Schizophrenia On Wheels
January 17, 2000
By Diane Katz and Henry Payne
Copyright 2000 The Wall Street Journal

DETROIT - Opening this week is the annual North American International Auto Show, a $200-million spectacle of new models and concept vehicles that will draw 800,000 car-loving consumers and 6,400 journalists from 61 countries. So why are automakers rolling out models that no one would want to buy?

From Ford Motor Co., for example, comes TH!NK - the industry's first "environmental mobility" nameplate consisting of a $27,000, two-seat electric car with a 50-mile battery range; a two-speed modified golf cart (with cup holders); and a 24-volt bicycle that company officials swear will scale a San Francisco hill on a single charge. (Teddy Roosevelt was president the last time bicycles were featured in a Detroit show.)

General Motors Corp. is offering two versions of its Precept sedan - a diesel-electric hybrid and a fuel-cell model that reportedly ranks as the costliest car ever produced. And Toyota is showing its Prius hybrid that currently sells in Japan - with the help of a $3,000 government subsidy.

As much attention is lavished on these and other eco-friendly contraptions, automakers haven't lost sight of the products that drove auto sales to a record 16.95 million in 1999 - powerful and roomy SUVs, light trucks and minivans that now comprise nearly half of all new vehicle sales. Indeed, auto show spectators are flocking to big, new offerings: Ford's three-ton Equator and two redesigns of the Explorer, GM's crossover Avalanche and a new 7,000-lb., 6.5-liter turbo-diesel Humvee-1, and Toyota's jumbo V8 Sequoia (the company's first full-size sport utility), and more. For every eco-car the Big Three has headlined, they have rolled out at least three more SUV-class vehicles.

But this startling contrast in offerings exposes the degree to which the auto industry now is catering, disturbingly so, to two distinct constituencies - the consumer market, of course, but also environmental bureaucrats for whom fundamentals like functionality, affordability and profits matter not.

Convinced that the internal combustion engine is responsible for catastrophic global warming, environmentalists and their government allies abhor consumers' preference for fast cars and big trucks. Rather than fight the fearmongers, automakers are playing along. Billions of dollars annually are being invested in industry/government consortiums like the Partnership for a New Generation of Vehicles to prevent a phantom threat - and to produce vehicles that consumers ignore.

But appeasement merely emboldens regulators to demand ever more costly concessions. Some 98 percent of auto emissions have been eliminated in the past three decades, yet automakers now face crippling fines unless they fulfill sales quotas of zero-emission vehicles in some of the nation's biggest markets, including California and New York. Deepening the dishonesty is the fact that such quotas will have a negligible effect on CO2 emissions.

Issuing such mandates is both politically expedient and cowardly. Under intense pressure to comply with more stringent federal air quality standards, the nation's governors, Democrats and Republicans alike, are desperate to avoid imposing costs on homegrown businesses. Likewise, any attempt to curb fossil fuel consumption through tax hikes would provoke consumer protest. Automakers are a far more convenient and, unfortunately, all too willing target.

`Foreign journalists and suppliers attending the show are somewhat baffled by what they are witnessing. "Clearly the U.S. government has not learned the lesson," said one German engineer with BMW in Germany, where government levies have driven gas prices to $4-a-gallon. "If you want efficient cars, raise gas taxes."

But the automotive mandates do constitute a huge, though hidden, environmental tax. Sticker prices across the fleet must absorb the cost of discounts and incentives necessary to actually sell plastic cars with no rear seat. And ignoring market signals drains shareholder value. GM, for example, invested more than $350 million in its EV1 electric before quietly announcing last week it would discontinue production for lack of consumer interest. They couldn't give the things away.

William Clay Ford Jr. boasts that his company now spends half its R&D budget on low-emissions vehicles. But it is unlikely that automakers would be collaborating on development of fuel cells and hybrids if there was any hint of consumer demand for vehicles that need to be plugged into the wall every 50 miles for an eight-hour recharge.

All the new technology undoubtedly holds some promise. But mandates, by their nature, standardize outcomes whereas market forces generally propel more useful innovations far more efficiently. For example, among the most popular items in this year's show are autos equipped with Internet features that required no federal mandate to develop. Who knows what other advances might be forthcoming if automakers were free to direct investments where the market leads them. Nor are the trade-offs sufficiently considered. The downsizing necessary to achieve fuel savings is a direct sacrifice of safety, while the lack of refueling infrastructure makes ownership extremely inconvenient.

Consider what occurred this fall when Autoweek magazine took a Toyota Prius up to New Hampshire to mark the centennial of the first car (steam-powered) to climb 6,000-ft. Mt. Washington - and to see how far alternate fuel cars had come. Just two miles up the mountain's steep 7.6 mile road, the Prius had to stop to recharge its batteries. Yet while Toyota can barely meet demand for its new sport utility vehicles, company officials are determined to bring the Prius to the U.S. market this year to demonstrate their green pedigree.

It is no accident that the new "environmental mobility" is gaining the most ground in socialist economies. The Norwegian government provides a $5,000 subsidy for each TH!NK purchased, and Ford hopes to expand the line to Vietnam and China, where the government would underwrite a costly network of refueling stations. Congress earlier rebuffed President Bill Clinton's proposal for a $3,000 subsidy to buyers of zero-emission vehicles, but Ford and other automakers have not lost all hope. Dodge, for example, is demanding a federal subsidy to market its hybrid Durango. Meanwhile, millions of consumers are shelling out $30,000, $40,000 or even more for conventional vehicles they actually want to drive.