BUSINESSWEEK ONLINE : AUGUST 14, 2000 ISSUE
SPECIAL REPORT

Q&A with Thomas Elliott
A talk with North American Honda's Thomas Elliott

Detroit's latest buzz is the jockeying between truck kingpins Ford Motor Co. and General Motors Corp. for bragging rights as America's most eco-friendly car company. Sure, both are scrambling to bring out gas-electric hybrid-powered cars and trucks, while racing to boost fuel economy of their thirstiest pickups and sport utilities. But so far, they're just playing catch-up to Japanese rivals, Toyota Motor Corp. and Honda Motor Co.

Honda has spearheaded the U.S. move to cleaner, more efficient cars, first by making its bread-and-butter Civics and Accords ultra-clean, then by being first to market with the next generation of eco-cars, the gas-electric hybrids. In January, Honda launched the Insight two-seater, whose 65-mile-per-gallon fuel economy beats any other vehicle on the road. Already, consumers have snapped up some 2,000 of the stylish Insights, prompting the company to double this year's sales goal to 8,000 cars. So far, its only rival for fuel-economy prowess is the just-introduced Toyota Prius, a five-seat compact.

Ultimately, hydrogen-powered engines are a good bet to take over American highways. But until that technology is perfected, cleaning up internal-combustion engines is the industry's goal. Hybrids, which use electric motors to enhance the power of small, fuel-efficient, gas-driven engines to match the performance of conventional cars, appear to be the best way to do that.

Thomas G. Elliott, executive vice-president of North American Honda, spoke with Business Week's David Welch about why hybrids will become more commonplace and what the future of cleaner, more efficient cars will look like. Edited excerpts of their conversation follow:

Q: Why hybrids and why now?
A:
We see the gas-electric hybrid in the near and medium term as the technology that could address environmental and fuel-economy concerns. Hybrids are the kind of car that most consumers can live with. The technology is almost transparent to them.

Q: Looking at your plans for future hybrids and those of Toyota, Ford, and GM, it seems hybrids could hit volumes of at least 100,000 a year by 2004. Is it realistic to think that the technology will catch on to sell such numbers?
A:
It sounds reasonable to me. Selling 100,000 as an industry is easily attained by 2004 and maybe exceeded.

Q: So does that mean we're in the age of the hybrid?
A:
I think we're right on the tip of it. You're going to see more versions coming.

Q: The Insight has been pretty successful, but critics call it an underpowered two-seater with limited market appeal. What's next?
A:
The Insight is a first step for Honda. It was done to look at all aspects. The new hybrid will come off the Civic platform in Japan next year and in the U.S. some time after that.

Q: Toyota plans to sell 12,000 units of the Prius in the first year. What kind of volume can you do with a more mainstream hybrid vehicle?
A:
Our next step will be significantly higher than that in terms of volume. Based on the acceptance of the Insight, there's greater growth potential. 20,000 is not an unreasonable number.

Q: You are losing money on this car. Can hybrid technology be sold profitably?
A:
If we do enough volume, it can be done at a profit.

Q: Do consumers care enough about fuel economy and the environment to really make hybrids mainstream?
A:
I don't think you can sell cars solely on environmental technology. If you're talking about mass-volume cars, you have to address the primary issues. We do feel that fuel economy and clean air will become more important.

Q: What kind of marketing buzz are you getting from these cars?
A:
If you want to differentiate yourself, one way to do it is with emissions and fuel economy. What Honda does in North America can be carried globally.

Q: I've heard that Honda's push to cast an image as the industry's technology leader is part of a larger plan to contest for top market share in the U.S. many decades from now. That sounds nice, but is it realistic?
A:
I've been here for 30 years. Back then, we were selling 3,000 cars. Now, we're selling 1.1 million. I do think Honda has the potential of becoming one of the top three sellers in the U.S.



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