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Detroit 2006: Is the Market Schizophrenic, or Changing?

13 January 2006

At the unveiling of a concept version of a Camaro (400 hp V8 with Active Fuel Management—displacement on demand—and fuel economy of 30+ mpg) at the Detroit auto show, Bob Lutz, GM’s vice chairman of global product development, cracked:

It’s two markets. The whole country is schizophrenic. At one end of the spectrum, you have people who want ecology. At the other end, they want power. I would call this diversity.

Lutz’s basic stance now is that US automakers need to roll out models with better fuel efficiency and hybrid engines while still offering performance cars such as the Camaro.

The scorecard of the six largest automakers at the show sketches a picture of an industry that is shifting its rhetoric over to the green side of the spectrum, but still has difficulty, for the most part, in fully instantiating that rhetoric in products.

General Motors

General Motors is on a continuing quest to reinvent the automobile and to remove our vehicles from the environmental debate.

Central to this is GM’s three-prong advanced propulsion technology strategy... which is focused on reducing tailpipe emissions, ultimately to zero…while significantly improving fuel economy.

As part of this strategy in the near term we’re improving the efficiency of both our gas and diesel engines...introducing advanced six-speed transmissions...and aggressively pursuing alternative fuels.

These strides have already helped make GM an industry leader in fuel economy.

—Tom Stephens, VP GM Powertrain

GM NAIAS 2006 Concepts
Vehicle Class Powertrain Fuel economy (est.)
Camaro Sport coupe 6.0L 400hp V8 w/ AFM 30+ mpg
Buick Enclave Luxury SUV 3.6L 270hp V6 n/a
 
GM NAIAS 2006 Product Introductions
Vehicle Class Powertrain Fuel economy (est.)
2007 VUE Hybrid Mid-size SUV 2.4L I-4 w/ mild hybrid drive 29 mpg
2008 Tahoe Hybrid Full-size SUV 5.3L w/ AFM and two-mode hybrid 25 mpg
2007 Cadillac EXT Sport Utility Truck 6.1L 400 hp V8 n/a
2007 Cadillac ESV Full-size SUV 6.2L 400hp V8 n/a

Ford Motor

The innovation you see here today is just a sample of what’s going on throughout Ford Motor Company. We’re pushing Ford Motor Company to be the most innovation automotive company on the planet in design, in technological solutions to environmental challenges, and in safety.

—Bill Ford, Chairman and CEO, For Motor

Well, small is big these days...I think that same mode of thought is going to be relevant to the auto industry as well.

—J. Mays, Group Vice President of Global Design

Ford Motor NAIAS 2006 Concepts
Vehicle Class Powertrain Fuel economy (est.)
Reflex Coupe 1.4L diesel w/ hybrid drive and solar assist 65 mpg city
F-250 Super Chief Pickup Truck 6.8L 310 hp V10 tri-flex fuel 12 mpg / 8 mpg / 13 mi/kg
Gasoline / E85 / H2
 
Lincoln MKS Sedan 4.4L 315 hp V8 engine n/a
Mazda Kabura Coupe 2.0L I-4 n/a
Volvo C30 Coupe 2.4L turbo 260hp I5 n/a
 
Ford Motor NAIAS 2006 Product Introductions
Vehicle Class Powertrain Fuel economy (est.)
2007 Edge CUV 3.5L 250hp V6 mid 20s highway
Shelby GT500 Mustang Sport coupe 5.4L 475 hp V8 n/a
2007 Lincoln MKX CUV 3.5L 250 hp V6 n/a
2007 Sport Trac SUT 4.0L 210hp V-6
4.6L, 292hp three-valve V8
n/a

Chrysler Group

The all-new 2007 Chrysler Aspen offers customers guilt-free indulgence. Loaded with premium features, stunning Chrysler design, fuel-saving MDS technology, standard safety features and best-in-class horsepower, torque and interior room, Chrysler Aspen offers more for less.

—Jeff Bell, Vice President, Chrysler

Chrysler Group NAIAS 2006 Concepts
Vehicle Class Powertrain Fuel economy (est.)
Chrysler Imperial Sedan 5.7L Hemi 340hp V8 n/a
Dodge Challenger Sedan 6.1L Hemi 425hp V8 n/a
Jeep BLUETEC SUV 3.0L CRD Diesel with BLUETEC system n/a
 
Chrysler NAIAS 2006 Product Introductions
Vehicle Class Powertrain Fuel economy (est.)
2007 Jeep Wrangler SUV 3.8L 205hp V-6 n/a
2007 Jeep Compass SUV 2.4L 172hp World Engine w/ dVVT + CVT n/a
2007 Dodge Caliber Compact 1.8L 148hp
2.0L 158hp
2.4L 172hp World Engine w dVVT + CVT
n/a
Dodge Aspen Full-size SUV 4.7L 235 hp V8
5.7L 335hp HEMI V8 w/MDS
17 mpg 2WD
17 mpg 2WD

Toyota

As you know, there are many reasons why consumers are interested in a hybrid, not least of which includes the constantly fluctuating cost of fuel. But it is clear today, that hybrid technology has moved solidly into the mainstream especially among consumers who are environmentally aware, and want to make a difference for future generations.

But there is even more to it than that. What we have found is that owning a hybrid makes owners feel good about themselves. It’s the sheer delight of owning the latest high-tech advancement. It’s the gratification felt with fewer stops at the gas pump…and the lower cost for a fill-up. For Prius owners who are now into their second or third hybrid, it is the astounding re-sale value of their vehicles have maintained, and their industry-leading level of both customer satisfaction…and reliability.

In a phrase, hybrids are quickly establishing themselves as a critical factor in Pride of Ownership.

—Don Esmond, SVP Automotive Operations, Toyota Motor Sales

Toyota Motor NAIAS 2006 Concepts
Vehicle Class Powertrain Fuel economy (est.)
F3R Minivan Hybrid n/a
 
Toyota Motor NAIAS 2006 Product Introductions
Vehicle Class Powertrain Fuel economy (est.)
2007 Camry Hybrid Sedan 2.4L I4 w/ Hybrid drive
192hp total
40 mpg
2007 FJ Cruiser SUV 4.0L 239hp V6 a/ VVT-i 19 mpg (4WD)
2007 Lexus 460 Sedan 4.6L 380hp V8 mid-20s

Honda Motor

Honda has always led the way in reducing emissions, advancing fuel economy and developing alternative fuel technologies... we have considered it as our responsibility to produce the most environmentally responsible products and technologies possible ... even as we satisfy our customers.

Now ... to further advance environmental conservation, I think the entire auto industry must think of “we”—not just “me.” Each company must take responsibility and action by continuing to improve every product.

Toward this end, I want to challenge the entire industry, including Honda, to further improve fuel efficiency. So, let’s enter a race together. A race for the benefit of all customers and the global environment.

—Takeo Fukui, President and CEO, Honda Motor
Honda Motor NAIAS 2006 Concepts
Vehicle Class Powertrain Fuel economy (est.)
Acura RDX SUV 2.3L turbo 240hp I4 i-VTEC n/a
 
Honda Motor NAIAS 2006 Product Introductions
Vehicle Class Powertrain Fuel economy (est.)
2007 Honda Fit Subcompact 1.5L 109hp I4 VTECl 34 mpg

Nissan Motor

Versa also embodies our commitment to the environment and improving fuel efficiency with the expanded use of Continuously Variable Transmissions.

Nissan remains the industry leader in CVTs, in experience, in units in operation, and in applications, with three separate CVT designs in production.

CVTs give customers smooth, responsive performance and a cost-effective way to improve fuel economy. For every one million CVTs in operation, we will deliver environmental benefits equal to 200,000 hybrids.

—Carlos Ghosn, President and CEO Nissan

Nissan Motor NAIAS 2006 Product Introductions
Vehicle Class Powertrain Fuel economy (est.)
2007 Nissan Sentra Compact 2.0L 135hp I4 + CVT 32 mpg
2007 Nissan Versa Sedan 1.8L 120hp I4 + CVT 38 mpg

Some of the disconnect between rhetoric and product for many automakers derives from their focus-group and market-data-driven segmentation of their customers.

In other words, as long as the buyers will line up—or the automakers think they will line up—to buy big and beefy as well as lean and green, the automakers will continue to pursue those segments.

Toyota, which by pushing ahead with the Prius when there wasn’t a good business case has become the standard bearer for hybrids, also has its FJ Cruiser, competing with the H3.

Even Honda, with the most aggressively green executive rhetoric, is not immune from the pull of the buyer. Its new Ridgeline Truck, named Truck of the Year at the show (and which sold 42,593 units in 2005), offers 18 mpg US combined—not a stunning testament to fuel economy.

Chrysler provides an excellent example of the mindset, simply because they were very upfront in their press materials about to whom they are targeting their three major production model introductions at the show.

  • Chrysler Aspen full-size SUV: Target demographics for the 2007 Chrysler Aspen include older families—baby boomers, 40–55 years old—with a median household income of approximately $100,000 per year.

  • Dodge Caliber: With the all-new Caliber, Dodge is targeting 20-something first-time new car buyers who earn a median income of $45,000. Thirty-five percent are college graduates. Dodge Caliber is also designed to appeal to forty-something parents buying a car for their children. These parents demand safety and consider the cost of ownership before buying a vehicle.

  • Jeep Compass: With the all-new Jeep Compass, Jeep is targeting single or recently married educated professionals in their early 20s to early 40s, who are independent and family-oriented. These buyers skew female and earn a median income of $60,000. Fifty percent are college educated. Upscale, fashionable and refined items fit their lifestyle. They want a sophisticated and modern vehicle that allows them to break from the routine, and Jeep Compass is designed and engineered to exceed those needs.

A problem with demographic profiles such as this—as useful as they have been proven to be—can be that a business can talk itself into a false understanding of its customers and the market. Nor will those profiles reflect adequately a rapid set of changes triggered by external events.

What the ever-quotable Lutz may characterize as schizophrenia is more likely the leading indicator—the first significant upwelling—of a major shift in market criteria.

As one result, what an automaker may internally characterize as great improvements in fuel economy may end up failing on the market because conditions have outraced the offering. And the products—even if incrementally better than what they replace—designed around an out-of-date set of customer profiles may find themselves lined up on dealer lots with no buyers.

January 13, 2006 in Conferences and other events, Market Background, Vehicle Manufacturers | Permalink | Comments (5) | TrackBack (0)

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Comments

Another problem with some of these comments is that they are not distinguishing between ecology and economy. There are (or will soon be) plenty of consumers who don't care a fig about being "green" but they do care very much about how much "green" they have in their wallets.

Companies need to offer a solution that will save customers money by providing a car which is inexpensive to operate in an era of increasing energy shortages. The post Katrina gas spike was just the first warning. Chances are we're going to be seeing this kind of thing more and more in the years ahead.

It's not a matter of protecting the environment and saving the butterflies or whatever. Most people aren't going to buy cars on that basis. Sure, you can sell a few to the tree huggers but I don't see a groundswell of environmentalism coming.

What is going to happen is that when gas goes back up, people are going to say that they don't want a 20 MPG car. They want 40 MPG or 60 MPG or even 80 MPG. Provide that in a car which is functional and affordable and you have a car for the 2010's and beyond. That's what companies should be working on now.

I agree with Hal.

Using focus groups to decide what to build is shortsighted and potentially disastrous for a vendor. What people say they 'want' in a product is driven by many factors, some of which may be ephemeral. I may want a 3000 square foot house. In fact I may think I *need* a 3000 sf house. But if heating costs triple and my income declines in real terms, I may suddenly want a more efficient 1500 sf house so I can afford to retire some day. Similarly with autos. Focus groups only give you a snapshot of consumer whims, not a very good indicator for product development if the world is changing faster than the focus group participants and vendor realizes.

The auto companies that survive and thrive will be the visionaries, able to envision the needs of future auto buyers living in the world of the future, whatever that is.

While what the consumer wants is a function of current and perceived future energy prices, it is difficult for the auto companies to game this when there is so much uncertainty. Only the government can provide this certainty. Clarity could be achieved by instituting a gas or carbon tax that was scheduled to increase year by year and ensured high energy prices for the indefinite future. Fluctuating energy prices only gives people the illusion that increases are short term. As long as they believe that we are just in a cycle, they will tend to go for power and luxury at the expense of fuel economy.

Technology alone can not solve this problem. As we develop new technology, we tend to apply that to more performance. We can never have it all because we keep raising the bar on the definition of all. Twenty-five years ago, 0-60 in 7 seconds defined a very fast sports car like a Porsche. Now, we have giant trucks and SUVs that make that level of performance seem like a Yugo. We cannot win the fuel economy game because we are on a treadmill.

While there are visionary auto companies like Toyota, even Toyota hedges its bets and continues to bring out the the behomothic SUVs and trucks. Its vision right now seems to be apply most of the benefits of hybridization to performance over economy. That seems to be the correct vision as long as there is so much uncertainty as to future oil and gas prices.

One thing we can say, cars are evolving. In the 70's and 80's the pace of change was much slower. Looking at the article more inpressed with the changes GM will make and is making vs Ford and Chrysler. Honda and Toyota are clearly in the lead but I would not have imagined GM in the #3 spot for actually placing fuel economy advances. Basically Chrylser is the worst, no hybrids in production and nothing new comming soon. Ford does have the Escape and later will have the Fusion hybrid but the #'s are quite small.

Chrysler has put its money on clean high-efficiency diesels, Hampden, as an alternative to hybrids. Their BLUETEC engine line will offer mileages competitive with most hybrids while offering very low emissions that meet the world's most stringent standards. Considering the new ultra-low sulpher diesel standards in the U.S. and EU and the already established appeal of diesels in European markets, this isn't such a bad move.

Already you can get a diesel vehicle (VW offers a number even in the U.S. and more are coming soon, including many from Chrysler) that offers hybrid-like mileages for a fraction of the costs. We often focus a bit too much on hybrids and forget that there are other technologies that can accomplish much the same goals.

Besides, its not necessarily bad to see different companies focused in different directions. Nissan, for example, focused on continuously variable transmissions and was able to get their new Versa up to 38 mpg combined - only 2 mpg less than the new Toyota Camry hybrid's expected 40 mpg.

Eventually, all the innovations in different areas can really pay off when they get combined later on. Think about a clean-burning diesel hybrid with CVT, for example. I would bet you could easily see such a car getting 65-75 mpg.

BTW, Chrysler will be releasing hybrid powertrain vehicles for the 2008 model year including the same two-mode system GM envieled for their 2007 Chevy Tahoe which will appear in the Dodge Durango.

I just posted a full summary of the various 'green' offerings from all the major players at the Detroit Auto Show here. Check it out for more on what each of them are up to. There are some exciting cars in there (amongst a few duds and a bit more of the same old new full-size SUV crud).

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