DETROIT – New fuel-economy regulations are forcingCorp. to rethink or outright cancel some product development plans, Vice Chairman Bob Lutz says.
But the industry veteran also tells journalists at the North American International Auto Show here the perception of GM vehicles among consumers has taken a favorable turn.
“The resistance to owning a GM car and the fear of, ‘How do I explain to my friends that I no longer drive an import,’ is starting to fade away,” Lutz says. “(It’s) not done, but we’re in much better shape than this time last year and in infinitely better shape than we were two or three years ago.”
He points to three particular products – the all-new Buick Enclave cross/utility vehicle and redesigned Chevrolet Malibu and Cadillac CTS midsize passenger cars. Lutz says dealers tell him the ’07 Enclave is drawing owners from a number of competing brands, including rivalMotor Corp.’s vaunted Lexus luxury marque.
“I talked with several dealers yesterday, and one is from South Carolina – not exactly a bastion of American car ownership, but they say on the Buick Enclave the No.1 trade is Lexus. (The dealer) says he’s never seen so many Lexus owners. Basically, a Buick dealership has never seen a Lexus owner before.”
GM estimates nearly 50% of Enclave sales are to owners of other brands, an impressive accomplishment given Buick’s rather stodgy reputation.
Lutz also reports encouraging feedback from buyers of the ’08 Chevy Malibu, extensively redesigned to challenge theCamry and Accord. The vehicle launched in October, and GM is running assembly lines at two plants to try and meet demand.
“The first couple weeks it was Chevy loyalists that were trading in their old Malibus, and now they are seeing everything – Japanese, German, it doesn’t matter,” Lutz says, adding that much the same can be said for the ’08 Cadillac CTS luxury sport sedan.
The redesigned CTS launched in August and, like the Malibu, inventories remain tight despite a brisk production schedule.
“It used to be we’d introduce something new and it would be hot for a couple weeks because we were rolling our own owners over,” Lutz says. “This time it is different.”
Also changing is GM’s approach to product planning in the wake of new federal rules calling for a 40% increase in the corporate average fuel economy standard to 35 mpg (6.7 L/100 km) by 2020. Although that bogey will differ slightly for each auto maker depending on its sales mix, Lutz says the regulations already are forcing GM to scrap some product plans.
For example, a new Northstar V-8 for Cadillac’s next fullsize sedan recently was shelved. “That cancellation was the direct result of the 35-mpg legislation,” Lutz says, adding the auto maker has no current plans for a new family of V-8s.
Instead, he says, consumers will see more 6- and 4-cyl. engines from GM with performance and efficiency enhancement such as variable-valve timing, direct injection, and turbocharging.
Lutz goes so far as to salute Detroit rivalMotor Co., which between 2008 and 2012 plans to put about 500,000 vehicles on the road with its EcoBoost turbocharged, direct-injection gasoline engine technology. Ford will employ the technology in both 4- and 6-cyl. applications.
“That is very useful technology,” he says, pointing to GM 4-cyl. engines that incorporate similar technology and are available in the Pontiac Solstice and Saturn Sky roadsters and upcoming Chevy HHR SS.
“What’s been V-8s will become V-6s; what’s been V-6s will become fours and so forth on down the line.”
Ward’s data shows signs of that trend already under way. Last year in the U.S., V-8 engines accounted for 7.1% of all car installations by domestic auto makers. That compares with 10.2% in 2006.
“I think V-8s will remain, but I don’t see much of anybody investing a ton of money into families of V-8s unless it’s a small specialty company,” Lutz says, predicting fullsize trucks will migrate to more diesel applications and fullsize SUVs will receive more V-6s.
“If you turbocharge, you can get the low-end torque. You can make a small V-6 behave like a large V-8. All it takes is money.”
But Lutz also confirms new CAFE rules likely have killed plans for a rear-wheel-drive Chevy Impala replacement, calling the car “unwise” considering the current regulatory climate.
“Any equivalent rear-wheel-drive car is inherently one mile per gallon (0.4 km/L) worse than a similarly sized front-wheel-drive car, just because of reduced frictional losses in the drivetrain,” he says. “So we are in the process of making a lot of decisions.”
Overall, Lutz does not anticipate a radical shift in vehicle mix as a result of CAFE. He says there will be fewer choices for consumers and prices will rise, because of the application of expensive technology and weight-saving materials such as aluminum and magnesium.
He says the costs to meet the 35 mpg and retain the vehicle-size spectrum offered today will be $6,000 per car on average, ranging up to $10,000 per unit in some of the more challenging cases.
A vociferous critic of the regulations, Lutz blames the ineffectiveness of CAFE on cheap gasoline. Since the regulation first was introduced in 1975 as a means of trimming U.S. dependency on foreign oil, petroleum consumption has increased while gasoline prices have remained relatively low. When prices do spike, American drivers complain but don’t change their buying habits, he says.
“We refuse to let the price of fuel rise gradually in the U.S.,” Lutz says, noting markedly higher gasoline prices in Europe have created a much smaller and more diesel-oriented vehicle fleet than in America.
“If we had for the last 15 years a gradual rise in federal fuel taxation of 15 cents a gallon per year, that would gradually put the customer in the equation. Every time people go into a new vehicle, they (would) think, ‘Hey, how much am I paying for gasoline? Is it perhaps time to go to a slightly smaller vehicle?’
“We could have, over time (and) without any federal fuel-economy regulation, used the market mechanism to gradually transition the American public into a vehicle mix that looks a lot more like Europe’s. But we won’t do that. We want to hang onto gasoline that is less than half the price of what other people are paying.”
Lutz is not alone in that assumption. ALLC economist estimates consumers won’t pay for more fuel-efficient vehicles until regular-grade gasoline reaches $13 per gallon, or more than four times today’s national average of $3.06. And U.S. Rep. John Dingell (D-MI), who helped write that original legislation, agrees.
“Were it not for CAFE, you would find the use of energy in this country, particularly petroleum, would be enormously higher than it is, so it has worked,” Dingell tells Ward’s. “But the price (of gasoline) has not gone up fast enough to induce a different behavior by the consumer.”