Race to be green

STAMPING JOURNALĀ® MAY 2006

May 9, 2006

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Automakers are racing to introduce green technologies. Toyota is the leader in hybrid sales and plans to introduce two new models even though it will continue to lose money in the short and medium term. Instead of trying to outsell Toyota, GM has introduced flexible-fuel vehicles that run on E-85, an ethanol and gasoline mix.

green tree and green grass

Automakers are scrambling to introduce environmentally friendly and fuel-efficient cars. From hybrids, diesels, and ethanol-capable engines to fuel cell-powered cars of the future, the race is on to be green.

The Green Reality

Toyota has dominated hybrid sales since its Prius® sedan hit the market. Hybrids combine a gasoline engine with an electric motor and are the cutting-edge, environmentally friendly cars. While Toyota's Prius is sold only as a hybrid, the automaker has added hybrid versions of the Highlander® CUV and the upcoming Camry® sedan.

Other automakers also have launched their own hybrid vehicles, with perhaps the most noteworthy offering being Ford's hybrid Escape® CUV. No one, however, has been able to beat Toyota's hybrid sales volume. At the same time, no automaker has experienced as large a boost to its environmental friendliness image as Toyota.

This brings up the fundamental question: Why bother being green? After all, the cost of hybrid technology is so high that no automaker is likely to come close to breaking even in the near or medium term. No law or regulation requires automakers to produce hybrid cars, and some automakers, such as Nissan, believe hybrids are a mistake.

Some recent revelations support this claim. Many hybrid owners are disenchanted with their vehicles because they aren't achieving the mileage advertised. The financial numbers also are stacked up against hybrids—even with rising gas prices, the additional fuel economy hybrids achieve is not worth their cost. Numerous calculations show that over the car's lifetime, a hybrid's fuel-efficient power train will not recoup the approximately $3,000 premium consumers are paying.

Studies have shown that hybrid buyers don't buy their vehicles just for the fuel efficiency they promise. They believe that even though they won't recoup the entire premium they paid for their hybrid, the purchase still makes environmental sense.

From an environmentalist's point of view, it's better to spend $3,000 more for a hybrid than to buy a regular car and use $3,000 worth of fuel. This way, the fuel remains unused, and the pollutants that would be released by its combustion engine are not released into the atmosphere. Hybrid buyers also expect that the vehicles they're buying will get better over time, and that the best way to ensure more environmentally friendly vehicles in the future is to buy the models offered now.

It's Not Easy Being Green

The U.S. automotive industry is facing intense financial pressure and competition on a level higher than anything it has previously experienced. The high cost of hybrids cannot be supported unless it ultimately creates a real contribution to an automaker's bottom line. Hybrids, as well as other fuel efficiency and emissions reduction technologies, represent a considerable cost in the short term. But they may be a necessity of playing the automotive game. Even Nissan, a longtime detractor, plans to offer a hybrid car in 2007. Offering hybrids simply may have become a cost of entry into the automotive market.

But there are very real reasons for automakers to pursue hybrids and fuel- and emissions-reducing technologies. Consider GM's E85® consumer awareness program. E85 is a fuel blend of 15 percent gasoline and 85 percent ethanol. Ethanol is made from plants, usually corn, and lowers a vehicle's tailpipe emissions. It reduces the amount of fossil fuel used and replaces it with a renewable fuel made from plants, which would be a drastic step in reducing U.S. dependency on foreign oil.

However, using plant matter for fuel is nothing new. Rudolph Diesel first ran his engines on peanut oil. Henry Ford built his Model T® to run on ethanol and even built an ethanol production plant. Don't forget Volkswagen van aficionados who drive their modified machines using discarded vegetable oil from restaurant fryers as fuel.

To run on E85, a vehicle's engine needs some modest modifications. It then can be refueled either with E85 or with regular gasoline. GM already has more than 1.5 million of these flexible-fuel vehicles on the road and plans to sell 400,000 more in 2006. In cooperation with Shell, GM has launched an advertising campaign to alert consumers about the availability of flex-fuel cars.

GM's Green Investment

I can think of two very good reasons why GM is making such an expensive investment. After all, the automaker is in dire financial straits and must be careful with every penny it spends. First, GM will introduce its own raft of hybrid offerings, but it still will trail Toyota in the hybrid category. Focusing on its leadership in E85 vehicles gives GM some positive press by diverting attention from its difficult financial situation.

Second, GM's heavy involvement in E85 vehicles gets it closer to the U.S. agricultural sector and favorable status in Washington. President Bush recently said that U.S. automakers should not expect help from the government. There is, however, no shortage of subsidies and political help for other industries. Key among them is agriculture. Combined with the national security benefits of moving the U.S. away from fossil fuels, this move may help GM get some traction and assistance from Washington.

Hybrids are widely considered an interim step. The ultimate future of vehicle propulsion appears to be fuel cell power trains. Fuel cells, which generate electricity by converting hydrogen to oxygen and water, are decades away from high-volume vehicle production. They also bring with them a host of other problems, including the need for a nationwide distribution network for hydrogen, which is highly combustible.

In the short term, hybrids, E85, and more environmentally friendly versions of diesel engines are moving the automotive industry toward a greener future.



Center for Automotive Research

Bernard Swiecki

Contributing Writer
Center for Automotive Research
1000 Victors Way
Suite 200
Ann Arbor, MI 48108
Phone: 734-929-0484
The Center for Automotive Research focuses on the future of the international automotive industry. Its overall objectives are to provide industry research and analysis, communication forums, and informational resources that respond to the changing needs of the international automotive and automotive-related industries.

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