Energy Policy:

GM's Cole, National Ethanol Vehicle Coalition's Lampert look at flex-fuel trends

General Motors Corp. recently launched a new advertising campaign to educate consumers about cars and trucks that can run on E85, a blend of 85 percent ethanol and 15 percent gasoline. Meantime, Ford Motor Co. and GM are both working to expand the number of service stations that carry the ethanol blend. But are drivers willing to increase their use of renewable fuels? And can ethanol give U.S. automakers an advantage over Japanese manufacturers? During today's OnPoint, Keith Cole, director of legislative and regulatory affairs at General Motors, and Phillip Lampert, executive director of the National Ethanol Vehicle Coalition, discuss the future for flex-fuel vehicles.

Transcript

Brian Stempeck: Hello and welcome to OnPoint. I'm Brian Stempeck. Joining me today is Phil Lampert. He's the executive director of the National Ethanol Vehicle Coalition. Also with me today is Keith Cole, the director of Legislative and Regulatory Affairs at General Motors. Thank you both for being here today.

Phil Lampert: Our pleasure.

Keith Cole: Thank you.

Brian Stempeck: Keith, let's start with you. GM has a new ad campaign that started with, it's called "Live Green, Go Yellow," talking about its ethanol vehicles. What's kind of the impetus behind this campaign?

Keith Cole: Well, we think we have a great product. We think there's a lot of interest in ethanol and in E85 in particular right now. We just happened to hit the timing such that the president was talking about ethanol just about the same time we were starting the program.

Brian Stempeck: Well what exactly is it? I mean I've seen the ads. They've been running during the Olympics. They've been running since about the Super Bowl.

Keith Cole: Yeah.

Brian Stempeck: Showing that basically some of the GM vehicles it produces now can already run on high concentrations of ethanol. What vehicles exactly does GM have that can run on this kind of blend?

Keith Cole: We have nine vehicles that are flex fuel vehicles, so that means they can run on regular gasoline or E10, which often gasoline has 10 percent ethanol. But they can also run on 85 percent ethanol or E85. So these flex fuel vehicles, we have nine different ones, so our Tahoes and Suburbans, the Yukon and Yukon XL, the Chevy Avalanche. And new this year we have the Impala and the Monte Carlo. So we have nine different vehicles, vehicle makes that can use this. We have, on the road today, about a million and a half flex fuel vehicles, because we've been making these for a number of years. And this year we'll make upwards of -- over 400,000 new flex-fuel vehicles.

Brian Stempeck: How are you reaching out to the people who already have a flex-fuel vehicle? I mean I assume there's a lot of drivers out there who don't know that they can actually fuel up on E85. What's happening there?

Keith Cole: Well that's exactly right. What of the challenges to getting more usage of E85 and displacing more petroleum is to make the customer aware. So part of our campaign is an educational campaign to educate both dealers about the availability of these vehicles, but also the existing consumer. So one thing we're doing for a lot of our existing E85 customers is sending them a yellow gas cap to remind them every time they go to a gas station this car can be fueled with E85. And we're going to be incorporating that yellow gas cap into our new flex fuel vehicles going forward.

Brian Stempeck: Phil also this can be kind of confusing for the everyday consumer who might have an ethanol vehicle that they're not sure what they can refuel up on. What kind of outreach does your group do in terms of trying to educate people about how this works?

Phil Lampert: Well, primarily we've been working with the automakers for a long time to encourage them to be more outgoing and to use this as a promotional tool. To show it as a competitive advantage if you will over the imports. And we're so pleased that General Motors and the other automakers now are beginning to recognize the value of E85. We have a very nice Web site. Last week we had 2.5 million visitors on Friday, most of them coming from the General Motors Web site. So obviously outreach, communication, we have contract staff out in the field, events like this this morning. So it's a small group, but it's growing. And I think with all of the publicity certainly we're getting the message out.

Brian Stempeck: Besides GM, what other automakers have a lot of the flex-fuel vehicles? I know Ford is number one.

Phil Lampert: Well, Ford certainly has a number of flexible fuel vehicles. This year DaimlerChrysler has a number of FFV's, but they're only available to the fleet consumer and then Nissan has a vehicle as well. I believe there's also a Mercedes product.

Brian Stempeck: Keith, do you feel like the flex-fuel vehicles basically give GM a leg up in the marketplace? I mean we've seen Honda and Toyota, some of the Japanese automakers, they're going with hybrids, but they don't want to really push into flex-fuel vehicles. Whereas Ford and GM seem to be doing that.

Keith Cole: Right.

Brian Stempeck: Does that give you kind of a leg up?

Keith Cole: You know the market is not one monolithic market. There are a lot of little pieces of the automotive market. Especially in our larger vehicles we think this technology offers a great way to have low gasoline consumption and still all the functionality of a large SUV or a pickup truck. And also, with us moving into the passenger cars, with the Monte Carlo and Impala, we think there'll be a market for people who'd like to be able to fill up their regular passenger car on a fuel that's made here in the United States.

Brian Stempeck: Phil, how do you feel about that in terms of the distinction between some of the Japanese automakers and the U.S. manufacturers when it comes to running on ethanol?

Phil Lampert: Well again, I think it's a competitive advantage that our domestic automakers have. And it's an advantage that, again, we're very pleased that General Motors and Ford have been engaged with. But if you look at E85 you've got environmental benefits, reduction in CO2, greenhouse gases. You've got energy security benefits. You've got rural economic development benefits. So it's really a mom and dad and apple pie, and again, we just thank General Motors for taking the lead on this and recognizing that value.

Brian Stempeck: What about some of the downsides of E85? I mean just anecdotally. I have some friends in the Midwest who talk about when they refuel on some of these ethanol blends, or even E10, they get less mileage. I mean that's one of the problems here, is you get a lot less mileage, miles per gallon than you do with normal gasoline. How do you deal with consumers kind of giving you that kind of push back?

Phil Lampert: Well, I don't know about the E10, Brian, I guess I'd argue that if your tires were not inflated correctly you'd probably see a greater loss in miles per gallon than you do on E10. But clearly with E85 simple chemistry is that it has less energy content, less Btu content. But unleaded gasoline has less Btu content than diesel. So with that in mind, E85 has to be priced lower than regular unleaded gasoline to make it a wash for the consumer. I think most of your surveys and polls will show that consumers will pay a little bit more for an environmental or a friendly product, but not a lot. So we think that there's about 15 to 20 percent recognition there, below regular unleaded, where the consumer breaks even and feels good about what they're doing.

Brian Stempeck: Keith, is that an issue at all? I mean you're talking about sending out these yellow gas caps to people who have flex-fuel vehicles. Somebody gets a yellow gas cap in the mail, they put it on their car or they buy a new car with it. And then they find out that they're getting a lot less miles per gallon than what the sticker says. Is that an issue?

Keith Cole: Yeah, I don't think it's a lot less mileage. There is a mileage penalty just because it's less dense in terms of energy. So on a gallon-by-gallon basis that's going to change your mileage a little bit. Look, for consumers they want the range in the vehicle. And if E85 is priced right the cost per, the cents per mile of traveling is going to be about the same. So I think what the consumer is going to look at is how expensive is it for me to operate this vehicle? And you're saying about a 10 to 15 percent difference in price gets that operating -- gets you close enough to a consistent operating cost. So it's an issue, we get questions about it, but customers seem really excited about fueling their vehicle that's grown here in American, is renewable and has these other benefits.

Brian Stempeck: What about a situation though where, I mean yesterday there was a story in USA Today talking about E85 fuel now is actually higher cost than gasoline and it's starting to outweigh, quite a bit, a lot of demand for ethanol coming from the gasoline blenders who are switching away from MTBE.

Phil Lampert: Right.

Brian Stempeck: How much of a problem is that? I mean now that you have ethanol costs going up.

Phil Lampert: It is a problem Brian. I don't want to mislead you on that, but this is a short-term issue. We had reduction of refinery capacity with the hurricane that came through. A lot of these major oil companies now are buying ethanol to pick up for that lost volume and as you mentioned, MTBE going out of the marketplace. So if you look at the historical price of ethanol, and that's what we need to keep in mind rather than this current spot price, then the equilibrium will come back very shortly. So yeah, it's an issue today. I don't want to make too much of it. I don't want to make light of it though, but we'll see that equilibrium in a very near future.

Brian Stempeck: Keith, there's a lot of, one of the other issues of course is that there aren't many service stations that actually carry E85. There's about 600 nationwide. I know this is something that GM has been working on.

Keith Cole: We have been. Look, in order for any fuel or technology to make a difference in the marketplace it has to be used broadly, whether it's hybrids or E85 or anything else. So we are very interested in getting more E85 used in more of our vehicles. We've just announced initiatives in California with Chevron Texaco and Pacific Ethanol and most recently in Chicago with Shell and VeraSun to get more E85 stations out there. And often what we're doing is coupling the location of new E85 stations with new fleet sales of our E85 capable vehicles, so that the gas station has both the demand for the fuel when they put in the pump.

Brian Stempeck: What do you see as the predicted kind of growth for E85 stations? There's about 600 now. I think about a quarter of the stations in the United States carry some blend of ethanol. Where the do you see the E85 stations going over the course of the next year or two?

Keith Cole: I saw something recently Brian, 168,000 gas stations in the U.S., so with only 600 E85, obviously that's just a drop in the bucket. Now we doubled the number of E85 stations in 2005. We hope to add 2000 this year. In the energy bill the Congress passed there are some incentive provisions there. Working with General Motors, they're putting their financial support behind the program. So at the end of 2006 I hope we're able to say we have 2,500 if not 3,000, which is still a very small number, but if you look at what we're trying to do that's a big growth.

Brian Stempeck: One last question for you both. What policy changes are you looking for? I mean obviously we saw the energy bill included incentives for new E85 stations and ethanol as a whole. What else are you looking for, be it from federal government or from the states? Phil?

Phil Lampert: Well I think that we need to continue to incentivize the automakers to build flexible fuel vehicles. This has been a tremendously successful program. Congress authorized it back in 1988. And I think we would be harmful to ourselves if we would say, "Hey, let's mandate every vehicle to be a flexible fuel vehicle." We need to continue to provide incentives. Obviously there's an additional cost there with that vehicle, with making it a flexible fuel product. So the automakers are absorbing that, no extra cost to the consumer today, but let's look at how we can build more flexible fuel vehicles. Get more and more of them out on the market. But I think to incentivize the production of such vehicles is the real key. And that would be our number one priority for 2006.

Brian Stempeck: Keith, what would you like to say?

Keith Cole: Well, we need to educate the consumer and that's something that we have a lot of control over and that's what we're doing today. On the government side, right now we have a situation where we have vehicles on the road that aren't using E85. And so we need to utilize the incentives that are in the energy bill for more flex fuel stations. And I think as we look forward we need to coordinate the growth in vehicles -- number of flex fuel vehicles with the growth in the number of stations. It doesn't make any sense to get either one of those too far ahead of the other. So that's what we'll be looking for, is trying to coordinate the incentives on both sides of the equation. So we get more E85 stations out there and more vehicles that can use E85.

Brian Stempeck: All right we're out of time. Keith, Phil, thanks a lot for being here.

Phil Lampert: Thank you, my pleasure.

Brian Stempeck: I'm Brian Stempeck. This is OnPoint. Thanks for watching.

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