Auto Execs Hit Links, Talk Climate

Published August 13, 2008

Traverse City, Michigan - The Management Briefing Seminars, held every August in this resort community five hours northwest of Detroit, got their start as a way for auto industry executives to get in a few rounds of golf on the company dime. Forty-three years later, it’s a mix of “Davos for auto execs” and the ultimate networking forum for the beleaguered leaders of America’s largest industry.

But the golf element holds strong. The session entitled, “Energy, Efficiency, and Climate—What Role for Auto?” was held at the same time as the popular and overbooked golf tournament, and the audience was sparse. While regulations dealing with fuel economy, energy independence, and climate change are forcing wholesale—and very painful—change onto North American automakers, few attendees found it incongruous that golf-based networking took precedence over public policy issues.

The discussions were robust, with tones ranging from grudging acceptance to outright derision. Earlier, Mary Ann Wright, who ran Ford’s hybrid vehicle program and is now CEO of battery maker JCI-Saft, had summarized the views of many executives by saying, “The problem with government is that they’re ignorant, they need to be educated”—about the industry’s lead times, the massive cost of adopting new technologies, and what can realistically be expected from them.

The afternoon panelists spanned the gamut. Industry lobbying efforts were represented by Mike Stanton of the Association of International Auto Manufacturers, which represents automakers with elected officials and government bodies in Washington. He acknowledged frustration among both automakers and consumers at the lack of a coherent national energy policy. And he articulated the reality: Both presidential candidates advocate higher CAFE fuel economy standards, and California’s senators and representatives have huge power to set environmental policy. “What do we know?” he asked. “We know the new President will support climate-change legislation; that the EPA will support California’s ability to set its own emissions standards; that the states will act on climate change if the Feds don’t…and that it will be a bumpy ride for our industry.”

Next, John DeCicco, an Environmental Defense senior fellow, proposed his action plan for the auto industry. First, he said, carmakers must embrace the climate problem as their own, to lead the discussion; second, they should rethink policy prescriptions, focusing especially on bringing the fuels sector under a carbon cap; and finally, they must collaborate to find allies in other industries—perhaps agriculture—to shape regulations so that policies “for heartland industries aren’t set by a pincer movement from the coasts.”

After Beth Lowery, VP for energy and environmental policy, presented a familiar corporate summary of GM’s alt-fuel activities, she urged a greater government role. Among the company’s desires were promotion of energy diversity, setting a clear, attainable, single set of environmental rules (e.g., eliminating separate standards for California), and new consumer incentives, specifically for plug-in hybrids, by 2010 (when GM will introduce two such vehicles.)

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The always-amiable Amory Lovins of the Rocky Mountain Institute offered his plan for an ultra-light-weight SUV-sized vehicle called the Hypercar—in tones that suggested that anyone who didn’t understand its obvious advantages and ability to transform the global industry completely was…well, perhaps slightly slow.

And Honda’s John German took a contrarian tack, suggesting that most consumers are risk-averse in adopting new technologies, due to uncertainties over future fuel prices and the lifetime costs of those technologies. And he noted that the new CAFE regulations no longer regulate fuel economy, but instead the “maximum feasible” efficiency for each class of vehicle—so that each company’s fleet mix will have its own, sales-based mileage requirement. A shift to smaller cars, he pointed out, will actually raise each company’s required mileage. “The new CAFE regulations will be much more dramatic than the ‘35 mpg in 2020’ that we think of,” he warned.

Without listening closely, an environmentalist in the audience might have come away from the session thinking that some automakers view better fuel economy as just an expensive irritation.

But the reality is far more complex. The US industry is now under stress it has never before experienced. Whipsawed by shifts in consumer demand, waiting desperately for new products to emerge from three- to five-year development cycles, the former “Big Three” know they must change to survive.

They feel the costs to do so, however, are being exacerbated by elected officials who have little understanding of the capital costs or lead times required to make those changes. So they will change—but the structure of the resulting industry remains unclear. So does the size of the resulting carmakers, and whether their suppliers (virtually all of whom are being restructured, bought, merged, closed, or changed, whether in or out of bankruptcy) will survive at all.

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