with the abrupt change in fuel consumption. Honda and Toyota are also gradually changing their fleet. They just started gradually changing it years ahead of the U.S. companies. So the Prius, albeit not a great success from a units-sold standpoint, has provided the knowledge base of hybrid drive systems to Toyota. They have been able to develop and roll-this technology out to several more of their vehicles including the Lexus 600h, 400h, Toyota Camry, and Highlander. It’s also worth noting that while the Prius is a main stay in NorCal, so is the Hybrid Ford Escape. And while I wouldn’t be caught dead in a Prius (hideous!), the Escape isn’t so bad. 34MPG not bad. That’s on par with some of the popular efficient Japanese models (non-hybrid Civic). So Ford is doing it too. Chrysler has other problems obviously.
So it’s clear that the Big 3 do get it…sort of. But while they are moving in the right direction (albeit slowly), what else is going on here. As this CNN article notes, the Big 3 are big opponents of CAFE standards increasing. While I would guess that they aren’t against the idea in principal, I think they are resisting an increase in the fleet fuel economy requirements because of the abrupt increase in cost and change in focus that it would require of them. In short, it’s expensive and distracting to change your fleet to adhere with government standards. However, I wonder if they also note that consumers will buy their product faster if they adhered to higher fuel economy. Perhaps they think that the market forces are weaker than the governmental forces and they’re merely siding with the path of least resistance (in other words, if market forces for higher fuel efficiency cars were stronger, they would move faster).
And I think this is the point. The market for oil remains high, but the public has not shown an equally powerful demand for more fuel efficient or flexfuel cars. Explorer sales are down. But they haven’t stopped. People still need full-sized Chevy Tahoes (Flex Fuel units still aren’t that significant). The rich in NorCal still buy gas-guzzling luxury cars - Lexus, Mercedes, Porsche. Detroit has a love affair with cross over vehicles including the Ford Edge/Lincoln MKX. But this isn’t a 40+MPG car. The dealership that sold my mom her new 2007 CRV said that the hybrid Civic and Accord models haven’t been selling all that much.
This might suggest that while the U.S. public, on the whole, is unhappy about higher gas prices, they are not unfordable for most people (although probably very hurtful for the poor).
