Fuel price volatility slows the drive to go green
Nervousness is mounting in the motor industry that a prolonged period of low petrol prices could jeopardise the viability of heavy investment in fuel-efficient vehicles.
The concern has led to increasingly vocal calls for higher gasoline taxes in the US, the world’s biggest vehicle market, as a means of providing more certainty for carmakers, their suppliers and other investors in green technology.
Bob Lutz, General Motors’ vice-chairman, said that, as a result of the wide swings in fuel prices over the past year, “the planning process has never been more difficult, more complicated and more subject to review”.
Derrick Kuzak, Ford’s product development chief, added that “we certainly think that [a higher fuel tax] is something governments should be considering”.
The scale of the industry’s investment in fuel-efficient technology is evident at this week’s Detroit Motor Show, where carmakers are showing off hybrid and electric vehicles, some already in production but others still on the drawing boards.
US politicians are putting pressure on the Detroit carmakers to invest more in fuel-efficient technologies as part of the companies’ turnround plans.
GM has pledged that its product line-up will include 15 hybrid models by 2012, up from six last year. It announced on Monday that it is setting up a plant in the US to supply lithium-ion battery packs for its Chevrolet Volt plug-in hybrid.
However, hybrid sales have plunged in recent months as the petrol price has fallen from a peak of $4.11 a gallon in mid-July to Monday’s national average of $1.79.
US sales of Toyota’s Prius hatchback, the top-selling hybrid, were 45 per cent lower in December than a year earlier. Hybrids typically cost $3,000-$5,000 more than their petrol-driven equivalents. Also, carmakers report signs of renewed interest – helped by generous discounts and other incentives – in fuel-hungry models.
“If gasoline stays cheap, it puts us in the industry in a situation where we’re at war with the customer,” Mr Lutz said.
Mark Templin, who heads Toyota’s luxury Lexus brand in North America, added that “we don’t care whether the gas prices are high or low. We’re concerned that there should be consistent prices.” Lexus unveiled its first hybrid-only sedan at the Detroit show.
Mr Kuzak remains optimistic that Ford’s investments in fuel economy will be worthwhile. He notes that the price tag for a hybrid system has dropped by a third in the past five years.
Besides alternative fuel systems, Ford’s new V6 EcoBoost petrol engine provides as much power as an eight cylinder engine through a combination of direct injection and turbo-charging.
Even so, executives who just a few months ago were desperate for fuel prices to come down, are now putting their faith in a renewed run-up in prices as the global economy recovers.
According to Mr Templin: “people are smart enough to know that gas prices aren’t going to stay where they are for a long time”.
Article source: Financial Times, Bernard Simon, January 12, 2009, The Financial Times Limited 2009, http://www.ft.com/cms/s/0/4732260e-e0dd-11dd-b0e8-000077b07658.html?nclick_check=1