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October 19, 2005

Quote of the Day

Michael Mandel

In today's Wall Street Journal, there was a quote from GM Vice Chairman Robert Lutz, taken from remarks he made earlier in 2005. The quote was

I'd say that Toyota scored a major coup with hybrids even though they didn't have a business case.

No business case, huh. Jeff Plungis of the Detroit News lays out the Lutzian analysis. In an piece on October 16, he writes

The nonbelievers - industry leaders such as GM's Bob Lutz, DaimlerChrysler's Dieter Zetsche and Nissan's Carlos Ghosn - think the business case for hybrids is far from proven, and that after the initial excitement dies down, there may not be enough car buyers out there to justify the added cost of what is essentially a second powertrain.

Yet hybrids are hot enough that no one wants to be left behind. Even the less-enthusiastic companies -- GM, DaimlerChrysler and BMW AG -- are speeding up their plans to get into the game.

What consumers might not realize is that buying a hybrid isn't a big money-saver. Various analysts estimate it can take up to 10 years for savings at the gas pump to equal the extra cash a hybrid costs.

Can you say the words, "disruptive technology", kiddies? The very definition of disruptive technology is that in the beginning it looks inferior to the existing technology.

But give the Japanese another 5 years to improve the production processes on the hybrids, and the tradeoffs may look a lot different.

01:07 PM

autos

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Once the price delta of hybrids collapses, then the equation will appear different. Furthermore, it will not even be caled 'hybrid' technology anymore, but will be a normal feature in many cars.

In other words, by 2012, it will be quite common for a family car with a 240 HP engine to give 35 mpg, and for a 125 HP compact car to give 50 mpg. That will just be considered normal, without mention of the word 'hybrid' at all.

Posted by: Kartik at October 19, 2005 03:42 PM

The worst thing is that buying a hybrid CAN save money - most of the assumptions in the referenced article come from a common set of talking points being spread by GM and their ilk:

1. that the batteries need replaced early, often, and expensively (Toyota warrants theirs for 100,000 miles and earlier Priuses went far longer with no apparent problems)

2. comparing the Prius to the Corolla, even though the Prius is a midsize (i.e. Camry-class) car, and yes, it really is that big

3. misrepresenting the facts on depreciation (used Priuses, even previous gen, are now one of the hottest used cars around - depreciation is less with this car than with any vehicle sold in non-trivial quantity).

Posted by: M1EK at October 19, 2005 03:44 PM

Couldn't have said it any better!

Posted by: Amethyst at October 19, 2005 04:13 PM

Really, part of what this all points out is the strong points of Japanese technology. They knew that hybrids had two power trains, and started out more expensive and less reliable. But then they just engineered the heck out of them until they improved the equation...and they are going to keep doing it.

Posted by: Mike Mandel at October 19, 2005 04:25 PM

We will see who is correct over the long term. Assumptions are too general to be applicable to a specific buyer. Some, those who drive a lot, may do much better, others, those who drive little, may do much worse. Most of the excitement may prove to be little more than fad, but one that may prove moderately long lived due to high oil prices for some time.

Posted by: Lord at October 20, 2005 03:42 PM


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