• Jul 3rd 2009 at 8:02AM
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in an op-ed piece published in the Wall Street Journal, Alan Reynolds of the Cato Institute starts by making a few decent points about fuel taxation and fuel economy rules. Unfortunately, he undermines himself with some blatant errors and misinformation. In discussing how Detroit automakers will deal with new fuel efficiency requirements, he makes the all-too-common mistake of referring to Ford's hybrid system as licensed from Toyota ("Similarly, Ford has the Toyota-licensed hybrid Fusion and will soon produce the European Ford Fiesta in Mexico").

The reality is that Ford independently developed its own hybrid system at the same time Toyota was doing its own. The basic architecture of both systems is the same and both are based on the concepts developed and patented by TRW engineers in the late 1960s. When Ford introduced the Escape Hybrid, Toyota went after the Blue Oval for infringing on its patents. Ford had patents of its own on the technology that Toyota was using. Eventually, the two companies reached a cross-licensing agreement that gives both companies the right to build their own systems. Such cross-licensing agreements are common in these kinds of cases, but Ford did not use the Toyota hybrid system. The only other company that uses Toyota's system is Nissan for its Altima hybrid, and they actually buy hardware from Toyota. We continue deconstructing Reynolds' arguments after the jump

[Source: Wall Street Journal]
Photos Copyright ©2009 Sam Abuelsamid / Weblogs, Inc.

Reynolds explains that Toyota can sell big fuel guzzling vehicles like the Tundra and Lexus LS because it also sells efficient vehicles like the Yaris and Corolla. While this is partly true because the higher mileage of the small cars does offset the higher consumption of the bigger vehicles when calculating the fleet average, there is more to the story. Toyota's big trucks have not been nearly as commercially successful as any of the domestic competitors, including lowly Chrysler. As a result, there is not nearly as big a penalty to offset. This is even more true for Nissan. The LS also sells in comparatively small numbers, with only 20,255 units moved in 2008.

The author does give due credit to Ford for its upcoming Fiesta and Chrysler for the Fiats it will soon sell, but goes on to trash GM for the coming Cruze which no one has driven yet. This is certainly disingenuous since there is no guarantee that the Fiats will be any better than GM's offerings. We've driven the Fiesta and its a great little car and the new Focus will likely be very good as well.

While the current Aveo leaves a lot to be desired, it's at the end of its lifecycle and it will be replaced by the end of next year with a new American-built car. The Aveo replacement will be joined by the Spark which will also help. GM's future lineup looks just as promising as any other automaker at this point until we have a chance to drive them all.

The main point of Reynold's treatise is a complaint about fuel economy standards being an ineffective means to influence fuel consumption. To a large degree he is correct because CAFE has limited influence unless fuel prices also rise. Simply controlling what is supplied by automakers does not guarantee that consumers will buy more efficient vehicles. Reynolds advocates adjusting the taxes on fuel to make ethanol, gasoline diesel equal at 24 cents a gallon. While the taxes should be adjusted, they need to go substantially higher if they are to have any real impact on consumer behavior. The tipping point, as we saw in 2008, is fuel prices somewhere above $3.50 per gallon. Politicians of course are too spineless to make such a change along with other changes like payroll tax reductions to compensate. Thanks to Reuven for the tip!

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    • 1 Second Ago
      • 6 Years Ago
      Similar to an article I read in the Detroit Free Press shortly before GM entered bankruptcy (which I can't find at the moment...), which used the Pontiac Vibe as an example of GM's "redundant" models...then went on to say that if the Vibe was produced and sold by Toyota it would have done much better.......

      Until that point I had never wanted to write a 'letter to the editor'
      • 6 Years Ago
      Lots of misinformation in these comments.

      Ford developed their own hybrid system, of their very own design. The wording "Toyota-licensed hybrid Fusion" suggests that Ford went to Toyota, and asked if they could use Toyota's system in Ford cars. This is not correct (it is, however, what Nissan did).

      Ford developed their own hybrid system, but during the development process, realized that they could not build the system they wanted without infiringing on patents held by Toyota. So, Ford and Toyota struck up a deal where they exchanged patent licensing between them. Ford got permission to use Toyota's patents, and Toyota got to use some of Ford's patents (I believe they were for direct ignition).

      Toyota did start development of the Hybrid Synergy drive in 1994, as a result of being shut out of the PNGV program (look up Partnership for a New Generation of Vehicles for more info). Basically, in 1993, under the Clinton Administration, PNGV was formed to provide government funding and support for a new generation of high-mileage vehicles. Toyota wanted to join, but was shut out. Under PNGV, the domestic manufacturers researched many different high-efficiency technologies, one of the most prominent being hybrid powertrains. Toyota, fearing that they would be left in the dust technology-wise, worked on developing their own hybrid system in Japan. In the US, the rise in popularity of SUVs coupled with historically low gas prices ultimately led to the demise of the program. The domestic three abandoned their research, and Toyota continued, and the rest is history.
      • 6 Years Ago
      What bothers me about Ford and I was long until going short this week-I purchased puts-is consumer spending accounts for 70% of our economy. Second, both Chrysler and GM will emerge from bankruptcy debt -free as opposed to Fords {17 Billion} equity short fall.
      Finally, Toyota has close to 2,000 patents filed for new technology.

      To summarize by decision is what goes up the quickest during this cyclical bull-rally in a bear market will come down the quickest.History usually repeats itself and during a similar rally at the turn of 1970 a junk rally-very similar to this current one-had the same up then eventual down..
      • 6 Years Ago
      Ford has done a better job than Toyota in its refinement of the ICE to electric hand off. FORD has shown how far they have come with their Fusion Hybrid and the unanimous acknowledgment in the trade journals and the public's comments bare this out.

      While the Japanese builders autos were, early on, known to be less than ideal their low cost was their strong point. Over time to gain a larger market share they came to the US and studied manufacturing processes to improve their production and quality.

      Now the shoe is on the other foot. The US has had to first wake up and then get busy to catch up to their competition. Ford has done just that. It is proven that Ford quality is a dead heat tie with Toyota, Honda, and Nissan. It took some time but they are there now.

      When you look at Ford cars and trucks with an open mind you will find, model for model Ford is at or slightly ahead of these Japanese brands. In the case of trucks Ford leads here by an even larger measure. The foreign builders don't even offer a 3/4 ton or larger truck.

      One area we here need to remember, If you by stuff from overseas or the profits go overseas who will buy the stuff your company here makes and sells. We need American companies to stay here and we need the money to stay here to. While the Fusion is built in Mexico most if not almost all of the stuff going into it comes from the US. While there are Japanese cars built here too. the parts are coming from other places than here in a very large part and the profits leave here as well.

      If all we buy is foreign we will not have a job worth having or that can support our families.

      Ford has EARNED my business. As long as they listen and can keep pace they will continue to have it. Even If US autos are a bit behind I will still give them my business as it keeps us employed with living wages jobs. I wish more would look at the big picture and see how damaging saving a buck or two really is.

      • 6 Years Ago
      BTW I'm not trashing Ford and I think their current hybrids are quite nice, but frankly it would be rather hard for anybody to build a competitive 2-mode gasoline hybrid now without spending ridiculous amounts of money just to avoid Toyota's patents. There's over 2000 patents on the HSD system.
      • 6 Years Ago
      Typo: Ford's patents should read "direct injection".
      • 6 Years Ago
      RM - Hey the Ford Aisin hybrid is a great application in the Fusion. No question and most credit due to Ford. If you worked on that, you can be proud. But the historical facts are pretty much out there. Every comment I made on is a fact, nothing is incorrect.

      As the one item you questioned, did Toyota help Ford with hybrid controls? - take a look at the Automotive News article from five years ago. Maybe you weren't on board then. The answer is yes, Ford specifically licensed Toyota controls patents. And In our business you don't take a license unless you really need it, and without getting help to apply it.

      " Ford to use Toyota Hybrid System Technology

      " Automotive News
      " March 9, 2004 - 12:01 am ET

      " TOKYO -- Toyota Motor Corp. said on Tuesday that Ford Motor Co. would use some of its hybrid engine technology, in a pact that underlines the Japanese auto giant's strong lead in eco-friendly gasoline-electric know-how.

      Toyota is keen to see the overall market for hybrids grow while promoting its technology and expanding its hybrid lineup.

      It has said it might supply hybrids to other automakers as part of its goal to produce 300,000 of the eco-friendly vehicles a year by the middle of the decade.

      Under the agreement, Toyota's patents on gasoline-electric hybrid engine system control and emission purification have been licensed for use in Ford's own hybrid system, which is under development.

        • 6 Years Ago
        The only fact in this article you reference (and in other similar articles) is that "Toyota's patents on gasoline-electric hybrid engine system control and emission purification have been licensed for use in Ford's own hybrid system" (note that this article neglects to state that this was a patent license trade agreement).

        Everything else you state is an assumption. You assume that "In our business (are you in the auto business?) you don't take a license unless you really need it, and without getting help to apply it". This statement may be true in some cases but I would argue that often (and I don't know how often) the same technological solutions are developed simultaneously and someone gets to the patent first. This is especially true if the system being developed is as similar as the Ford's and Toyota's system. I should also note that the timing of the Ford Escape Hybrid was earlier than the second generation Prius which made significant powertrain controls improvements over the first generation Prius (arguably one of the worst driving vehicles ever put into production). Therefore, it is likely that Ford may have done a better job developing the controls than Toyota did but neglected (for various reasons) to protect their innovation.

        I should also note that quite often, innovation is not patented/published because it provides insight to competitors.

        Finally, here is the Ford response to the licensing accusations from Business Week November 1 2005 . " The Ford Escape Hybrid (and now the Mercury Mariner Hybrid) was engineered, validated and is manufactured in the United States. There is NO Toyota technology or parts in our vehicle. We received NO technical support from Toyota when designing our hybrid system. We entered into a business arrangement with Toyota where we EXCHANGED patent licences. We licensed 21 patents from Toyota because our hybrid system design was close enough in design to what Toyota did that we wanted to ensure there were no accusations of infringement."

        I have to take Ford's word at face value.
      • 6 Years Ago
      Ford cross-licensed with Toyota but they traded other patents to get the license for the hybrid technology in question. They didn't have to pay cash, but they did end up trading clean diesel patents to Toyota. Obviously both companies got something out of it, but you're making it sound like Ford had a ton of hybrid system patents of it's own that it cross-licensed with Toyota which just isn't the case.

      BTW Toyota wasn't infringing on any Ford patents-Ford traded licenses for stuff Toyota wanted to pursue itself, since Toyota wouldn't have had to jump through hoops to build clean diesels without getting the Ford patents, but Toyota didn't have any existing diesel engines that used Ford patents. You're just making nonsense up.
      • 6 Years Ago
      From NYT, "Similarly, Ford has the Toyota-licensed hybrid Fusion..."

      Actually, NYT is 100% correct. Ford did license the technology from Toyota. That's why Honda, GM, etc has to workaround from the patents held of Toyota (IMA, 2-mode, etc). No one else can build a hybrid system similar to Toyota's, even if you design and build your own parts.

      Patents are designed to protect innovations. Every car manufacturer knows how the Toyota hybrid system works by tearing down a Prius and reverse engineer it. But only Toyota can build the system, unless they license from Toyota, which Ford did.
      • 6 Years Ago

      Just wondering are you on the WSJ or Toyota blog payroll?
      Your post is just a re-hash of the WSJ article but here is the link to the TRW patent:

      Interesting is the pending cases of hybrid patent infringement against Toyota. And the one they lost already. How many more will pop up? Patent Trolls are very patient folk. Will it hurt Toyota? Not likely, but why should size/power/wealth have anything to do Patent enforcement/infringement?

      Patent hording is a very effective way to make money, even if you didn't invent what you own the patent for.

      Overall, this whole nonsense is just another sign the patent system is useless and needs to be overhauled. Drug patents is what technology patents should look like - 7 years then it is open to copying.

      At least it would help companies to improve and innovate, rather than horde and sue.
        • 6 Years Ago
        So what? I never said other people didn't have valid patent licenses. And the lawsuit they lost was for using a microprocessor to control the powertrain which would apply to every other hybrid too. They just sued Toyota because they sell the most hybrids since it's a $25 per car royalty.
        Either way my only point was that paying with a cross license of diesel patents isn't the same as refuting the patent and not paying, which is what this post suggests. Since Ford was willing to swap patents it means the patent was legitimate in Ford's eyes.
      • 6 Years Ago
      The Cato Institute is rarely a source of truthful information. Lies, misrepresentation and half truths are par for the course.
        • 6 Years Ago
        It is intellectually dishonest and slanderous to make such statements as above.

        In my opinion Cato Institute usually gets it right. It has taken both republican and democrats to task for their respective spin doctoring. The writer probably is offended that Cato took to task one of their sacred cows and showed the flaws in it
        While there were some detail errors in the article, that should have been corrected, the overall message is correct.

      • 6 Years Ago
      I always was under the impression Toyota traded direct injection technology from Ford in turn for use of their hybrid system. Is a trade not a licence?
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