THE AUTOEXTREMIST

February 4, 2009

A new “Green Gap” vexes the auto industry.

By Peter M. De Lorenzo

Detroit. I’ve written about the “perception gap” that has vexed Detroit often over the last three years, and that’s the gap that exists between consumers’ perceptions of Detroit – that they build uncompetitive, poor quality, undesirable vehicles with poor fuel efficiency - and the reality, which is that Detroit is building highly-desirable and in some cases class-leading offerings that are competitive in terms of design integrity, safety, quality, fuel-efficiency and with the latest technological advancements to boot. This “gap” has paralyzed Detroit and impeded its progress at every turn, contributing significantly to the domestic industry’s image problems and creating a marketing challenge of unprecedented proportion.

This same “perception gap” was evident for all to see in Washington, D.C., at the end of last year when U.S. Senators and members of the House of Representatives regurgitated hoary notions about the Detroit they assumed they knew - which was the Detroit that last existed a decade ago - while pummeling the Detroit CEOs for hours on end for being symbols of everything wrong with corporate America.

This week Washington, D.C., becomes the focal point for the industry again as the city’s auto show takes center stage. A minor event by any measure up until about four years ago, the Washington, D.C., Auto Show has now become a must see/be seen stop on the auto industry’s traveling agenda, and for obvious reasons too. Dubbed “The Automotive Seat of Power” (how’s that for an arrogant auto show theme?), this is where the Washington politicos who didn’t bother to come to the Detroit Auto Show last month (only Senator Corker of Tennessee flew in to check out the hardware at Cobo Hall, to his credit) will gather to see what’s going on in the auto biz in terms of future products and technologies.

And Detroit and the rest of the industry are responding by displaying a kaleidoscope of extended-range electric vehicles, pure electric vehicles, hybrids and plug-in hybrids, etc., to please even the most jaded tree-hugging Senators and members of Congress. And therein lays the problem, because a new and potentially even more damaging “Green Gap” is emerging that’s vexing Detroit and the rest of the auto industry.

Translation? What Washington and California politicians want in terms of emissions and mileage standards from 2016 on vs. what the average consumer will buy and what the technology (i.e., the electrical grid, battery development and production, etc.) can support are such wildly divergent notions that a looming train wreck is developing between expectations and reality.

One unfailingly tedious trait that the Green Horde displays is the remarkable ability to trivialize the impact of technological development – and cost – while skipping right to their vision of The Future filled with Shiny Happy People driving Shiny Happy Smiley Cars that emit nothing but a wisp of a rainbow as they hum along the highway of life. It’s a nice, idyllic pipe dream – akin to a giant bong filled with some of Humboldt County’s free-range best – but it bears little resemblance to reality.

And reality suggests that consumers get all touchy-feely and spout the obligatory green-tinged buzz phrases in focus groups, but when it comes time to actually put real money down on this new technology (that car companies are working so feverishly away on) they balk, as in, “Wait a minute, I want to save the planet and reduce my carbon footprint and all but I’m not paying $5,000 extra for it.” Especially in this dismal economy. Not to mention the fact that there are severe technical and logistical limitations to creating a viable playing field ripe for the variety of electric vehicles that our politicians want to see on America’s streets and byways.

Politicians in California and Washington give off the distinct impression that they view reality as an irritant. Let’s take California Governor Arnold Schwarzenegger, for instance. Here’s a guy who is presiding over a state teetering on bankruptcy largely because of its egregious, self-induced regulatory environment (movie production companies are even fleeing the state and moving some of their operations here - to southeast Michigan of all places - so what does that tell you?), and who is now pushing for even more regulation and more restrictive emissions policies for automobiles in the state in his quest to dictate to the rest of the nation what we should all be driving.

Was any consideration given to the real live consumers out there and what they’d actually drive, or better yet, what they’d actually pay for? No, because that would mean the concept of reality would have to be roiling around somewhere out in Sacramento, and as we all know, the words “reality” and “Sacramento” go together about as much out there as the words “reality” and “rational thought” do in Washington.

In other words, not so much.

This week the Washington, D.C., Auto Show will be crawling with earnest Obama administration crusaders and California state operatives seeking evidence that the idyllic green vision that’s hanging over Washington like a choking fog of denial is coming to fruition. And what they’ll see is just what I described: a kaleidoscope of extended-range electric vehicles, pure electric vehicles, hybrids and plug-in hybrids, etc., none of which will make economic sense any time soon, or even six years from now.

The Green Horde likes to think that all of this planet saving stuff will come down to simply giving the auto industry a swift kick in the ass while tossing in some technological development monies - plus some consumer incentives thrown in for good measure - and voila! we’ll see a million plug-in electric vehicles on the road by 2016. But even the most optimistic players from the leading auto and energy companies don’t see that happening because given all of the evidence available - in terms of battery development and production capacity and the capability (or lack of same) of the electrical grid in cities and towns across America - and considering all of the projections, it’s just not technically feasible. Not to mention the fact that when you throw in the consumer’s ability or more important, the desire to pay for it, it adds up to a heaping, steaming bowl of Not Good.

Short of coming up with a national energy policy that sets a minimum price for fuel, which will dramatically and permanently reconfigure America’s fleet of vehicles ($2.00 per gallon gasoline won’t change anyone’s habits or purchase decisions), then everything the politicos in Washington and California are doing is so much costly window dressing.

Do electric-oriented vehicles have a place in our nation’s fleet of vehicles? Absolutely. Will they become the dominant type of vehicle in the future as some have suggested? Not even close. Electric vehicles will have a place in the nation’s fleet, there’s no question about that. But I don’t see these vehicles taking more than a 20-25 percent piece of our transportation pie, and that’s way down the road too.

Washington and California politicos are great at pushing agendas, making grand pronouncements and then setting ball-busting targets, but they’re not so good at figuring out who will bear the brunt of the cost of their decisions - on the corporate or consumer level - or if the technology is even there to fulfill their grandiose ambitions.

At least with the old “perception gap” Detroit could understand what they’re dealing with. A combination of consumers holding on to obsolete notions and an industry that did a piss-poor job of explaining who they were and what their story was is pretty easy to digest - and a realistic appraisal of the scope of the situation. It doesn’t make it any more palatable or solvable, but at least it’s understandable.

This new green-tinged “perception gap” is another thing altogether, however, and it has the potential to be much more lethal. Not just for Detroit, but for the auto industry as a whole. When you have people with biased agendas and a blatant disregard for reality making rules, setting targets and writing laws - with no rhyme or reason as to what is achievable or even remotely cost-effective - then you have nothing more than a recipe for total disaster. And needless to say, that's the very last thing this industry - or the economy - needs right now.

I'd like to believe that the Obama administration may actually see the light on some of this and be able to put things in proper perspective - as in no one is buying anything right now so you're going to have to fix that before worrying about how green the future of the industry is - but then again I'm not so sure the politicos and policy wonks (of any stripe) are capable of that kind of understanding, no matter how much hope is involved.

Thanks for listening.