The Wall Street Journal recently carried an interview with GM’s Bob Lutz that was interesting. One of his comments was on whether people are willing to pay more for cars labeled green. Lutz’s take on it is that for most people, it’s the economics that determine their car buying habits.
ROBERT A. LUTZ: What we’re seeing is there is a portion, a very narrow portion of the population, that will make a financial sacrifice to be green. But I don’t think we can count on the majority of the American public to make a financial sacrifice, or make an uneconomic decision. So I think even as gasoline goes to $4 a gallon, you’re still going to see people doing the calculation. How much more do I have to pay for a hybrid system? Most people, not the ecologically committed, but most normal people are going to take a look at how much more am I paying for this fuel-saving technology and will I be able to amortize it over the life of the vehicle?
Where we’re seeing we have reached the pain threshold is with the Duramax diesel engine, in the full-size pickup trucks. To meet the latest emission regulations, we are now forced to charge $11,000 for the diesel option, and that is putting a kink in diesel sales, and a lot of people are opting for the gas engine again.
To provide an economic incentive to people to buy these much higher-technology vehicles that are going to be required to meet the CAFE [Corporate Average Fuel Economy] mandates, the customer has to be put in the equation. That means that at some point, fuel prices have to rise. I think that without an economic incentive, we are not going to see a wholesale shift in demand of vehicles.
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Later on, he sheds some light on why GM is putting a lot of effort behind bioethanol. It still gets back to economics:
MR. LUTZ: We have the 35-mile-per-gallon standard, and General Motors obviously is confident that we can meet that standard technologically, but when you add a diesel engine plus a hybrid, you are adding thousands of dollars of cost.
Ever since CAFE legislation has been in effect, General Motors has improved the efficiency of its truck fleet by 60%, the fuel efficiency of its passenger-car fleet by 100%, and fuel use in the United States has done nothing but go up. So the idea that by legislating 35 miles per gallon, we’re somehow going to use less fuel, it would be the first time that it ever worked, because it inevitably results in people taking their fuel budget and buying a larger car. That’s why if the customer is not in the equation in terms of feeling pain in the wallet from paying the fuel bill, it’s destined not to work.
Now, technology costs money, so what is a better way to get at the problem of getting the automobile out of the environmental equation, or at least out of the petroleum and CO2 equation? I think the only rational thing to do is put less technology in the car, which is the conversion to making cars E-85 capable, and burn E-85, which is a renewable fuel that could be done from biomass.
And if you can do that for $150 a car, as opposed to meeting a 35-mile-per-gallon standard at many thousands of dollars per car, which one do you pick? It’s not a question of passing the buck; it’s just look at what we have to do to the cars to attain CAFE, versus the much less we’d have to do to cars, with much less pain on the American driving public, if we had a concerted national E-85 effort.
