Car makers get green message

Alan Mulally, Ford's new chief executive officer, is ready to move on. He's all done with the debates over the science of global warming and instead, like many in the auto industry, he is ready to face the challenges ahead — challenges he has as leader of a consumer products company whose customers are showing increasing interest in fuel-efficient and environmentally friendly vehicles.

"I am so glad we've stopped arguing whether the temperature is going up and moved on to what we're going to do with our precious Earth," he says, addressing a subject that is emerging as perhaps the greatest single threat and opportunity to today's auto industry as we know it: the environment.

Or climate change, if you will. Whether one believes it is the result of human activity or merely the normal course of things on a planet which for millions of years has been warming and cooling on a regular basis, climate change is not the issue for the auto industry."Since 2001, a series of geopolitical, natural and economic realities have combined to drive home the fact that we face an increasingly uncertain energy future," General Motors chairman Rick Wagoner said in December at the Los Angeles auto show. Wagoner repeated that statement in testimony to U.S. government leaders just last month.

All this adds up to one inescapable fact: Important global issues are steadily, inexorably influencing politicians and today's auto consumers to shift their mindsets away from the high-horsepower, big-is-better paradigm that has dominated the car business for 100 years.

The media sessions at this year's New York and Geneva auto shows were loaded with people and products who together had one message: The auto industry gets it. While there was some of the usual talk about speed and horsepower, more than ever before the auto makers were focused on fuel economy, reduced tailpipe emissions, cutting CO2 (carbon dioxide) and using new technology to get an extra kilometre out of every litre of fuel.

Both shows were loaded with hybrid production vehicles and concept cars that use environmentally friendly powertrains and materials. For instance, at Geneva, BMW, the world's largest premium car company, introduced regenerative braking and Stop-Start systems for the 1-Series and 5-Series. Regenerative braking returns the energy generated by using the brakes to the car's systems; Stop-Start automatically cuts the engine when the vehicle stops in traffic, and reignites it when the accelerator is depressed again.

Meanwhile, in both Geneva and New York, GM subsidiary Saab boasted about offering biofuel engines on all its cars — even though biofuel is not readily available in North America and is sold only in limited quantities in select European countries.

That these and other green technologies were being shown in Europe and in New York is no surprise. The buzz on the Geneva show floor was all about European Union politicians recognizing global warming as a major issue with their constituents. In Brussels on March 9, for instance, European Union leaders agreed on a plan they said would combat global warming. This would cut greenhouse gas emissions by 20 per cent from their 1990 levels by 2020, and raise to 20 per cent the share of energy produced from renewable sources like wind or solar power, also by 2020.

In Canada and the United States, as in Europe, the environment is also on the minds of politicians. This is because governments react to polls and many, such as a recent Decima Research study, show that the environment will be a key factor for many voters in the next federal election in Canada. The fact of the matter is, election-driven events, events completely out of the auto industry's control, can and do have a dramatic impact on its products and profitability.

One example from the recent federal budget: Ottawa stunned the auto industry with its $50-million "feebate" program. It was completely unexpected, despite continuing talks about the future of the industry and the environment at both the federal and provincial levels. As one auto industry insider put it: "We were blind-sided."@@page@@

In the United States, the world's biggest car market and one where future product agendas are set for markets around the world, most specifically Canada, the auto industry was recently caught off guard by a decision from the U.S. Supreme Court that could give the U.S. government the authority to regulate the emissions of carbon dioxide and greenhouse gases from cars.

In a 5-4 decision, the Supreme Court ordered the U.S. government to take a fresh look at regulating carbon dioxide emissions from cars. This was a rebuke to the Bush administration policy on global warming, which has been to argue that the landmark U.S. Clean Air Act does not give the Environmental Protection Agency a mandate to regulate the emissions of carbon dioxide and other greenhouse gases from cars.

In the wake of the decision, Bob Lutz, GM's vice-chairman for global product development, told reporters at the New York auto show that his company is delaying decisions on many new-vehicle programs because of uncertainties involving future emission and fuel-economy regulations.

The freeze puts a hold on a full-sized, rear-wheel-drive Cadillac planned for the end of the decade. It also has an impact on plans for a series of small rear-drive cars. The delays go beyond full-vehicle programs and also include key components such as engines. Other auto companies are believed to be looking at making similar decisions in the wake of this ruling.

In the meantime, U.S. President George W. Bush and the U.S. Congress have said they hope to increase fuel-economy standards by 4 per cent a year. No doubt in response to public opinion polls, the U.S. President has also said he wants a greater emphasis on renewable and alternative fuels, key parts of Bush's plan to cut U.S. gasoline use by 20 per cent over the next decade.

"It's in our national-security interests that we do this, it's in our economic-security interests we do it and all at the same time it'll help us be better stewards of the environment," Bush told reporters at a meeting between the President and the leaders of the Detroit Three auto makers, who see in these statements the potential to change and disrupt their company's product plans.

Cars are, of course, an easy target for politicians in any global warming initiative. The energy required to make a car move is transparent and so-called "green" performance is easily measured in fuel economy and tailpipe emissions. Obviously, oil companies and other large corporations also generate emissions but none are easily implicated in terms of CO2 or litres used per 100 km. Indeed, the oil industry's unwillingness or inability, or both, to introduce and distribute cleaner fuels has proven to be a major stumbling block for the introduction of cleaner vehicle powertrain technology.

The tricky part for the auto industry is that, while the legislators and regulators are clearly on the move and taking aim at the car business, consumers are not quite so ready to embrace obvious "green" automotive technologies. According to the Power Information Network, vehicles running on traditional gas powertrains still account for 93 per cent of all new vehicle sales in Canada, followed by diesel, flexible-fuel and gasoline-electric hybrids.

Those numbers fail to show two things. First, current sales trends do not point the auto industry in the direction it needs to go to address broader social and cultural trends, nor do they act as a useful barometer of the winds of change out there already. Second, they say nothing about the progress the industry has already made.

Today's "traditional" gasoline powertrain is vastly more clean and efficient than anything sold just a decade ago. Technological gains have cleaned up emissions and improved fuel economy. True, many auto makers have traded fuel economy gains for more horsepower. Nonetheless, the car industry has done much on the emissions and fuel economy front. It will need to do more. The auto makers who most successfully position themselves as stewards of the environment, as innovators in the battle against climate change, will win market share and increase profits.@@page@@

For evidence of this, look no further than Toyota and Honda. Toyota, the world's richest, most profitable and likely soon the biggest car company on the planet, has successfully positioned itself as the world leader in gasoline-electric hybrid technology — technology that improves fuel economy dramatically in stop-and-go city traffic and dramatically reduces vehicle emissions. Hybrids are without question the cleanest all-around production vehicles available, period.

Honda, also an extremely profitable and growing company — twin rarities in today's viciously competitive car business — is also a leader in hybrids and has from the very beginning built its market position on a strong array of highly efficient four- and six-cylinder engines. In fact, Honda does not offer a V-8 engine in any of its cars, trucks and SUVs. Honda is also promising to bring an extremely clean diesel engine to market by 2008.

Other companies have made a strong commitment to environmentally friendly products, of course. But it is clear that through their product choices and marketing efforts, Honda and Toyota have worked hard to position themselves as the greenest of the green car companies.

Indeed, as Bob Lutz, the GM product boss, notes, his company originally failed to recognize the marketing benefits that accrue from building and selling hybrids. GM has since corrected that, and is now pushing hard to launch new hybrid versions of a number of models — including the Saturn Aura sedan and Saturn Vue Green Line SUV. At the recent New York auto show, GM also showed off an advanced hybrid version of the GMC Yukon SUV. The hybrid system in that vehicle is the product of a joint venture between GM, BMW and DaimlerChrysler.

The problem is, hybrids are not the only answer for the auto industry, and they may not be the best one, either. In truth, there are no easy answers. Alan Mulally, who joined Ford only last October after a long career at aircraft maker Boeing, says his company, like others, is not sure which environmentally friendly technology or technologies will ultimately rule in the car business. It could be gasoline-electric hybrids, or plug-in hybrids. It could be hydrogen fuel-cell vehicles, battery-powered cars or vehicles running on ethanol. Synthetic fuels may have a big role, too.

"We just don't know which one will be the technology of choice," he says, pointing out that energy independence and security, combined with global warming, are problems that the auto industry alone cannot and will not solve.

Mulally was at that meeting with Bush, along with GM's Wagoner and Tom LaSorda, CEO of DaimlerChrylser's Chrysler Group. He says that Bush, along with Vice-President Dick Cheney, looked at three flex-fuel vehicles parked on the South Lawn of the White House: a Ford concept Edge Hy-Series Hybrid, which can run on hydrogen or electricity alone; a flex-fuel Chevrolet Impala; and a biodiesel-fuelled Jeep Grand Cherokee. The auto makers have committed to increasing flex-fuel vehicles — which can run on biodiesel or ethanol — to 50 per cent of their fleets by 2012.

All three are real vehicles, available to consumers now or in the near future. They represent a tiny sliver of what auto makers collectively are doing and planning to do on the environmental front. Beyond hybrids, most of the world's largest auto makers have active fuel cell programs at work. Meanwhile, European makers, in response to past government decisions on fuel taxes designed to favour clean diesel over other fuels, have taken the lead in developing diesel engine technologies that are 30-per-cent more fuel efficient than gasoline.

So there is progress, but more is needed and it must happen more quickly. The truth is, everyone in the auto industry believes doing business as usual is no longer an option. The question is, what's next? How will change happen? Auto companies that come up with the right answers will emerge as winners. The rest may simply disappear or be gobbled up by rivals.