The American auto industry dies

The delightful if somewhat stuffy Knowledge at Wharton newsletter has a good article on the decline and challenges facing the domestic auto companies. See, the title of this blog is a bit of a misnomer. Honda, Toyota and even Hyundai build cars in the US and are doing very fine indeed. No, it is only GM, Ford, and Chrysler that are reeling. In way it makes me happy I left the auto industry and moved to Silicon Valley 20 years ago. But it also makes me very sad because all the technical people in the auto industry have always known what they should be doing. It was the finance-industry management of the auto companies that destroyed them. I guess the whiz-kids are not so whizzy after all. You can imagine my astonishment at this sentence:

GM, which maintains a narrow and shrinking lead over Toyota for the most sales in the U.S. market, has said it may be interested in selling its Hummer division, and is reportedly considering the sale of its Saab, Buick and Pontiac divisions.

Boy, I guess they are implementing their “growth by attrition” strategy. Leave it to the whiz kids to destroy a great bunch of companies. Now the thing I really like about the article was the comments by readers at the end. One that really struck me was from Justin Benson:

Hybrids: I struggle with why hybrids are the short term answer? How many are sold in Europe where gas is much higher? Very few - because Diesel is really the smartest short term solution. Recent changes for VW and Mercedes will see more diesels here. I for one would buy a Diesel over a Hybrid for a number of reasons. My point here though is that the whole "Let’s race to create hybrids in 3 - 5 years" seems odd to me given that 50% + of all cars sold in Europe are Diesel and get 40 - 60 MPG’s etc. Diesel isn’t sexy - "new" technology like Hybrids are. I can’t wait for 10 years when all the articles are written about what we do with all these batteries?

I really agree that everybody seems to think we need some whizzy new technology like electric cars and fuel cells and hybrids when all we have to do is conserve and encourage diesel and natural gas as alternative fuels. Solving the storage and distribution problems of natural gas are trivial compared to the problems of storing and distributing hydrogen. A key technology that should be developed in a few years is the design of supertankers for LNG. Even if we don’t get foreign natural gas our domestic reserves are out 100 years or so. I once saw a statement that there is 1000 years of natural gas still in the ground worldwide.

In another comment in the Wharton article, Jason O’Connell said:

Toyota has achieved one of the greatest PR triumphs of the last 30 years: The Prius and other toyota hybrids are still a small fraction of T’s overall sales. In the last 5-6 years they introduced the new full sized Tundra and other low-MPG gasoline vehicles while using the Prius as a public relations diversion. Has anyone noticed Toyota’s sales being killed (down 12% June 2008) recently along with GM and F?

The previous commenter is correct: Plug in electrics like the Volt are a coin flip, and fuel cell vehicles are are much lower mass-market probability than that.

The most likely scenario for the US are small, common-rail turbocharged diesels, i.e., what we see en masse in Europe where diesel prices are still much higher than the US. These engines are highly fuel efficient while turbocharging provides the performance that consumers desire.

I couldn’t agree more. I have already mentioned a Ward’s Auto World article that pointed out that Americans drive too many highway miles for hybrids to work out. The added weight of the batteries and motor hurts your highway mileage more than the braking regeneration helps your city mileage. Even plug-in hybrids don’t make a lot of sense. I know everyone will rail about how new technology will change everything and high-volume manufacturing will bring the costs so far down everything will be OK. Don’t bet on it. Battery technology has improved at about 8% a year. In that means in 9 years battery capacity will double. But we need a decade improvement, not an octave. So in maybe in 40 years we will see all-electric cars. This is based on today’s oil prices, but we know oil is going through the roof, so expect the practical family-sedan electric car in about 20 years.