Frankfurt Auto Show: Who Will Pay for Going Green?
By Michelle Krebs September 11, 2007On the first press day of the Frankfurt auto show Tuesday, automakers unveiled a steady stream of
vehicles in various shades of green -â diesels, biodiesels, bioethanol, E85, hybrids from mild to full, electrics and hydrogen fuel cells.
Automakers boasted of their miles –- or kilometers –- per gallon along with their grams of carbon dioxide per kilometer, as European regulators measure emissions. In some cases, automakers continued to brag about horsepower, insisting that increasingly demanding consumers will not trade-off performance for green.
But being green is neither easy nor cheap. Automakers collectively -- and some individually –- are investing billions in green technologies, and most are developing multiple technologies simultaneously to hedge their bets.
The question being asked is who will pay for going green? Will automakers eat all of the enormous additional expense? Or will customers be willing to kick in to pay a premium for driving green –- or not?
GM Hybrid Sold at a Loss
At the Frankfurt auto show, General Motors CEO Rick Wagoner, in a roundtable with journalists including AutoObserver, reiterated that GM will sell its 2008 Chevrolet Tahoe and GMC Yukon equipped with the 2-Mode hybrid system at a loss. GM has not priced the models yet so the premium to be charged to customers is not yet known.
âItâll be awhile,â Wagoner responded when asked when GM will turn a profit on the 2-Mode hybrid it developed with BMW and DaimlerChrysler. âItâs an investment in the future.â
Wagoner added that GM has a vision for how it gets to profitability on the advanced hybrid â- by spreading the technology across a number of brands and models â- itâs currently planned for as many as six or seven models, by going global with the technology and by getting more cost-efficient on the technology itself.
Consumer Pain Tolerance?
Like many major automakers, GM is hedging its bets by developing not only hybrids but also diesels and various other kinds of green technologies.
GM Vice Chairman Bob Lutz says GM, indeed, will have clean diesels, that meet the extremely stringent emissions of Europe and the U.S.
"They're going to be horrendously expensive," he noted. "We have for the U.S. market the gravest of doubts that diesels are the solution...but weâre forging ahead anyway just in case they become hugely fashionable or the cost of the hardware drops or there is interest in improving national fuel economy.
Among the diesels GM will have is a smaller, light-weight one that can go in the Chevrolet Tahoe and GMC Yukon full-size SUVs. "It's a beautiful engine and extremely expensive...We have no idea what the pain tolerance for the average American customer is when it comes to paying premiums for diesel engines."
Having said that, he noted that GM was surprised when it introduced its latest heavy-duty pickups with the Duramax diesel engine "more expensive by thousands of dollars."
GM figured diesel sale would drop due to the higher cost. "But sale didn't miss a beat," said Luz. "Buyers choked, said 'Boy, thatâs an expensive engine' and signed the check anyway.â
Daimler: Green at a Profit
The company soon to be called Daimler unveiled 19 new models at the Frankfurt auto show Tuesday, all of which are some shade of green, including seven hybrids ranging from the mild stop-start variety to 2-mode, electric Smart cars, BlueTec diesels and super-efficient gasoline models.
In a briefing with journalists after the new model debuts, DaimlerChrysler CEO Dieter Zetsche insisted that despite its vast investments in a variety of green solutions, the automaker intends to meet its goal of 10 percent return on sales.
Zetsche said the plan is to reduce the cost of the new green technologies and parts required over time while achieving further efficiency gains elsewhere in the vehicle to offset the higher cost of new technologies.
"Last but not least, [the higher cost is reflected] in the price tag as well," he said. However, the customer going green must be able to recover the higher upfront expense through fuel savings, Zetsche added. He noted that Mercedes-Benz sells cars at higher prices and higher profit margins that provide more wiggle room.
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The same question, "who will pay..." could have been asked forty years ago before cars had stereos. AC, four wheel disc brakes, seat belts, better bumpers, airbags, traction control. stability control, anti-lock brakes, computerized engine controls and crumple zones as standard equipment. The answer is, the consumer will pay or take the bus. All of these items have added cost to the cars we buy. But those of us who live in the US have no real alternative to the car as our primary form of transportation except for the few of us who live in cities with first rate public transport. We have come to accept these things and pay for them despite the cries from the automakers that the industry would be destroyed if the government mandated the inclusion of these technologies on the vehicles we buy. We will also pay for green tech but at least in this case, as the technologies proliferate the cost will come down, the savings in fuel will increase and over time the cost/benefit analysis is likely to show a net gain for drivers and for the country as we spend less on fuel and reap the benefits of the economic activity that these new technologies will create.
GM can't make a profit on conventional cars half the time, why should their Hybrid be different?
Davido is correct, we will pay. Why? That is how capitalism works. The customer always foots the bill, even if it is masked through other models profits or gov. subsidies that hit us in taxes. Duh.
And Lutz is a scream, playing the pauper to the crowd "we can do what you ask, but boy it's gonna' cost". I think Rick keeps him around to distract the press from his foul ups, "pay no attention to the man behind the curtain".
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