Auto Alliance: fuel efficiency takes a back seat to survival
But we paid the most attention to the stuff about more efficient cars and how the OEMs can reach the goals demanded by consumers and the government in a time of financial crisis. Follow us past the jump to read all about it.
Territo started off by acknowledging that consumer confidence is way down, both on the economy and on the automakers. In this tense period, all eyes are on Washington and LA this week, and we can compare the negativity of the bailout and the excitement of the auto show. Territo said there had been 22 new model launches planned, until GM canceled its unveiling.
To keep producing these new models, the auto manufacturers spend $78 billion on R&D each year, and we know that most new models are at least a little bit less fuel hungry that the ones they replace. Sometime soon, probably this week, new fuel economy standards for 2011-2015 will be announced as part of the Energy Independence and Security Act of 2007 (EISA, PDF available). EISA includes $25 billion in retooling grants - to help build cleaner, more fuel efficient vehicles - and some believe the money should only be used for retooling. Considering the situation, though, others think it shouldn't have as many strings attached. After all, the estimate to reach the new fuel standards is $47 billion. At this point, manufacturers are just struggling to survive, and Territo said there's a reasonable case to make that they need to use the money just to operate and then retool further down the road. Territo said as long as the companies are able to get the money to survive, the Alliance doesn't care where the money comes from (i.e., from EISA or a new bailout package). Manufacturers recognize that if they're given financial assistance, that there will be conditions attached to the money and manufacturers are committed to retolling plants and bringing out more fuel efficient vehicles. Just perhaps not right now.
"The industry right now sees the next year as being a very difficult year," Territo said. The OEMs' goal is to survive and therefore some products will be put on hold, others delayed, and that means that those fuel efficiency increases will be put off, too. Territo said it could be "very difficult" for some companies to continue operating if the fourth quarter ends up being as bad as the third quarter, but he didn't say which companies he meant.
On the demand side of the coin, there are some questions about whether or not consumers still want to buy as many greener cars now that gas prices are back under $2 a gallon. Territo said he thinks it's important that the government take steps to make it clear to the consumer the importance of fuel efficient vehicles. "We need a consistent policy, one that places the same type of value on fuel economy to the consumers as the government places on fuel economy," he said, adding that the indications are that an Obama administration will have a more comprehensive policy over the next four years - one that integrates fuels, consumers and automobiles together. Territo said the government cannot advocate cheap gas and higher fuel economy at the same time. Still, the Auto Alliance does not have a policy of supporting a oil price floor, and does not expect to have one in the future. Auto companies are not looking to expand into public transportation, as suggested by the New York Times recently.
Another option making the rounds is for OEMs to enter bankruptcy. Territo said there will be a "ripple effect" through the economy if any one of the Big Three does this. Just because a company enters Chapter 11 doesn't mean they stop operating, sure, but Territo made the point that people will be very reluctant to buy a vehicle from a company that is in or could soon be in bankruptcy. The warranty would be worthless, for example, and who would spend $26,000 if you can't get the service contract fulfilled?
In case you need more from the Alliance, the other day, we had a chance to ask president and CEO Dave McCurdy about the other president and changes in Washington. The Alliance is made up of BMW Group, Chrysler LLC, Ford Motor Company, General Motors, Jaguar Land Rover, Mazda, Mercedes-Benz USA, Mitsubishi Motors, Porsche, Toyota and Volkswagen.
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