We've been generally positive about GM's intentions on plug-in
hybrids, and felt GM's Vice Chair Bob Lutz was effectively recruiting
more and more people wihtin the company to see electrification of
transportation as essential to its future viability. When Bob Lutz
called global warming "a crock" we both disagreed on that view and
felt that it was not correct for him and others to say "it doesn't
matter what he thinks," since a perspective that is motivated solely
by energy independence in determining company strategies and
priorities will often look different than one that also factors in
the well-to-wheels greenhouse gas emissions of vehicles.

In a recent joint Wall Street Journal interview with Daimler's Dieter
Zetsche (with whom GM partnered in developing the two-mode hybrid),
Lutz focuses entirely on ethanol as the fuel to substitute for
gasoline -- he doesn't mention electricity. He certainly doesn't
repeat what he's been saying: that commuter miles can be largely
fueled by electricity. Instead, he implies GM wants to fuel all miles
with E-85. While giving a nod to non-corn ethanol, he mostly focuses
on cost to the carmakers and how to meet CAFE standards with today's
vehicle types. And Zetsche mentions only diesel plus vehicle
efficiency. Both clearly have a long ways to go!

ENVIRONMENT
The Wheel World
Dieter Zetsche of Daimler and Robert Lutz of GM talk about how to
reduce the thirst for gasoline -- and how not to
http://online.wsj.com/article/SB120612054133655211.html?mod=googlenews_wsj&apl=y\
&r=327350
March 24, 2008; Page R4

How much of a financial sacrifice will consumers make to buy
environmentally friendly, "green" cars? And why haven't diesel
engines caught on in the U.S. the way they have in Europe?

Daimler AG Chairman Dieter Zetsche and General Motors Corp. Vice
Chairman Robert A. Lutz discussed these and other issues with The
Wall Street Journal's Jeffrey Ball. Here are edited excerpts from
that discussion.

Consumer Behavior

JEFFREY BALL: I remember talking to people at both your companies
[years ago] about fuel economy, and everyone said that it ranked far
below cup holders on the list of what mattered to people. I also
remember people saying that $2.50 gasoline would change that. Well,
we're now beyond $2.50 gasoline. Has it changed it? What are you
seeing in the market?

DIETER ZETSCHE: We are not seeing any significant changes of our mix
or of our engine types within one name plate. What we do see is the
tremendous success of the [small] Smart car, which we launched in the
U.S. in January and where the demand is really blowing all of our
expectations by far.

ROBERT A. LUTZ: What we're seeing is there is a portion, a very
narrow portion of the population, that will make a financial
sacrifice to be green. But I don't think we can count on the majority
of the American public to make a financial sacrifice, or make an
uneconomic decision. So I think even as gasoline goes to $4 a gallon,
you're still going to see people doing the calculation. How much more
do I have to pay for a hybrid system? Most people, not the
ecologically committed, but most normal people are going to take a
look at how much more am I paying for this fuel-saving technology and
will I be able to amortize it over the life of the vehicle?

Where we're seeing we have reached the pain threshold is with the
Duramax diesel engine, in the full-size pickup trucks. To meet the
latest emission regulations, we are now forced to charge $11,000 for
the diesel option, and that is putting a kink in diesel sales, and a
lot of people are opting for the gas engine again.

To provide an economic incentive to people to buy these much
higher-technology vehicles that are going to be required to meet the
CAFE [Corporate Average Fuel Economy] mandates, the customer has to
be put in the equation. That means that at some point, fuel prices
have to rise. I think that without an economic incentive, we are not
going to see a wholesale shift in demand of vehicles.

MR. BALL: There's been a long-running discussion in Detroit about the
safety of the small car, and the debate has always been essentially
blood versus oil. Do you have to sacrifice lives for the sake of fuel economy?

MR. ZETSCHE: Well, obviously, the Smart is in the market in Europe,
and there are no statistics that would support [the idea] that you
are less safe in the Smart than you are in any kind of vehicle. And
there is no evidence that you would trade fuel efficiency and space
efficiency against your health or your life.

MR. LUTZ: The days when some cars were safe, and other cars were not
safe, are long behind us. If a vehicle is registered for sale in any
developed market of the world, it is going to be an extremely safe
vehicle and it is going to be much, much harder to sustain a
life-threatening injury than it was, say, 10 years ago.

MR. BALL: In Europe, diesel accounts for, what, nearly half the
passenger-car market? In the U.S., it's a negligible percentage
except for in the truck market. There's all this discussion in this
country about saving oil and reducing carbon emissions, and diesel is
30% more efficient or so than a comparable gasoline engine typically.
Yet, we're talking about fuel cells and alternative fuels that
require new infrastructure.

Why is it such a tough sell for diesel in this country? And second of
all, despite that, why does Daimler feel like it's a good bet to roll
out a diesel car, even in California, now?

MR. ZETSCHE: This country should be ready for diesel, because you
have a lot of towns or you have speed limits and you have all these
SUVs. All of that calls for high torque at low RPM, and that's a
diesel. [As for why] diesel hasn't been popular here: For a period of
time, there were some diesels that were not too great. And on top of
that, diesel fuel is more expensive here than gasoline, which is not
because of production, but because of capacity. This could be changed
easily with some more capacity being installed for diesel.

The Government's Role

MR. BALL: What should government be doing that it's not doing?

MR. LUTZ: Well, to make the biggest environmental impact and displace
as much petroleum as quickly as possible, and drastically reduce CO2
creation in the operation of motor vehicles, and create the least
disruption to America's driving habits, there's only one technology
that will get all of that quickly and at very low cost per car. And
that is a conversion to basically bioethanol.

Better corn strains are being developed. They're developing corn with
a shorter growing season, which was going to permit shifting the Corn
Belt way to the north. I would point out that vast majority of corn
acreage in the United States is still not producing corn. It's
getting $500 a year per acre not to plant corn.

So I think that people who say, well, the ethanol industry is taking
food from the mouths of babies and it's driving tortilla prices up --
I think these are highly suspect conclusions. General Motors is the
world's largest producer of ethanol-capable vehicles. We produce over
one million a year. We've got 4.5 million on the road and constantly
growing. We've committed to doing 50% of our vehicles to be E-85 [85%
ethanol and 15% gasoline] capable, and it's only about $150 per car.

If General Motors, Ford and Chrysler, if that whole ethanol-capable
fleet were actually using ethanol by, say, 2012, 2015, we would save
about 18 billion gallons of petroleum-based gasoline a year. If all
producers ran on E-85, we'd save about 33 billion gallons of gasoline
per year, and of course, drastically reduce the imported portion.

And the $150 cost per vehicle is really trivial compared to the mild
hybrid systems, heavy hybrid systems, plug-in hybrid systems, clean
diesels and so forth that will be required to get to the 35 miles per
gallon using conventional gasoline technology.

Raising Fuel Mileage

MR. BALL: The oil industry is arguing for tougher CAFE standards,
although maybe not saying it explicitly all the time. And the auto
industry is arguing for a panoply of policies that would induce the
spread of alternative fuels. One could be forgiven perhaps for saying
that each industry is just trying to pass the buck, no?

MR. ZETSCHE: It's obvious that we are investing billions and billions
of dollars into those new technologies, and that's true for General Motors.

There are so many studies that are proving that the least-efficient
way -- the least CO2 you can save with the most money to be spent --
is doing it through the vehicle. And almost all other contributions
-- from infrastructure to driving behavior to the biofuel -- are more
efficient. And then when you go to housing and other areas, it's even
much more efficient, so you get more reduction for [fewer] dollars.

At the same time, we accept our responsibility. In 2010, for
instance, we will offer an S-class [large sedan] which goes 44 miles
per gallon. It's a diesel with a mild hybrid, which goes zero to 60
in less than eight seconds. This takes a lot of technology and it
costs a lot, but we are doing that.

MR. LUTZ: We have the 35-mile-per-gallon standard, and General Motors
obviously is confident that we can meet that standard
technologically, but when you add a diesel engine plus a hybrid, you
are adding thousands of dollars of cost.

Ever since CAFE legislation has been in effect, General Motors has
improved the efficiency of its truck fleet by 60%, the fuel
efficiency of its passenger-car fleet by 100%, and fuel use in the
United States has done nothing but go up. So the idea that by
legislating 35 miles per gallon, we're somehow going to use less
fuel, it would be the first time that it ever worked, because it
inevitably results in people taking their fuel budget and buying a
larger car. That's why if the customer is not in the equation in
terms of feeling pain in the wallet from paying the fuel bill, it's
destined not to work.

Now, technology costs money, so what is a better way to get at the
problem of getting the automobile out of the environmental equation,
or at least out of the petroleum and CO2 equation? I think the only
rational thing to do is put less technology in the car, which is the
conversion to making cars E-85 capable, and burn E-85, which is a
renewable fuel that could be done from biomass.

And if you can do that for $150 a car, as opposed to meeting a
35-mile-per-gallon standard at many thousands of dollars per car,
which one do you pick? It's not a question of passing the buck; it's
just look at what we have to do to the cars to attain CAFE, versus
the much less we'd have to do to cars, with much less pain on the
American driving public, if we had a concerted national E-85 effort.