Detroit Auto Show Recap: Time for a Model Change


Last week I attended the Detroit Auto Show to examine the auto industry’s offerings first hand.  2011 looks like a banner year, with auto sales on resurgence after three grim years.

Key to the leaner, more profitable Detroit auto makers is an emphasis on clean and fuel efficient cars, including electric vehicles, hybrids, and high fuel economy small cars. For 2011, green is the new black.

With gasoline prices headed to $4/gallon this year, Detroit 3 automakers seem to understand that in today’s marketplace fuel economy is not a virtue but a matter of survival.  GM’s President and CEO, Daniel  F. Akerson, recently told his product executives to plan for gasoline at more than $4 a gallon. A vast majority – 80% -- of worldwide auto-executives (including Detroit) expect the demands for electric and hybrid vehicles to rise during the next half decade, according to a study conducted by KPMG

Yet questions still remain whether Detroit is moving fast enough. There is no doubt they have impressive new fuel-efficient small cars (Chevy Cruze and Sonic, Ford Focus and Fiesta, ChryslerFiat 500), and new electric cars (GM Volt, Ford Focus Electric). As the Detroit News points out, Detroit still remains more dependent than their competitors on fuel-inefficient pickups and SUVs.

The most troubling sign that Detroit continues to lag came last week not from the Detroit Auto Show, but from their lobbyists in DC. At the exact same time the companies were announcing new fuel efficient and advanced vehicle products, their lobbyists were transmitting letters to the new leadership in the House opposing new fuel efficiency and pollution standards.

This is an amazing display of tone deafness -- nearly on par with the 2008 gaffe of the Detroit 3 CEOs flying to DC in private jets to ask for a bailout.

As I blogged last week and told the Detroit News, the auto lobbyists inaccurately accused California of not acting in good faith to work with federal regulators on model year 2017 to 2025 standards. The industry also went on to claim in the letter that new fuel economy standards could cost roughly twice as much as regulators have estimated.

All this, mind you, does not surprise me. The same industry said catalytic converters, air bags and seat belts couldn’t be done. In my blog last month of the LA Auto Show, I noted that strolling past the fuel efficient and electric vehicle products on display was like revisiting the “greatest hits of automakers’ false claims:  that innovation is too costly, difficult and undesirable.”

In fact, the automakers claiming twice the cost of what the regulators estimate is entirely predictable. In 2006, I co-wrote a paper on this topic (cited in Thomas Friedman’s book Hot, Flat, and Crowded ) that found that the auto industry typically claims costs 2 to 3 times higher than regulators’ estimate (see chart below, click for full-size version).

Two years ago, the government spent $85 billion bailing out Detroit. The government still partly owns GM and Chrysler. Now, despite being against their own best interests, GM and Chrysler are using government funding to fight new fuel economy and pollution standards.

Thanks to the government bailout, Detroit has managed to survive in spite of its lack of fuel economy leadership. The resurgence of clean, efficient cars on display at the Detroit Auto Show is an encouraging sign. But it appears that the engineers in Detroit are innovating faster than their DC lobbyists’ rhetoric. Isn’t it time for a model change?