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It's Not the Greens, It's the Greenbacks

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  • Charles C. Primas
    It s Not the Greens, It s the Greenbacks By Warren Brown Sunday, June 8, 2008; G02 http://www.washingtonpost.com/wp-dyn/content/article/2008/06/05/AR2008060502
    Message 1 of 1 , Jun 9, 2008
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      It's Not the Greens, It's the Greenbacks

      By Warren Brown
      Sunday, June 8, 2008; G02


      U.S. auto executives are crunching numbers, trying to figure out which
      trucks to keep and which to junk. Their counterparts in Europe and Asia are
      reviewing product plans, looking at the possibility that North America might
      now be hospitable to micro-cars that have long been popular overseas.

      The global car industry is topsy-turvy. Fuel conservation is in. Horsepower
      for the sake of horsepower is out -- at least, for most of us.

      It is the world Hummer-haters said they wanted. It is the one for which
      legions of environmentalists and believers in the corrective powers of
      regulation lobbied. But here's suggesting that they had little to do with
      the current situation.

      When it comes to change in a capital-intensive industry such as the car
      business, money talks, and politics walks. And money, particularly the
      increasingly large amounts spent by consumers on motor fuels, has been
      talking loudly lately. It has turned into a bully, pushing automobile
      executives to cancel some products in favor of others.

      Here's the deal:

      Conventional wisdom about the way automobile companies think and work is
      wrong. Car companies are not wedded to any given products, not betrothed to
      any sacred strategies.

      General Motors
      tid=informline> , Ford and Chrysler
      formline> are not truck companies, as they often have been portrayed in the
      media. Toyota
      d=informline> and Honda
      formline> are not environmental enterprises.

      GM, Ford and Chrysler will make and sell small, fuel-efficient cars if they
      think they can do so profitably. The proof is that GM and Ford have been
      doing exactly that for years in foreign markets. One of the best-selling
      cars in Russia today is the little Ford Focus

      Toyota will sell gas-guzzling trucks, and Honda will sell sport-utility
      vehicles, whenever and wherever they think they can sell them profitably --
      in the United States, for example, where Toyota until recently has been
      pushing its massive Tundra pickup truck
      e> and where Honda until recently has been celebrating strong sales of its
      Acura MDX and Honda Pilot SUVs.

      Toyota and Honda are small-car experts by default, because their home
      markets, long beset by fuel-supply and pricing woes, have always demanded
      fuel-efficient models.

      They have, therefore, a temporary advantage over GM, Ford and Chrysler in
      the current market shift from trucks to cars. But "temporary" means just
      that. Domestic car companies are adjusting to fuel-price-induced changes
      much more quickly than vehicle sales numbers or media reports indicate.

      GM, for example, is dropping the Hummer H2 SUV
      <http://www.washingtonpost.com/ac2/related/topic/Hummer+H2?tid=informline> ,
      just as it jettisoned its original Hummer, the H1, in 2006.

      The GM-Hummer relationship was never meant to be permanent. It was a
      marriage of convenience, sustainable only as long as it remained profitable.
      GM executives now are examining the prenuptial clause of that agreement,
      trying to determine whether they should drop Hummer altogether, or keep it
      with a smaller, more fuel-efficient group of products. What will happen
      depends on what can be sustained profitably -- and what can be done with the
      least amount of harm to GM's Cadillac dealers, some of whom have invested
      millions of dollars to turn their dealerships into Cadillac/Hummer
      superstores, GM sources said last week.

      What is certain is that GM will sell more small cars in the U.S. market,
      including models obtained from its foreign subsidiaries, such as Opel
      > in Europe, and those built in North America. Ford is employing a similar
      strategy, pulling in models such as its little Fiesta from overseas and
      planning to build more fuel-efficient cars at its North American plants.
      Chrysler, according to Robert Nardelli
      > , the company's chief executive officer, will partner in the development
      and acquisition of more fuel-efficient cars.

      Nardelli offered no specifics on that prospect in a recent interview. But
      for several months now, Chrysler has been flirting with Nissan
      nformline> with an eye toward procuring more small cars.

      It's all about the money -- what consumers are willing to pay for in what
      markets for what reason. Thanks to high fuel prices, the chance to make
      money selling small cars in the United States is beginning to look good for
      a variety of players, including Italy's Fiat Group
      <http://www.washingtonpost.com/ac2/related/topic/Fiat+SpA?tid=informline> ,
      which is studying the possibility of manufacturing small cars in the United
      States beginning in 2010.

      None of this means that all big trucks and SUVs will disappear. Many people
      need trucks. As long as they need them, there will be companies to design,
      develop, manufacture and sell them, albeit with more fuel-efficient engines
      and transmissions.

      Nor does any of this portend an end to supercars manufactured by companies
      such as Lamborghini
      ing+SpA?tid=informline> or Ferrari. Remember, money talks. People with lots
      of money often enjoy speaking loudly. As long as they are willing to do it
      in a Lamborghini or Ferrari, those companies will be around to serve them.

      None of this is rocket science. It isn't philosophical. The car companies
      will give consumers whatever they are willing to pay for. Right now, the
      companies are betting that high fuel prices are here for the long term and
      that many consumers are willing to pay more to get more mileage out of a
      tank of gas. It's just that simple -- really.


      -Charles C. Primas

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