TCS Daily

California emission mandates will force costly electric cars on an unwilling public.

By James K. Glassman - March 12, 2001 12:00 AM

Zero-Emission Vehicle Mandate Will Increase Pollution

The California zero-emission vehicle mandate will force costly battery-run electric cars on a public that doesn't want them, leaving older polluting cars on the road, Alliance of Automobile Manufacturers President Josephine Cooper tells TechCentralStation Host James K. Glassman. "It would be far better not to distract us from the work on the fuel cell by forcing one technology upon industry," she says, as fuel cells and hybrid cars offer better hope of efficiently cleaning the air. Meanwhile, automakers that use the Internet to buy parts and sell cars face regulatory hurdles, she notes. But she says, "The automakers when they get hold of new technology say, 'We want the consumer; we want to sell cars. So, let`s learn, let's look at it and let`s give the consumers what they want.' The business is very competitive and each company wants to sell cars."

Jim Glassman: Automakers face a mandate from the California Air Resources Board (CARB) that zero-emission vehicles make up 2 percent of their vehicle sales by 2004. General Motors has gone so far as to sue to overturn that mandate, yet even if they succeed the California Energy Commission seems committed to ZEV 25-mile-pe- hour electric vehicles for use in resorts and neighborhoods. Now, in light of California`s problems with electricity, do you think the state`s hyping electric vehicles is overblown?

Josephine Cooper: I think having participated in recent CARB hearings and sort of final decision sessions in zero-mission`s vehicles, their view is that continuing the push for zero-emission vehicles - for which electric vehicles remain the most likely candidates -- really makes sense from an environmental perspective. Their view seems to be that without the pressure of that zero-emission vehicle mandate, the auto companies would simply stop all their research and basically not continue the advanced technology work that is such an important part of what we`re doing today.

Glassman: Are they right?

Cooper: We believe that the competition in the industry to come up with the advanced technologies -- to be the company that comes up with the breakthrough technology -- is not going to disappear. Instead, it`s going to continue to escalate. And advanced technologies that are on the horizon probably afford a better solution than electric vehicles. There may be a place for some kinds of niche vehicles in that electric arena -- neighborhood vehicles or station vehicles or campus vehicles; whatever you call those smaller vehicles that are pretty small with a fairly limited range. And the zero-emission vehicle mandate in California that the staff has put together really includes an array of technology.

Glassman: When you talk about other technologies, are you talking about hybrid, which is electric plus?

Cooper: Yes, we`re talking about hybrids; you`re talking about alternative fuel vehicles; you`re talking about the fuel-cell technology that is really on the horizon, although that particularly technology is eight to 10 years away in terms of being on the road.

Glassman: There are some hybrids already on the road, though?

Cooper: There are. Honda and Toyota today have hybrid vehicles that are on the market. So the view from the automakers` perspective is that there are any number of those new advanced technologies that offer a lot of promise. For California, our view is that it would be far better not to distract us from the work on the fuel cell by forcing one technology upon the automakers.

Glassman: Could you just tell us a little bit more about hybrid or fuel cell technology so people will understand it?

Cooper: This is very simplistic because I am not an engineer, but what hybrid means is the technology combines a gasoline engine and battery technology. The battery provides the means of powering this vehicle when the vehicle is at idle and low speed. And then when the gasoline engine kicks in and the wheels move faster and faster, that then recharges the battery. So you really have sort of a dual-powered vehicle and that`s why they call it a hybrid.

Glassman: What about fuel cell? What does that mean?

Cooper: A fuel cell looks like a battery, but it uses hydrogen fuel to produce the electric current. And the dilemma there is how do you provide the hydrogen. Do you put a reformulator aboard the vehicle or do you have those at the gas station so that when you put the fuel in your tank it would be more like a gasoline-fueled vehicle? Fuel cells work by combining the hydrogen and the oxygen to produce electricity and water. And right now, because the fuel cells provide less than one volt each, you have to have rows of those fuel cells in order to produce enough electricity to make the motor run. So, we`re a long way away from having a technology that is really one you can rely on consistently. But to the driver it would be very similar to what you`re driving today.

Glassman: Is that important?

Cooper: The automakers have found that for a new technology to really resonant with the public it has to be very similar to what they drive today. The difference in the hybrid is almost indiscernible to the person driving the car because they still go to a gas station, albeit you get 450 miles to a tank of gasoline. But you don`t have to plug the vehicle in for recharge like you do an electric vehicle. And you wouldn`t have to have the means of creating and storing the hydrogen for the fuel cell. So, as the technologies evolve, the goal is really to make it easy for consumers to accept, easy for them to compare and to contrast to the current internal combustion engine.

Glassman: Your group has warned that the rules that California appears to want to promulgate will make the state just filled with old cars because of the high cost of meeting the new standards. How much would it cost consumers to buy electric vehicles if the mandate were maintained?

Cooper: As you know, we don`t talk about cost here at the alliance because of antitrust issues, but what the automakers essentially did is they wanted and needed to get a certain number. They had to manufacture a certain number of vehicles, and they wanted to get those vehicles to the marketplace. So in many cases they leased those vehicles or made them available at a cost that is substantially less than what they would cost if they were just simply put on the market in a normal marketing way. And the CARB admits that if you were to put a similar vehicle on the road to existing vehicles, the cost of an electric vehicle would be about $20,000-$22,000 more than a conventional car. For example, if you look at the EV1 (electric vehicle 1), which is the General Motors car, it would lease for about $450 a month, so you`re in the $20,000 range. But by CARB`s calculation, that vehicle probably would end up costing more like $40,000 to $42,000. And the question is this: Is the consumer in today`s market going to be willing to pay that price for a small vehicle with a limited range characteristics that are fairly different from an internal combustion engine?.

Glassman: Would there be cost savings as far as the fuel is concerned?

Cooper: Yeah, there`s some cost savings, but the difficulty is that if the consumer has an old car and are considering buying a new car, they`re probably going to opt for something that wouldn`t be an electric vehicle because of the cost. If the cost of vehicles in California does go up as a consequence of having to recover the cost of electric vehicles from sales of other vehicles in California, you are going to discourage people who have older cars from purchasing new cars. That`s why we say it`s going to keep the old cars that produce most of the pollution on the road

Glassman: So the idea would be that it wouldn`t just be the electric car costs that would go up, but that the costs for subsidizing sales of those vehicles would be spread over all new vehicles?

Cooper: I think the companies would have to individually say how they`re going to look at the costs of those vehicles and whether they would spread them across vehicles in California or spread them across the vehicles across the United States. And I don`t think they`ve made those facts available to us.

Glassman: On another issue, many states are trying to curb vehicle sales over the Internet directly from manufacturers. It would seem to me that the Internet is made for consumer-to-manufacturer kind of transactions, if that`s what consumers want. What does the alliance think about this kind of interference in e-commerce?

Cooper: I think the automakers are really looking at how to best provide consumers with what they really want. And I think e-commerce is a new way of doing business for all of us. From the automakers perspective, using the Internet does make sense. It affords consumers the information they`re looking for in terms of what is the price of a vehicle, what are the options I can get and that sort of stuff. It can help arm the consumer with the right kind of information to make an informed choice about what they want to buy.

Glassman: And what would that mean for dealers?

Cooper: There has been a lot of discussion about the role of the automakers and Internet sales versus the roles of the dealers. It may mean allowing automakers find the leads and then make them available to the dealers so the dealers can close the deals, put the vehicles in the hands of the consumers and then continue to service and do the warranty work on those vehicles. There`s always going to be a role in terms of the marketing and selling of cars for the dealers. I think there`s a misapprehension in some quarters about e-commerce that it is going to "cut the dealers out of the process." I think early in the process everybody was a little nervous and concerned about where it might lead and who might get cut out of the process. Automakers when they get hold of new technology say, "We want the consumer; we want to sell cars. So, let`s learn, let's look at it and let`s give the consumers what they want." The business is very competitive and each company wants to sell cars. But I think there always will be a substantial role for dealers.

Glassman: You have worked in Congress as well as the EPA, do you have any opinion what new Environmental Protection Agency Administrator Christine Todd Whitman will mean to your industry?

Cooper: Well, in some ways I think our industry is in very good shape in terms of environmental regulations as it relates to motor vehicles. As you know, in December of 1999, then Administrator Carol Browner put in place new vehicle emission standards that were a substantial step up for the auto industry. The new standards really push automobiles and light trucks, including SUVs (sport utility vehicles) to eventually meet the same emission standards, which is a huge, huge challenge for the industry. But we are in relatively good shape in terms of implementing these new regulations. We do, though, have some hazardous air standards for our plants that are in the formative stages. And I think, from our perspective, Administrator Whitman will be looking at how to make these regulatory programs work, with an eye to enhancing the role of the states for implementation as well as enforcement of those regulations. Our members view that as a positive because you're getting the people who are really regulating and enforcing those standards closer to implementation, where the rubber meets the road, so to speak.

Glassman: What about new documentation standards for safety problems?

Cooper: As you know, the Firestone situation last summer was the catalyst for the Congress taking up and setting in place new vehicle safety legislation, which calls for about 14 new regulations at the National Highway Traffic Safety Administration (NHTSA) in the Department of Transportation. And one of those is an early warning system that would require company's develop new reporting instruments for submissions to NHTSA and provide it with a lot more information about consumer and insurance claims, among other things. The goal is to spot earlier in the process whether there is a defect or safety issue that needs some attention. The companies want to provide meaningful data; at the same time, if the data requirements are very broad and not as focused as we think they need to be we'll be sending forklift trucks loaded with data over to NHTSA, and they simply don`t have the staff and the resources at present to go through that data and really make much hay out of it.

Glassman: Don't the companies themselves have an incentive to gather the data and react to them themselves?

Cooper: Absolutely. And they do that on a regular basis, and we work with NHTSA. The companies' view is that we want to find the trend and the issues; we want to find them early, and we want to find them ourselves. Information gathering and assessment and evaluation are an integral and a very important part of the companies' ongoing safety programs. And each of them has incredible data gathering, record keeping, analysis and investigative activities underway. Another part that NHTSA law is a regulation about providing information on foreign safety claims and recalls to NHTSA. The companies went in well before Congress acted on a voluntary basis and told NHTSA, "We're going to provide you with that data."

Glassman: Did this happen after Firestone's problems, including those overseas, became publicized?

Cooper: We went in after the Firestone issue was raised but well before the Congress put legislation in place.

Glassman: Kevin Hassett, an economist, and I wrote an article recently in the Industry Standard about the business-to-business market. There are antitrust restrictions on setting up a market, though, for such things as auto parts sales. Do you think that the parts and other markets where such business-to-business sales go on should be free of the kinds of restraints that are being put in them?

Cooper: Well, it is a new approach, a new process, and the relationship of the automakers and the suppliers is one that continues to evolve. I think as a consequence that the automakers want to try to anticipate concerns and problems and perhaps put things in place that might either mitigate, moderate or alleviate them before they become an issue.

Glassman: So this is not so mysterious to readers, what this amounts to is that the auto companies have voluntarily agreed not to coordinate or get together in making parts purchases through the web market they have helped create, Covisint.

Cooper: They can't. It's a matter of antitrust. I mean, it would be. They had to go through a lot of hoops in putting this exchange in place to overcome concerns about this being anti-competitive and a violation of antitrust. So, much of it, I am sure, is predicated on the fact that each of the automaker-dealer relationships is different and distinct. The auto companies would love to know what the pricing is for some of those relationships. But that is one of the reasons some of these things are put in place. We can't be in that milieu, even giving that perception. I think they have to be very cautious. So, you can see that the automakers are moving more and more into having the dealers and the suppliers take on more and more of putting the components more and more together. This is going to continue to grow, and I think the earlier in the process they can deal with these issues the better.

Glassman: Well, I've taken you beyond the 15 minutes. Thank you very much for your time.


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