White House emissaries are, for the first time, “beginning to understand the auto industry.”
At a private meeting this week, I was privileged to hear what I think is a balanced view of the domestic auto industry’s current situation and an astute outlook for the foreseeable future.
The speaker was Dr. David E. Cole, engineering professor emeritus from the University of Michigan and chairman of Ann Arbor’s Center for Automotive Research (CAR). Industry, academia, government and media have long recognized Cole for his intimate knowledge of the auto industry and his balanced views of it.
This is not surprising, since before earning three degrees in mechanical engineering, he grew up in the industry as son of the legendary Edward N. Cole, president of General Motors and lead developer of both the small block Chevy V-8 engine of 1955 and the radical rear-engined Corvair of 1960.
First, let’s dispense with the false rumor going around the internet this summer alleging that representatives of President Obama’s automotive team had met with Cole and proposed repealing the “laws of physics” which interfered with environmentalist goals for cars. He’s never met with any of the Obama team, he reported, and the rumor is a distorted version of a meeting Cole had several years ago with a couple of Congressmen who questioned the Second Law of Thermodynamics.
Inside Scoop!
On the whole, like GM’s Bob Lutz, Cole feels White House automotive emissaries are, for the first time, “beginning to understand the auto industry.” “They’re not at the grad school level yet,” he commented, “it’s more like third or fourth grade, but they’re learning.”
Moreover, he stated that this new attitude is a radical change for an American government, regardless of party in power, which has stood out in the entire world for its ignorance of the manufacturing economy. The change is expected to benefit Detroit in the future with a deep understanding comparable to, say, that which Japan’s Ministry of Technology and Industry (MITI) possesses. We will have to wait and see if this actually happens, of course.
Optimist Cole believes that Detroit, at least Ford and General Motors and their suppliers, is perched on the edge of very profitable years ahead. He attributes this to several factors:
(1) Detroit has reduced its annual production capacity by a whopping five million units;
(2) Regardless of whether Ford gets more givebacks from the UAW on legacy costs, Detroit’s costs now are comparable to those of the non- union transplants;
(3) Japanese costs have increased because of unfavorable Yen valuation changes relative to the Dollar;
(4) Domestic demand inevitably will rise due to both high scrappage rates and growing population (one million new households equals two million new drivers), and
(5) Consumer incentives are on their way out, except for traditional end-of-model-year clearances.
Thus he expects that in 13 to 14-million sales years, Detroit ought to be extremely profitable. Breakeven is down to 10 to 11 million, he noted, and even though it may take years to get back to 16-17 million years, it doesn’t have to reach that high for Detroit companies to prosper.
There are two possible downsides, however, he observed. First, Chrysler still is not in a strong position and might not survive and, second, Ford owes perhaps as much as $40 billion with a high debt service load that it must reduce to aid profitability.
Thoughtless or shortsighted fuel economy regulations and lack of a national energy policy also present challenges to the industry, Cole speculated. Much of the current new regulatory rules came forth when gas was $4-5 a gallon; now it is down to $2.50 and has been as low as $1.50 in the last year. So customers are not as concerned with “gas guzzlers” as they used to be. “No one knows what oil prices will be,” he stated.
However, from a technical point of view, the domestic auto industry now sees solutions to high mileage regulatory demands, he reported. Lithium batteries for hybrids or all-electrics, though extremely costly, work but they are in the early stages of development. Likewise, non-food biofuel now looks promising. Would these developments cause OPEC to drop the price of oil significantly, Cole pondered, and if so, how would that affect the huge investments being made in alternate energy sources?
He said the present U. S. electrical grid has the capacity to charge 40 million electric or plug-in hybrid vehicles with off-peak power. The trick or challenge is storing power off-peak, which may be possible with industrial-scale lithium batteries, and using it for whatever purposes anytime, but the typical peak demand between 4 and 7 pm daily.
According to Cole, if giant lithium batteries could be used to store electricity generated by power companies the cost to “fuel” electric vehicles off-peak with this stored power would be less than 20 % that of gasoline per mile driven. Such giant storage batteries also would make wind, solar and hydropower more practical, now limited by unpredictable weather conditions.
Cole speculated that the onset of high cost lithium vehicle batteries— say $8,000 to $10,000 each—might result in their being leased to electric vehicle owners, separately from the price of vehicles themselves. Alternatively, they could result in very high residual values for vehicles equipped with such pricey batteries.
On the labor side, the head of CAR predicted that educational requirements for Big Three factory workers might require a minimum two-year community college level rather than just a high school diploma as in the recent past. On the other hand, he thinks there will be a shift away from offshore sourcing as Asian labor costs increase, provided the U. S. can provide the large and more educated domestic workforce needed as Boomers retire.
An interesting premise: Workers of the new auto industry will need advanced education. Isn’t the Ford Fusion, Dodge Ram, engines in Saturns, and every V-8 block used by GM and Ford (plus many more supposedly American parts and complete cars) being made in Mexico with high quality labor having an average education level of 6th grade?
Everything else David Cole says is pretty much on the mark, except for his obvious jaded-inflated view of the role of education in the modern manufacturing sector. But it’s completely understandable considering where he works, and the campus upon which his building sits.
Dr. Cole would have to respond to this particular, but I suspect he meant that the rationing of good job opportunities would give advantage to those with “associate” (2-year) degrees.
Along the same line of the interview, electric companies could be interested in lithium ion batteries much like those being developed for the Volt. This could lead to higher LiOn production, thus lowering the costs. Likewise, a depleted auto battery would still have useful life as a stationary battery. So you might see the battery bought by the electric utility, leased to the Volt buyer until its high-output status declines, whereupon the utility “buys it back” or ends the lease, taking possession of a battery that still has years of usage in a stationary mode.
I do not see the labor returning to America. The workers already screwed up in their greed and the companies who have outsourced will continue to outsource. The educational levels I do not really see increasing because of the sudden drop in wages which was very needed. It is not logical to lower wages and increase education required.
Also I highly doubt any major companies using large scale liON for storage of power. We loose energy going into them lowering efficiencies of our power plants and they are very detrimental to the envrionment to produce. That is what is wrong with tree huggers they don’t look at the whole picture.
We have higher costs, higher material usage, higher waste levels, and more detrimental manufacturing byproducts on top of power plant emmissions and transmission line loss to produce these electric and hyrbid cars and keep them on the road than drive the conventional ICE.
I only hope the gov’ and the politicians will not turn their blind eye to our manufacturing sector and the developement of our economy. We should all strip them of their wealth and power afterall the constitution was drafted for an uprising every 15 years.
Just take a look at the Toyota lithium ion plant in canada. NASA uses a 100 mile radius around the plant for rover testing and acid rain affects are felt hundred miles away. This is our green future BS. Not to mention that most of the refining is done in africa under poor conditions then shipped here. I hope the “environmentalist” will not be ignorant and realize the mistakes they are missing. We need to develope technology that has real promise. Leave it to the auto companies I think they are much more prepared and intelligent on car design and technology. After all you don’t see the environmentalist asking an engineer how to plant a tree or what or where to plant so why should the engineers and car companies listen to the environmentalists. I hope they get splinters.
Just a side comment the educational levels in mexico might be lower than the US but at least they show pride in their work. Can’t say that for the UAW.
Dr. Cole’s comment
“non-food biofuel now looks promising. Would these developments cause OPEC to drop the price of oil significantly, Cole pondered, and if so, how would that affect the huge investments being made in alternate energy sources?” and references the lack of a decent National Energy Policy”
So much effort is undertaken to make vehicles more efficient. Why not just implement a National Telecommuting Policy that makes Telecommuting mandatory for a portion of the 150 million US workers? By FCC count, we have over 60 million households already equipped with internet access.
What impact on oil consumption, prices and subsidies would 60 million “non-drivers” have? I bet gas would be 50 cents a gallon in no time!
In addition, $3 Billion in US tax dollars went mostly to non-US made vehicles under the Cash for Clunkers program.
We need to be more aware of our options before spending big bucks on companies whom elected to leave our shores, setup off shore accounts as tax havens and still have to pass the hat to stay afloat.
A $600 laptop and internet link beats a $40,000 lithium battery powered car. Just wait till we start having to subsidize Chile, Argentina and Brazil for Lithium. Not to mention, subsidies for petroleum, road construction and expansion and now Carbon Emissions.
Mike Cleary, there is a problem with commodity pricing that is rarely addressed in the discussion about batteries. Increasing demand of natural resources leads to higher prices because the raw materials become more expensive. The cost savings of manufacturing apply to the assembly process and — while not insignificant — demand for the materials can easily wipe out the manufacturing efficiencies. As it stands, we are looking at $10,000 battery packs – or the price of an economy car. And lithium is already in short supply.
Dr. Cole commented about commodity pricing in several ways in his remarks. First, he said that Detroit had been unable to recover its increased commodity costs with higher prices for ten years because of low cost transplant and import competition. Second, last summer, steel prices zoomed up and caused a new cost squeeze which in combination with frozen retail/wholesale/manufacturer credit, caused the tailspin last fall. Third, the $8-10,000 he quoted for cost of lithium batteries was the cost today in the very early stages of development; he expects the cost to be halved (i.e, down to $4-5,000) for batteries that would last ten years.
My personal observation is that if these super batteries really work as hoped it will be the first breakthrough in electric storage in at least a century. It is hard to imagine all the consequences of such a development. I’ll take Cole’s knowledgeable assessment as an indication we may as a nation and culture be at the “edge of something big.” On the other hand, in the past 50 years I have seen many promising technologies fizzle out. Remember automotive turbine engines?
>> in the past 50 years I have seen many promising technologies fizzle out. Remember automotive turbine engines?
The automotive turbine fizzled out, all right, and I know why. Indianapolis 500 auto races of the 1960s featured some turbine-powered cars. One almost won in 1967, stopped near the end by a failed bearing in the gearbox. Future competition by gas turbines at Indy was forestalled by a rules change that limited the total volume of combustion air intake. And who changed the rule? The embedded piston engine people changed the rule to preserve the investment they had in “their” technology.
The Indy people claim to support innovation. Nope, they don’t, unless it fits their template. Had they refined the GT technology in racing, who knows where it might have taken us?
Knowing what I know, I avoid the Indy crowd to this day.
JM