Missing the hybrid moment

Fixated on an elusive hydrogen future, Detroit carmakers are letting Japan waltz in and grab a market that could explode.

By Scott Kirsner

Dec 1, 2004 | An invitation to visit General Motors' main R&D facility, just north of Detroit, is like being given a ticket back to a mid-1950s World's Fair. The General Motors Technical Center, as it is called, was designed by the architect Eero Saarinen -- who would later collaborate on the IBM pavilion at the 1964 World's Fair in New York. Saarinen's research campus for GM features a stainless-steel water tower that resembles a spacecraft ready for liftoff, stately rectangular reflecting pools punctuated by fountains, a 65-foot-tall dome, and sprawling, low, International Style office buildings. All that's missing as I park my rental car is the surging, glockenspiel-heavy "World of Tomorrow" soundtrack.

I'd come to talk to some of General Motors' top research executives about the company's investment in hydrogen fuel cell technology. (GM has been touting hydrogen as the fuel of the future and showing off a concept car called the Hy-wire.) But I ended up surprised at the swipes GM executives took at Honda's and Toyota's success with hybrid vehicles. They accused the two Japanese carmakers of selling their hybrids at a loss to generate positive environmental buzz, and argued that hybrids appeal only to a microscopic subsegment of U.S. consumers.

"You always have your early adopters," said Alan Taub, GM's executive director for R&D, about today's hybrid buyers. "Toyota sells as many Priuses as we sell Pontiac Aztecs. Is that a success?" Earlier this year, at the Detroit International Auto Show, Bob Lutz, GM's vice chairman of product development, had said that the company's decision not to make a hybrid car "was a mistake from one aspect, and that's public relations and catering to the environmental movement."

It is true: Hybrids -- vehicles that improve gas mileage by pairing internal combustion engines with batteries and electric motors, and recapturing some of the energy that is usually lost in braking -- represent only a tiny sliver of cars sold in the United States this year. For 2004, they'll account for about 0.52 percent of total sales, or 88,000 vehicles, according to Anthony Pratt, an analyst at JD Power and Associates. But is that a sign of a weak market, or merely the thin end of a wedge that could quickly become very, very large? Toyota recently announced that it will double the number of Priuses that it allocates to the United States next year, from 50,000 to 100,000, and Honda will introduce its third hybrid model this month, the first hybrid version of its popular Accord sedan. Pratt expects hybrids to account for 1.3 percent of all car sales in the United States next year, and other industry observers say that Toyota could surpass General Motors as the world's biggest automaker by 2006, partly on the strength of its hybrids.

As for the question of whether the Japanese carmarkers are selling their hybrids at a loss, just to look good for P.R. purposes -- well, the closer one looks, the less that seems to be true. Instead, Japanese carmakers appear to making the kind of front-end investments that pay off in the long run, with market share and eventual profits.

GM is not alone in its hybrid disdain. Its Detroit rivals have been similarly slow to warm up to hybrids. DaimlerChrysler, which is more interested in cleaner diesel engines than hybrids, did announce plans to produce a hybrid version of its Dodge Durango SUV by 2003, but that vehicle has apparently gotten lost on the way to dealerships. The introduction of Ford's first hybrid, the Escape SUV, was delayed from 2003 to 2004. General Motors aims to be the first company to profitably sell a million hydrogen vehicles -- "we measure success when it has six zeroes behind it," Taub told me. But the company has so far introduced only two "mild hybrid" pickup trucks, which improve gas mileage by about 10 to 15 percent, in a few scattered markets. (By comparison, Ford's hybrid Escape drives nearly twice as far as the traditional Escape on a gallon of gas.)

Back in the 1970s, the Big 3 carmakers watched in dismay as Japanese imports carved a huge swathe through their traditional markets. Is history about to repeat itself? Is Detroit missing out on a major shift in technology -- and car-buyer psychology -- by committing only grudgingly to hybrid vehicles? By betting big on the ever-elusive technologies of tomorrow, like hydrogen, carmakers such as GM may be letting the present slip away.

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