Whose bailout plan is best: Ford drops hydrogen while GM remains confused about ethanol

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"Whose bailout plan is best: Ford drops hydrogen while GM remains confused about ethanol"

The car companies have come back to DC begging for money. But this time they have put on the table serious restructuring plans. At first glance, Ford’s (here) appears to me sounder than GM’s (here). I’m interested in your opinions.

Assuming we believe they will do what they say, the reports reveal a fair amount about the company’s plans for cleaner car. Interestingly, Ford does not use the word “hydrogen” or “fuel cell” at all — a huge shift from even a year ago when briefings that I received from the car company suggested they were still enamored of “The car of the perpetual future.” For Ford, the future now seems to be electrons:

The next major step in Ford’s plan is to increase over time the volume of electrified vehicles, as battery costs improve and as the transition from Hybrids to Plug-in Hybrids to Battery Electric Vehicles occurs.

If Ford follows through with this vision, then they are likely to survive and thrive in the coming years, since electricity is the winning fuel (see “Why electricity is the only alternative fuel that can lead to energy independence“).

GM’s plan is not as sharp. First off, GM is still pushing its corn ethanol yellow-washing:

General Motors is also the world leader in flex fuel technologies, with over 3 million flex fuel-equipped vehicles on U.S. roads today. Flex fuels represent the fastest way for the United States to reduce its dependence on imported oil.

Uhh, no. Corn ethanol remains the worst energy policy idea of the past two decades with very limited potential to replace significantly more imported oil (see “The Fuel on the Hill — The Corn Supremacy” and “About those two studies dissing biofuels“). Meanwhile, scalable, affordable cellulosic ethanol is not right around the corner (see “Are biofuels a core climate solution?“).

GM continues to waste money on and brag about hydrogen cars:

General Motors will also continue to invest in hydrogen fuel cell technology, which –when commercially deployed — will reduce automobile emissions to non-polluting water vapor. Already, General Motors has deployed 90 Equinox compact SUVs in U.S. customer hands, in what constitutes the world’s largest demonstration fleet of hydrogen fuel cell vehicles.

As a result, it is difficult to know just how excited to get about this statement: “During the 2009-2012 Plan window, General Motors will invest approximately $2.9 billion in alternative fuel and advanced propulsion technologies.” How much is going to be flushed down the toilet on hydrogen cars aka “The Last Car You Would Ever Buy — Literally“?

Still, GM will be first to market with a serious plug in hybrid, the Chevy Volt, even if it is somewhat overdesigned with a 40-mile all electric range:

GM will launch the ground-breaking Chevrolet Volt in 2010. As indicated in Table 8, GM is investing over $750 million in the Volt and its propulsion system, prototypes of which are currently on test at GM’s Milford Proving Grounds. An extended-range electric vehicle, the Volt will deliver up to 40 miles on a single electric charge, well within the daily commute of approximately 80% of Americans. Volt represents a fundamental reinvention of the American automobile industry, creating new growth and environmentally-friendly/sustainable industries, and represents a giant step toward energy independence. No other car company has made such a commitment to the American people. It involves the development of advanced batteries, power electronics, systems integration and manufacturing methods. The company’s product plan includes additional vehicles utilizing Volt’s extended-range electric vehicle system and potentially, the assembly of battery packs in the United States.

And GM is starting to embrace the efficiency, even if all car companies should be forbidden from touting a cars mileage based on its highway performance:

General Motors today offers 20 models with 30 miles per gallon or more on the highway–more than any other manufacturer….

By 2012, GM will offer 15 hybrid models.

Ford has perhaps even shrewder plans:

Our plan also includes building on our competence in hybrid vehicles, as demonstrated by the industry-leading fuel economy of the Ford Escape and Ford Fusion hybrids. We are now developing our next generation full hybrid technology, which includes plug-in capability, for vehicles in 2012 and beyond. We are targeting a substantial increase in hybrid volume through a greater than 30% reduction in cost, installation of hybrid capability in global platforms and hybrid vehicles that are uniquely styled.

Cutting the cost of hybrids is crucial because that’s what Toyota and Honda plan (see “Hybrid production costs may drop two-thirds within 10 years“).

And Ford has advanced another essential strategy for medium-term survival:

Small Car Profitability. As part of our Plan, we will reverse the decades-long trend of losing money on the production of small cars in the United States. In order to accomplish this improvement in profitability, and secure our ability to continue to produce all types of vehicles in the U.S., we are taking the following actions:
• Increase global platform volume of Focus sized vehicles to over 2 million units
per year;
• Increase volume of Ford Focus cars to over 1 million units per year;
• Improve margins by:

  • improving revenues by making vehicles that are exciting in design, both exterior and interior, with class-leading fuel economy, safety performance, craftsmanship, and technology. The improvements across all Ford vehicles are improving customer perception of the Ford brand;
  • improving costs to competitive levels through reduced complexity and global purchasing scale; and

• Improve fixed costs through increased manufacturing and supply base capacity
utilization and sharing of engineering and tooling costs globally.

This is an especially important strategy because a return to high oil prices is inevitable — sooner rather than later. Detroit must figure out how to make money on smaller cars because we are certainly headed back toward $5 gasoline and higher over the next decade (see “Science/IEA: World oil crunch looming? Not if we can find six Saudi Arabias!“).

Bottom Line: Ford Motor company goes into bailout negotiations with a much healthier balance sheet. And based on their restructuring plans, I wouldn’t be surprised if Ford ends up more successful in the long term.

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27 Responses to Whose bailout plan is best: Ford drops hydrogen while GM remains confused about ethanol

  1. Mark Shapiro says:

    I am all for electric drive trains, whether BEV, HEV, or PHEV. But would the best single step be lighter weight vehicles, like carbon fiber?

    And wouldn’t a good place to start be with buses, trains, and taxis, which have heavier use cycles (and thus can recover the higher cost sooner)?

    Also, I still hold that all buses, with all their start-stop cycles, should be HEVs now.

  2. JCH says:

    With current battery technology, what is the driving range of a plug-in hybrid?

  3. Nink says:

    I am still confused why GM Can’t go back into production of the EV1. It’s not as if they have not produced an electric car before.

    Nink

    http://www.greenpolicy.ca/

  4. hapa says:

    i think we should get to see their living dead tax returns. after reading this CIBC thing,

    The past twenty or so years not only saw a housing bubble that was fuelled by easy access to credit on favourable terms, but it also applied to automobiles as well. During this period US vehicle sales reached a peak of over 20 million, and household car ownership rose from 1.9 vehicles per household in the early 1990s to 2.2 in 2007.

    bubbly loans. maybe the fed will buy them. why should poor widdle detroit have to suffer through the toxic repo-truck depreciation. how is it fair that someone who made a bad loan gets back a worthless asset in default. how is that fair. we should really do something about that unfairness.

    BTW the article starts on page 4 and it predicts a permanent contraction of our continent’s auto market because, you know, there won’t be gamble-loans lying around on the ground and except for credit, people would have gone broke years ago, especially single moms.

    A return to the early 1980s vehicle sales rate not only means right sizing Detroit for the new realities of the North American auto market, but it calls into question much of the proposed highway infrastructure spending now being contemplated by Washington to stimulate the economy.

    it does. beware “the lane-widening to nowhere.” robert reich called for a capital budget since there are so many targets we need to hit correctly with the stimulus plan.

    also, is there anything new in ford’s “small car profitability” plan?

    BTW GM can’t go bankrupt. if they do,

    You see, there are trillions of dollars in outstanding CDS contracts for the Big Three automakers, their suppliers and financing vehicles. A filing by GM is not only going to put the real economy into cardiac arrest but will also start a chain reaction meltdown in the CDS markets as other automakers, vendors and finance units like GMAC are also sucked into the quicksand of bankruptcy. You knew when the vendor insurers pulled back from GM a few weeks ago that the jig was up.

    anyway. 2009. hold on to your hats. “no credit? big problem.”

  5. charlie says:

    This is all two steps behind the dance. GM has fu*ked itself with talk of bankruptcy; their sales will never recover. It is time to liquidate and see what we can save. Ford may be saved, but with $1.50 gas for the next three years, all this stuff about efficiency needs to be tossed out the window.

  6. Barry says:

    I don’t think you can transform a major corporation purely with top down “newest latest plans”. You have to change the corporate culture.

    So far Ford seems to be doing the better than GM at that. For example, today the Ford CEO said:

    * all 2009 management bonus are cancelled
    * all 2009 merit increases for all North American salaried employees cancelled
    * he will work for $1 if Ford has to take any government bailout dollars
    * all corporate jets will be sold

    I worked for 10 years for a multinational corporation and these things matter a lot.

    Secondly, one car…even the Volt…isn’t going to save GM. Look at Toyota and the Prius. The Prius is amazingly successful. It has sold a million. Toyota has had the benefit of its excellent hybrid technology for more than a decade now. And still Toyota has been hammered in the North American market downturn. That’s because they went for the big profit margins SUV and trucks just like GM and Ford.

    Auto companies will need their mission, production and advertising to focus almost exclusively on high mpg or electric to weather the coming oil shocks. I don’t know if any of the big three really have that in them at this point.

  7. EricG says:

    Joe, I have to disagree with you on the flex fuel issue. Everyone in the RE business understands that the food-to-fuel paradigm is fatally flawed. All the research and investment is targeting waste-to-fuel, and there’s a lot of raw material out there for these processes. While I agree with you that it will take years for these biofuels to comprise a significant share of the market, vehicles built today will still be on the road in 10-15 years. Biofuel compatibility should be a requirement now. If we continue to build vehicles that can operate only on petroleum, how can we eliminate petroleum?

    I’m wondering about the absence of any mention of diesel engines. More than 50% of new autos sold in Europe are diesel, presumably because they get better mileage. I understand that diesels have performance and emission issues, but can’t those be resolved? Biodiesel offers some nice waste-to-fuel opportunities, and new strains of oilseed are being developed to grow on land unsuited for agriculture. Check it out:

    http://www.gobluesun.com/main/about/biofuel_research.php

    Finally, where’s my favorite efficiency improvement, tire pressure management systems (TPMS)? While auto manufacturers were required to offer TPMS on all cars starting with 2008 models, few people actually buy these systems. Also, they are set to indicated 25% under-inflation (for safety) rather than 5-10% (for efficiency).

  8. red says:

    “Uhh, no. Corn ethanol remains the worst energy policy idea of the past two decades with very limited potential to replace significantly more imported oil (see “The Fuel on the Hill — The Corn Supremacy” and “About those two studies dissing biofuels“). Meanwhile, scalable, affordable cellulosic ethanol is not right around the corner (see “Are biofuels a core climate solution?“).”

    By itself corn U.S. corn ethanol can’t do it, but there are a lot of other sources of ethanol and methanol. The food/fuel issue isn’t as big an issue as it might seem since food price rises are probably much more caused by oil price rises than increased ethanol use, and animal feed is a major byproduct of the corn ethanol process. Some of the sources aren’t clean (eg: coal), but they do help with energy independence, which is all that the GM quote said. If you want climate progress as well with FFVs, you could use tax policy to inhibit sources like coal.

    Also, there are a lot of other countries besides the U.S., and even if we import ethanol/methanol from them and thus aren’t “energy independent”, multiple sources of imports would be helpful in lowering risk from unstable regions and decreasing OPEC power.

    The contributions from biofuels would become more significant if we had much more efficient vehicles, as the article suggests we might get soon.

    FFVs have a big hurdle to overcome in simply deploying the pumps, which isn’t worth the effort for a gas station to do in most regions unless a lot more FFVs get on the road, and the reverse problem also applies.

  9. JCH says:

    What is the reason to be energy independent? For the vast majority of the age of oil, oil has been dirt cheap. It was actually pretty cheap at $147.

    If the US were to somehow achieve energy independence, it would be at a far higher cost. Meanwhile, without us sucking 26 billion barrels of crude out of all those straws in the earth, the price of oil would crash and the rest of the world would hold tremendous competitive advantages.

  10. Joe says:

    Avoiding catastrophic global warming requires taking the actions needed in the transportation sector to become energy independent. So pick your poison.

    The United States simply can’t sustain multi-trillion dollar trade deficits in oil every decade for the rest of the century.

    And we have the security issue.

  11. EricG says:

    Red:

    I don’t get the point of your post. I am not in favor of corn ethanol. As I said, food-to-fuel is dead. Even if it didn’t cause the recent spike in food prices, it will if scaled to the point that it produces a significant portion of this country’s fuel demand. It’s a dead end road, and everyone knows it.

    I agree with you that cellulosic ethanol is not around the corner, but where is the corner? It seems very plausible to me that we’ll have significant production of cellulosic ethanol, algae ethanol, and bio-butynol in five years. Shouldn’t we be building cars today that use this stuff?

    Biofuels will contribute a wedge. 70% of the cars sold in Brazil run on 100% ethanol. We should follow their lead.

  12. jeatkinson says:

    The one thing that is always lost in the ethanol and methanol arguments is that the emissions from ethanol and methanol fuels are no cleaner than the emissions from petroleum-based fuels.

    In fact, as determined in studies by the US Department of Energy, Environment Canada government organization and European Union all show that the minimal decrease in carbon monoxide emissions from ethanol and methanol fuels are more than offset by increases in acid and hydrocarbon emissions. What makes the continued emphasis on ethanol and methanol as fuel additives even more puzzling is that the more ethanol and methanol added to the mixture, the greater, to the tune of 10-30% depending on % of the mixture, the acid-rain producing emissions increase.

    Certainly ethanol and methanol are renewable resources, at least until the acid clouds become too dense to allow sunlight through, but, other than coming from crops and waste dumps, there are more environmental negatives than positives from using such fuels.

  13. chiefdecoy says:

    This is pathetic. You people don’t seriously think it is a good idea to abandon alternative fuels, and hybrid technology now, do you? These oil prices are not going to last forever. This is stupid. They need to abandon the gas guzzler, and focus on the future. Which is pretty bleak, might I add.

  14. Nicolas F.J. Müller says:

    FROM THE VIEW OF A EUROPEAN

    Several elements are still missing here in the plans which I would like to highlight.

    COMBUSTION ENGINE
    Internal combustion engines are set to go on powering a large percentage of the future vehicle fleet in the US. While the plan concentrates on electric vehicles, it largely lacks of coverage for other types of fuels or fuel conversion systems

    ENERGY EFFICIENCY
    For me, the deal is simply insufficient in terms of energy efficiency with NOT MEASURABLE TARGET. The US is able to produce just so much oil.
    A condition for the loans to the companies should be the adoption of mandatory standards of performance with a pledge not to lobby against any future governmental decision regarding climate action and energy independence for the next 8 years.

    But to the point: does it really make sense to use 4 tonnes of steel to move 100 to 200 pounds of passenger? Does it make sense to get only 30 MPG when 50 or more could be achieved?

    Energy efficiency is the first way to go as GOOD ENGINEERING DOES NOT CONSUME ANY ADDITIONAL RESOURCE. Before getting into the biofuel discussion, it makes first sense to reduce first the demand for combustion fuels in general.

    MANDATORY STANDARDS
    In order to trigger the production of efficient vehicle (including electric ones), a mandatory CO2 standard for all newly produced vehicles should be applied. A tradable certificate system could allow producers of larger vehicles to continue their production IF and only IF they subsidize that way the production of a more efficient vehicle. This standard should off course become each year more stringent.

    OTHER TECHNOLOGIES

    * Clean diesel has proven its ability with 2005´technologies to build clean cars complying with US EPA emission standards while getting 55 MPG. Problems such as soot have largely been solved (E-Filter).

    * Compressed air cars: while limited in range, such cars do not require any additional mining of rare ores for the production of tanks. The operation of such cars does not lead to any pollution. The storage of compressed air is cheap and can be viable when done with off-peak produced wind power (e.g. at night). Compressed air cars can be produced at an extremely low price even much cheaper than IC engines.

    * Natural gas car is a mature technology which can cut CO2 emissions by half while reducing SOx, NOx, Cn pollution by a factor ten or more.

    OTHER PATHS FOR SAVING OIL

    * In one of the countries with the largest availability of biomass and sun (for solar thermal), residential heating is still largely performed by heating oil. There is here an obvious opportunity to reduce the oil consumption. Oil for heating should be entirely phased out over the next 20 years and no new boiler should be sold starting 5 years from now.

    * Also oil fired power plant should be either phased out or switched to other fuels.

    EDIT TO JOE:

    Pleaaase try to get the manufacturer to accept mandatory standards as a condition for the bailout.

  15. Sasparilla says:

    >> Ford may be saved, but with $1.50 gas for the next three years, all this stuff about efficiency needs to be tossed out the window.

  16. Sasparilla says:

    “Ford may be saved, but with $1.50 gas for the next three years, all this stuff about efficiency needs to be tossed out the window.”

    Hey Charlie, I understand what you’re saying, but the design cycle time for a vehicle is 3+ years – that’s how long it takes from design to rolling off the assembly line. That means if you want efficient vehicles to come out in or after 3 years you have to design it into the product now.

    It appears Ford can really see the future (high oil prices after this recession melts away) and is going to adjust itself to it. Makes me want to buy a Ford just reading this.

    Sorry for the bad previous post.

  17. Karl says:

    Without a doubt Ford’s plan is the best. And though it’s probably the only one that could survive until Obama takes office I’d argue it’s investments and loans would be the most worthwhile as it seems to have the most visionary plan. Could there be any way to force the automakers to all go closer to the Ford plan, maybe go even further?

  18. Bob Wallace says:

    charlie –

    Let’s put the GM Loan into some context. (GM is not asking for a handout. GM is asking the government for a loan. Normally they would go to the banks for the money, but….)

    GM is asking for a portion of the $25 billion loan that the Big Three are seeking. They want, what, 12 of the 25?

    We spend about a billion dollars every three days on the Iraq war ($341.4 million per day).

    We import about 12 million barrels of oil each day. At $100 per barrel, that’s $1.2 billion dollars per day. At $50 per barrel it takes us a couple of days to spend a billion dollars.

    So, for the cost of a bit more than a month of the Iraq War or 2-3 weeks of what we spend on imported oil we can (possibly) retain several hundred thousand (a few million?) US jobs when we most need them.

    I agree, GM has done some lousy things in the past. And they may not be in the lead in terms of turning things around. But can we really afford to so totally disrupt the economy of the Upper Mid-west over not that much money?

    (I think GM and Ford ‘get it’. GM has seven 30+ mpg models scheduled for 2009 and the Volt for 2010. Ford has the hybrid Fusion and is bring some of their most economical models from Europe. They started changing prior to $5 gas and the financial breakdown.)

    And three years of $1.25 gas?

    Way, way optimistic, IMHO. The current historically (adjusted for inflation) prices are probably due to having too much product in the pipeline. When oil went over $100 per barrel I would bet that every funky well that could produce a few gallons per day and every rustbucket that could hold more oil than it burned were pressed into service.

    The refineries must have purchased based on pre-collapse consumption levels. Now those contracts are being delivered, it costs to keep tankers standing by unloaded, the refinery tanks are full. Stuff is being dumped at record low prices to get it out of the system.

    Give it a few months. Shake the extra out and prices will creep back up.

    Additionally I would guess that there is a lot of pressure on oil producers to keep prices low in order to help the economy recover. When things settle down a bit look for production levels to fall and a return to $3+ gas.

    I’d give it 6-12 months.

    YMMV….

  19. M.E.B. says:

    Don’t worry Ford people I’m praying for you and your company that the auto show will take you to another Tech Level forever! Modification Engine Tecnicians need to modify remaining cars, suv, etc. in stock. P.S sense the Miracle!

  20. Roxanne says:

    The car companies are obviously not being very smart with their plans for the future. I’d like to share a great blog with you to add to your perspective. What if Exxon were to buy GM? This option is explored on the Customer-centric Marketing blog (http://jonsherrington.blogware.com/blog/_archives/2008/11/21/3988390.html). . The two-part article starts off suggesting that Big Oil, because of high oil prices, were partially to blame for the (potential) collapse of the auto sector they should take a part in the rescue for the solution The new company would have the unique ability to balance the profit equation of car value to fuel efficiency, help regulate demand for (and price of) gasoline: a customer-centric utopia. Exxon has the financial resources to reinvest, with a more commanding management team. Might be a good solution.

  21. juan says:

    Bailout 2008, a poem by David Jeffrey

    Like a bloodied warrior,
    laying broken and torn.

    Like a dying soldier, hopeless and forlorn.

    But the blood, it be green,
    the color of money.

    And the soldier is an economy,
    and it is anything but funny.

    Broken are it’s people and shattered are their dreams.

    Thanks to the ultra rich and their full proof schemes.

    It is a tragedy with more pain to come.

    Finance will be Hell, and their wills will be done.

  22. hema says:

    I agree completey with Bob Wallace

    We greatly regret by the senate decision against big 3 $14 biliion bail out.
    Lets solve our problem ourselves not relying on inuhumanitarian (R) senates who didnt support bail out.

    I have a couple of ideas and I urge each and every person of US to really think about these.

    1) If each and every michigan family donates their tax rebates that they receive this year, we could easily meet the bail out money,consider the same about all over united states????

    2)Loans from people Account:
    Ok here is another approach, lets take a bank and add all people as members those who contribute some amount to support the Big 3 bailout

    Lets stand out together and Lets make the difference,

  23. skeptic says:

    I think there is a serious problem with the Chevy Volt.

    When the battery runs down, a 1.4 Liter engine will have to propel the car.
    The battery will be 400 lbs of dead weight, and the Volt will not have any pep.

    A 1.4 liter engine is what the Prius uses, but the Prius uses its batteries to give extra power for acceleration and hill climbing. A heavy car with ONLY
    a 1.4 liter engine is underpowered.

  24. kend says:

    I like the Bailout 2008 poem, really captures what is going on right now. Here are more like it:

    http://www.voicesnet.org/allpoemsoneauthor.aspx?memberid=982900010

  25. Jim Brenner says:

    Step One: You have to go back to global warming and climate change. I live in Saskatchewan, Canada. The winter of 2008-09 has been a record for sub-zero weather. Where is the cold coming from? I would guess the Northern Arctic. Maybe we need to get the facts straight.
    Step Two: Study the false publicity surrounding the electric cars. Where will the energy come from when you plug your car in at night? The great majority of electricity in North America is derived from coal fired power plants. A modern gasoline powered auto with all its emission controls in place will produce less CO2 than a coal powered electric car.
    Step 3: Study the environmental costs of the disposing of large numbers of auto batteries.

    Then we can make an honest estimate of the situation!

  26. Francis says:

    Ford also has it’s legacy costs, and cannot really continue to rally the troops long term. It was the first to rely heavily on IMPORTED parts, and now is the most foriegn of the U.S. brands, with most lines being over 50% from overseas. It isn’t saying NO to bailout money because it doesn’t need it, it is wanting to avoid government involvement at all costs. There are BILLIONS of dollars in unsettled lawsuits for product defects, and probably a million unsafe vehicles out there that should be recalled. People are dying everyday, and the coverup is red tape. I have always bought American, but Ford is a Unamerican sheep in wolf’s clothing.

  27. Austin says:

    The Food -vs- fuel is another hoax. I am just one of a million other farms that get a goverment subsidy NOT to grow corn. There is a huge surplus, and that really drives the price down, making it impossible for the little farmer to compete. There are also goverment sponsored programs for things like reef enrichment- That is where a government front buys tons of corn just to make the price decent, this corn get dumped into the ocean, as fish food. Fish waste feeds the algae, minnows eat the algae, fish eat the minnows = heathy reef. Actually thowing tax dollars and food into the sea- amazing, isn’t it?
    So instead of us planting several hundred thousand acres of corn, we let it grow grass. We get paid a decent salary, I make six figures off my subsidies, and live like a retiree. My children then take the hay and make a pretty good living as simple hay farmers.