Daily Finance, January 15, 2010, Friday

Daily Finance

January 15, 2010, Friday

Daily Finance

It's Bumper-to-Bumper Green Cars at Detroit Auto Show

Enthusiasts tracking new-model debuts at the North American International Auto Show in Detroit may have had trouble keeping up with all those using some form of all-electric or hybrid technology. Keen to show consumers and the federal government that they are earnest in efforts to raise gas mileage and reduce emissions, auto makers unveiled plans for dozens of new earth-friendlier models.

Take Toyota Motor (TM), for example. The Japanese auto maker unveiled plans to introduce plug-in hybrids, which can be recharged by plugging them into an external power source, as well as hydrogen fuel-cell and battery powered vehicles. Toyota said it has plans to sell a million hybrid vehicles a year around the world in the next few years, the majority of them in North America. It will introduce eight new models to achieve that goal.

European Design Influences

Small, eco-friendly cars with European design influences were the focus of this year's model previews, said Hyundai USA Vice President David Zuchowski. "Our industry is going to become more like the European industry in the next couple of years," he said, referring to that continent's fleet of vehicles that are smaller and more fuel efficient than those in the U.S.

Auto makers' efforts aren't simply altruistic. Rather, they are being driven by consumer demand for the latest in technology, and higher Corporate Average Fuel Economy standards, says Art Wheaton, senior extension associate at Cornell University's ILR School. The new U.S. standard mandates that manufacturers achieve a fleet average of 35.5 miles per gallon by 2016, compared to the current 27 mpg.

Hybrids can help car companies meet that new standard, Wheaton says, but it comes at a cost to consumers who choose to buy them. A prime example is Toyota's popular Prius, the gold standard in current hybrid technology, which costs $9,000 to $10,000 more than Toyota's similarly sized Corolla sedan. Consumers who buy a Prius rather than a Corolla aren't likely to recoup the higher initial purchase price through gas savings, he says.

Greener Than Thou

Still, shoppers who opt for a Prius do derive another benefit, the perception that they are concerned about the environment or "greener" than someone who buys a Corolla, Wheaton says.

Toyota isn't the only car maker with skin in the hybrid game. Ford Motor (F) already offers four hybrid vehicles, while Honda Motor (HMC) sells a hybrid version of its Civic sedan as well as its Insight hatchback. Then there's the CR-Z "mild" hybrid, which Honda debuted at the Detroit show. As a mild hybrid, the CR-Z gains only minimal improvements in gas mileage, with the electric engine largely contributing to increased performance. GM, meanwhile, sells eight hybrid vehicles, including sedans, SUVs and trucks.

Hyundai Motor's take on the hybrid theme, its Blue Will concept car, made its U.S. debut at the Detroit auto show. It features a plug-in drive train. Other companies, such as Nissan Motors, are forgoing the hybrid route altogether, focusing instead on all-electric vehicles, including the company's new Leaf.

Hydrogen Technology Overshadowed

Lost in the hype surrounding hybrids are the advances being made with hydrogen technology, promoted in recent years by General Motors as the future of automobiles. Mass adoption of hydrogen-powered vehicles is inhibited by several factors, not the least of which is the lack of publicly available hydrogen refueling stations, an expensive and complicated undertaking.

GM has since turned its attention to its Chevrolet Volt, a $40,000 compact hybrid vehicle that differs from other types in that the gasoline engine serves only to recharge the battery, not to propel the car.

Another option for car makers, of course, is diesel engines, which are popular in Europe, accounting for about half of all vehicle sales there. But sales in the U.S. have been limited, attributable in part to strict emission standards that prohibited the sale of diesel-powered passenger cars in California and other states until very recently. Newly available low-sulfur diesel fuel has allowed European car makers, such as Volkswagen and Mercedes, to sell diesel-powered cars in all 50 states, but just within the last two years.

Diesel's Lackluster Image

Diesel cars do have benefits over hybrids that include proven technology and the ability to achieve about the same level of fuel efficiency, Wheaton says. But they suffer a lackluster image among U.S. consumers, largely attributable to GM's disastrous effort to sell poorly designed diesel-fueled cars in the early 1980s. Yet another option are flex-fuel vehicles, which can run on either pure gasoline or a mix of ethanol and gasoline, known as E85.

Given the number of choices automakers face, it's no wonder Wheaton says the future engine technology appears "a complex mess." Everyone is trying to find the most effective way to meet the minimum fuel economy standard, he says, "and there's no one formula for success."