http://www.nytimes.com/2005/07/24/business/yourmoney/24cont.html

New York Times
July 24, 2005

The Green Machine That Could Be Detroit
By DANIEL AKST

IMAGINE that you are running a domestic automaker. Rising gasoline prices
threaten your lucrative S.U.V. sales, a glut of car-making capacity
promises ever more competition, and burdensome union contracts limit your
ability to cut costs. Then there are the Chinese. They're beginning to put
together the parts they've been making for years, and sooner rather than
later, whole cars from China will arrive at scarily low prices.

What do you do? The easy answer is to follow the path that Detroit has
taken for years. Grind out well-made but ho-hum vehicles and offer them at
huge discounts. Let your debt rating fall below investment grade. And when
California tries to impose mandatory reductions in greenhouse gases, you
sue, even if some other states want the same stricter standards - and even
if some consumers are lining up to pay hefty premiums for energy-saving
hybrid vehicles that run on both gasoline and electricity.

Now I'm the first to acknowledge that without a C.E.O.-sized paycheck, I am
far from qualified to run a major manufacturing business. But isn't it
possible that Ford and General Motors are on the wrong path?

What if one of them decided to break from the pack? What if a major
automaker decided to reinvent itself as the world's first and only green
car company, producing only hybrid, clean-diesel and other high-efficiency
vehicles? Not Birkenstocks on wheels, mind you, but enjoyable, functional
cars that get great mileage.

Consider the advantages. Such a company could drive down the cost of
producing hybrids by attaining economies of scale. It would be ready - nay,
eager - to comply with stringent clean-air rules wherever they were
imposed. It would be positioned to exploit the federal mandate for
low-sulfur diesel fuel, which will open the door next year to
cleaner-burning diesel engines. And it would no longer have to compete as
much on price, because consumers have shown a willingness to pay more for
more efficient cars.

So imagine that you're in charge of this company. From a marketing
perspective, you're in heaven. To the environmentally conscious, you sell
the prospect of saving the earth even as you appeal to the class vanity of
affluent customers who might otherwise never dream of buying an American
car. Are there many of these people? You may be surprised. As a proxy,
consider the number of National Public Radio listeners: 26 million. Your
motto with this crowd is simple: "Do the right thing."

But the beauty of your venture is that it can also appeal to meat-eating
S.U.V. owners. To them, you sell self-sufficiency, patriotism and the war
on terror - the satisfaction of telling foreign oil producers to take their
oil and drown in it. And your motto can still be "Do the right thing."

Your vehicles will certainly have cachet. After all, hybrids are already de
rigueur for some movie stars and their imitators in Los Angeles. Imagine
having the brand that encapsulates enviro-chic all over the world. This is
marketing that money can't buy.

But isn't there a danger here - that your company will become just a niche
player? I don't think so. New vehicles with hybrid electric engines are
expected to grab 3.5 percent of domestic sales by 2012, up from 0.5 percent
last year, while clean diesels are expected to get 7.5 percent, up from 3
percent, according to J. D. Power-LMC Automotive Forecasting Services.
Together, the projected total is 11 percent. For perspective, Toyota's
market share last year was 12.2 percent and Honda's was 8.2 percent.

There was a hint the other day that Ford just might get it. In the
automotive equivalent of those Peaceable Kingdom paintings in which
predator and prey lie side by side, the Sierra Club joined Ford Motor to
promote a new hybrid version of the Mercury Mariner sport utility vehicle.
Unfortunately, Ford will make only a relative handful of the hybrid Mariners.

O.K., but aren't there technological barriers to building a clean car
company? Could a major automaker retool itself this way culturally as well
as physically? Sure it can. It would be costly, but there is precedent. The
entire American auto industry retooled itself to emphasize quality, and it
now makes some of the most dependable cars in the world. Maybe the best way
for an automaker to manage this latest transition would be to build a new
brand, the way G.M. once did with Saturn. In this new case, however, the
brand would consume the parent company.

Business as usual isn't an option. Change is risky, but in this case the
consequences of doing nothing are a sure bet - one that I personally
wouldn't want to take.

Daniel Akst is a journalist and novelist who writes often about business.
E-mail: culmoney@....


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Felix Kramer fkramer@...
Founder California Cars Initiative
http://www.calcars.org
http://groups.yahoo.com/group/calcars-news
http://groups.yahoo.com/group/priusplus
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