Monday, May 02, 2005

When George Santayana and Yogi Berra meet in Detroit--UPDATED 5.8

The dumb get promoted and GM gets its clocks cleaned
May 2, 2005

A man named Charles Wilson once said, "what was good for General Motors was good for the U.S.A." He was chairman of GM at the time, and GM then was the largest, richest, most powerful corporation in the world. He was probably correct. Those times are long gone and GM is the kind of laughing stock they spend hours examining at business schools, listed in the syllabus as "How Not To Run a Corporation." The fun part of it all is that you can quote Santayana (about those who do not pay enough attention to history) or Yogi Berra (“it’s déjà vu all over again”) to explain it all. The men running GM are technologically clueless.

Their doom comes from hybrid cars. At the moment, Toyota is cleaning GM’s clocks. GM has insisted for half a decade that hybrid technology has no future in automobiles and that hybrid cars would never make good family vehicles. This is something of a surprise to my family. The car you see above is my 2002 Toyota Prius, which just passed 35,000 miles—as a family car.

Meanwhile, hybrid cars, mostly the Prius, have increased sales volume by almost 1000% in the last five years. (I counted the zeroes—they are correct). Toyota still is unable to build them fast enough; wait lists persist, sometimes several months, and USA Today reported that used Priii [Priuses?]now sell for $3,000 more than they did when they were new. They appreciated when they were driven off the lot. Blame rising gas prices, of course, but the car is far more than that technologically. It is indeed the most technologically advanced auto in the world. Don't tell GM.

Toyota is now seven years ahead of GM and the American manufacturers in gas-electric hybrid technology. (Ford is selling a small SUV Escape with hybrid drive but they licensed it from Toyota, having no research program of their own.) GM has used every excuse imaginable besides dissing the technology, to avoid research, a throwback to the 1970s when they ignored the Japanese for the first time. Joseph J. Romm, acting assistant secretary of energy in 1997, wrote what happened in the 1990s, when gas prices were low.
…The Energy Department partnered with GM, Ford and Chrysler to speed the introduction of hybrid gasoline-electric vehicles. Ironically, the main result was to motivate the Japanese car companies to develop and introduce their own hybrids. GM walked away from hybrids as soon as it could - when the Bush administration came in.

The result: GM, which had a technological lead in electric drives, let its No. 1 competitor, Toyota, achieve a stunning seven-year head start in what will likely be this century's primary drive train. GM was publicly criticizing hybrids as late as January 2004, and only recently announced a half-hearted effort to match Toyota. This miscalculation will be regarded as one of the biggest blunders in auto industry history.

GM stubbornly pursues hydrogen cars as its vehicle of the future, but such cars require multiple scientific breakthroughs and massive government subsides. They would reduce the freedom of American drivers by keeping them tethered to a small number of fueling stations dispensing expensive hydrogen fuel. Most independent analysts believe these cars are decades away.

Meanwhile, Toyota invested hundreds of millions of dollars in the technology, first with a Prius sold in Japan as a city car, then with the second generation (mine), for export, and now a snazzy sport-car like vehicle that you need to stand in line to buy. The resale price of my Toyota went down predictably when I bought it, leveled off last summer and is now rising. Rising, I tell you.

High gas prices are one good reason. To no one’s surprise, engineers love the Prius and many of them spend a great deal of time on the Prius news group on Yahoo where they discuss the cars the way people discuss religion. One of them figured out that the Prius starts paying for itself if gas prices exceed $2.17. That makes up for the additional price (about $2,500) you pay extra for the technology in a car that size. We are at $2.29 around here. In other words, my car is now paying for itself. The car also is a SULEV, meaning it produces virtually no pollution except for whatever is being blown off the tires when it drives. The smugness one can achieve driving a Prius is priceless.

(Side note: the passion people have for their Priuses—USA Today says the cars have reached iconic status—reminds me of the Apple Macintosh with its intensity. I’d love to do a survey to see how many Prius owners also own Macs. Like me.)

The technology is not simple; Toyota has more than 200 patents on it. I get an average of 42-mpg driving around the suburbs. If I lived downtown, it would be 50. I get a highway mileage in the high 40s. My family and I drive to the Berkshires every summer, 400 miles, on less than $20 in gas and when I worked downtown, I got to work on several tablepoonfuls. Literally.

The car is the size of a Corolla blessed with an amazing turn ratio, meaning I can get into parking spaces that would leave you breathless. It has a dynamite sound system, and all the things you want in a car including air bags front and side, and the GM people to the contrary, is perfectly comfortable, with reasonable trunk space and good seats. Being a Toyota (and being virtually handmade in Japan) it has yet to see the inside of the repair shop for anything besides service. Smug? Bless me.

Toyota has just moved the technology into its SUVs and the Lexus line. [See the inside cover of this week's New Yorker.] GM, still clueless, is losing billions every quarter and is busy dumping ancient trademarks like Oldsmobile as its stock sinks beneath the muck. Romm predicts Toyota to eventually replace GM as the largest car company in the world.

Both GM and Ford, which have bet heavily on SUVs, show a remarkable decline in business. According to the New York Times:
General Motors has long maintained that gas prices do not affect how consumers approach buying a car or truck. But on Tuesday, G.M.'s chief industry sales analyst, Paul Ballew, appeared to retreat somewhat from that position, saying that record gas prices were likely playing some role in falling S.U.V. sales.

"It's probably impacting a bit on the margin," Mr. Ballew said. Pointing to G.M.'s improved large truck sales, he added a caveat: "People want to quickly say large utility sales are down because of gas prices, and that is just not the cause-and-effect relationship that we can find." [Do you wonder how guys like that get promoted to high-paying jobs?]

By contrast, Ford's top sales analyst, George Pipas, said Tuesday that record gas prices were directly responsible for a sharp decline in the number of S.U.V.'s that Ford sold in April.

Toyota pointed to the surge in sales of its gas-electric hybrid, the Prius, and other more fuel-efficient models as the major reason for its strong performance in April.
UPDATE--On May 5, Standard and Poors downgraded Ford and GM bonds to junk bond status.
UPDATE-On May 6, my Prius was sideswiped by a truck in Baltimore making a left turn from the right lane. It is going in for several thousand dollars body work--probably two new doors. It's my first accident of any note in more than 30 years. I'm bummed.

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