Electric cars and the future of Detroit
Hi-tech, zero-emission engines cost millions to develop at a time when cash is running out. But there are reasons to keep going.
NEW YORK (CNNMoney.com) -- Hybrid and electric cars play a big part in the business plans Detroit automakers presented to Congress on Tuesday. The only problem is that vehicles like General Motors' Chevrolet Volt won't be profitable for a decade or more.
"We're putting a lot of money into the Chevy Volt, which we're endeavoring to get into production by 2010," said GM CEO Rick Wagoner, under questioning from a congressional committee. "It will not be at that point fully cost competitive."
Still, some analysts argue that, even though it doesn't immediately help the bottom line, "green tech" programs are vital to the long-term survival of these companies.
For Detroit carmakers, there are three big reasons to continue working on projects like hydrogen fuel cell vehicles and electric vehicles even as money is running out to build regular cars and trucks.
"Building the business case for revolutionary technology is really different," said Eric Fedewa, vice president of global powertrain forecasting for industry consultants CSM Worldwide.
In the business plan it sent to Congress, GM said it is spending more than $750 million to develop the Volt, much of which is going into battery research.
"The Volt is the first step in a long-term viability plan," said Rob Petersen, a spokesman for GM's electric vehicle programs.
GM executives have said the Volt's extended range electric drive technology will probably not be profitable for the company in at least its first generation. That pushes any return on investment out until at least 2016, GM CEO Wagoner told a Congressional panel on Friday.
But GM says it wants to be ahead of the next trend, not behind it.
"Electrification is ultimately on its way and battery technology is going to drive the move in that direction," said Petersen.
When that happens, and spokespeople for GM, Ford and Chrysler all say they're sure it will, these carmakers don't want to be left out.
"If you've got some revolutionary thing that consumers will buy, like the iPod, the manufacturers would absolutely like to be there," said Fedewa of CSM.
Batteries could be developed in a laboratory without creating an entire car to go around them, but a project like the Volt provides impetus to the project.
"If you're going to be developing battery technology," said John Pinson, an executive with the fuel economy consulting company Ricardo, "What better place to deliver it than in a cutting edge product."
Expensive, high-profile projects like the Volt can also uncover less expensive ways to save fuel on lower-tech vehicles along the way, Pinson said.
"The learnings from the aerodynamics lab have been invaluable," said GM's Peterson. of his company's work on the Volt.
Another example: Fuel economy technology developed for the Toyota Prius is being used on non-hybrid Toyota cars in Japan. Similar technology is expected to be introduced on non-hybrid Toyota cars here in the U.S. in the near future, a Toyota spokesman said.
"We expect to reposition General Motors as a technology leader in the industry," said Peterson.
If the Volt can do that, even some GM insiders admit, it would end a long public relations drought for GM. Despite huge investments in research and development GM has often been criticized as too slow to adopt new technology, like hybrid drivetrains.
In 2007, GM ranked second in the world in R&D spending, after Toyota, according to a report by consultants Booz & Co. In 2006, GM had ranked sixth among the top 20 companies worldwise in R&D. New research into advanced powertrains was responsible for that jump, according to the repot.
"To many people, when you're the leader in technology, I think, people look at you differently," Peterson said.
The model is Toyota and how it has capitalized on the Prius hybrid car.
In a recent survey of car shoppers on Kelley Blue Book's KBB.com Website, Toyota was perceived as the company that built the most fuel efficient vehicles by 70% of people, compared to 52% for Honda, the company that actually has the overall most fuel-efficient line-up of cars in the U.S. GM was perceived that why by only 20% of car shoppers.
Toyota was also perceived as the most environmentally-friendly car brand by more car shoppers than any other.
Finally, and perhaps most importantly right now, Congress specifically requested that companies explain their plans for building more high-tech fuel efficient cars. In the end, these plans may earn these companies the most important money they could get right now, a loan that might help them survive to see those electric cars come to market.