Auto Alliance president discusses profitability of green vehicles, 'cash for clunkers' bill

With General Motors Corp. filing for bankruptcy last week and a new set of vehicle emissions standards coming out of the Obama administration, will the U.S. auto industry bounce back from the economic crisis by building a green fleet? During today's OnPoint, Dave McCurdy, president of the Alliance of Automobile Manufacturers and a former congressman from Oklahoma, discusses the challenges ahead for Detroit. He explains whether the "cash for clunkers" legislation that is making its way through the House and Senate will have any real benefits for U.S. industry. McCurdy also discusses how a gas tax may be beneficial to altering consumer habits.


Monica Trauzzi: Welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Dave McCurdy, president of the Alliance of Automobile Manufacturers and a former congressman from Oklahoma. Nice to see you again.

Dave McCurdy: Monica, good to be here, thank you.

Monica Trauzzi: The last time we had you on the show in November the big three automakers were asking to be bailed out. Now, seven months later, two have filed for bankruptcy, GM just a few days ago. Where do you believe the American confidence stands right now in the U.S. auto industry and can it be rebuilt?

Dave McCurdy: Well, a lot has happened in seven months and certainly in the two years that I've been with the industry. I think no one is immune, no company, regardless of where they're based, from this economy. The financial collapse, the credit crunch, the housing collapse, all created a market situation that was very challenging for the industry and we dropped from sales of 16 million units in North America to less than 10. And so I think it's really put stress on everyone. Having said that, I think that GM and Chrysler are better poised to come out of this and deal with an uplifting market as soon as the economy recovers, as are all companies. This restructuring was occurring prior to the recession and I think some companies had better timing, but I think everyone has been hit. So the real question for us is how does the market respond? If the market returns and there's good product, and I think that's really the basis. In our industry it all comes down to one thing, is the product, is it something that's consumers are willing to buy? And that's affected by some externalities that we do not control, the price of gasoline and other things as an example.

Monica Trauzzi: Okay and President Obama recently announced a plan to curb vehicle emissions and it mirrors California's plan. And there are criticisms that that plan is not going to do enough to really impact the environment and if you really want to have an impact on the environment you need to alter consumer's behavior. And one of the things that's been suggested is a gas tax. Do you think that's a necessary step? Do we need to put a floor on the price of gas so that people are more incentivized to purchase cleaner vehicles?

Dave McCurdy: There are a lot in your questions there. First of all, the Obama national approach and national standard is something that we not only endorse and support, as evidenced by the 10 CEOs standing behind the president with Carol Browner and Lisa Jackson at the Rose Garden. It's something that we sought. What was important for us is to take three competing voices and standards and approaches and harmonize those, bring them down to a single approach and that's with the federal government in the lead. So the president laid out something that we think is very important and that is a single voice. Now, there's going to be dual rule making with both EPA and NHTSA involved, but what we wanted was clarity and certainty and this provides that. It's a challenging standard and it's going to be tough to meet, but we're committed to meeting that. How far does that go? It's pretty aggressive, as you know and it is now applied nationally, but it puts them in the leadership. The question of how you change consumer behavior, that's not an easy one and it's certainly not one that government, I think, can do readily and maybe should not be trying to do. But I think there has to be price signals, whether it's legislation or whether its regulation. Price signals are important. If you look at the history it's very clear, a year ago this current timeframe, we were starting to see four dollar gas. We saw what four dollar gas did. Four dollar gas changed consumer behavior and consumer wishes. We dropped from selling about 55 percent light-duty tracks compared to 45 percent cars to completely the opposite, to 45 or trucks, then the 55 to cars. Now back at $2.50 gas, guess what, it's flipped back the other way. So consumers will ultimately determine what's in their best need. We support increased fuel economy and fuel efficiency. We support that with the president, we supported it last year in Congress, almost 2 years now. So those are important, but ultimately, again, the price signal. Gas tax, floor, politicians don't want to talk about tax, but I think history demonstrates very clearly that the price makes a huge difference. And I think to be successful in the kinds of advances that not only the government wants, but I think ultimately consumers will want depend on what that price will be.

Monica Trauzzi: Detroit needs to make money first and foremost and if we look at the Chevy Volt as an example, the idea of profitability comes into question. Can Detroit make green vehicles and still be profitable?

Dave McCurdy: Can anyone make green vehicles and be profitable? Most full-line manufacturers have a range of vehicles and a mix of vehicles because consumers have a different set of needs. Again, price makes a difference. You know and it may not be the magic four dollars, it may be that consumers recall just last year when it was spiked at a high price and maybe they'll say, we'll take that into consideration. But consumers are smart. They do their math. If they can do the calculations and say that the savings that I would achieve from improved fuel economy offset the differential price in technology, and there is a differential price, the Chevy Volt or other plug-in vehicles, electric vehicles, the batteries are quite expensive at this point and still a challenge and that makes a difference. So if it's a $5,000 or $10,000 differential, then the external prices going to be critical. Can they make a profit? You know, any leading technology, I think Toyota found it took considerable time with the Prius for them to become profitable, but it was more than just the sales from that hybrid. It was the advancements made and I think a benefit to the company overall. So I think General Motors will benefit from this investment in the Volt as does Ford, as does Chrysler, as do all the manufacturers. And it's not just electrical, you know, there's improved efficiency with the sill. Diesel gets 30 to 40 percent more fuel efficiency. If you combine that with electric power train in the future, those are really big numbers. But all of that, again, adds a cost and ultimately the consumer is going to decide.

Monica Trauzzi: Cash for Clunkers, it's being discussed in both the House and Senate and it would incentivize consumers to get rid of their inefficient old vehicles and upgrade to more efficient cars. Does Cash for Clunkers have any real benefits for U.S. industry though? I mean why would an American consumer be incentivized to go out and buy a GM vehicle when they could benefit from the program and buy a Toyota or a Honda?

Dave McCurdy: Well, first of all, all the manufacturers are supportive of incentives at this point. We need to prime the pump. We need to get the market back. I told you the numbers earlier, less than 10 million in sales. So in Germany, where this worked, also throughout most of Europe, we saw in Germany a 22 percent increase in sales. They project over 300,000 units there. In the United States the administration and others project it could be as many as a million additional sales. All of a sudden that commercial viability for domestic companies and international companies that are selling here, I think, is improved. So it's kind of a question of also restoring confidence in the market. I think as the overall economy starts to, looks like maybe we've hit that bottom and we're coming back, I think you combine that with some incentives here, I think there would be some progress. So it's very important to provision. It's not perfect. There are no perfect combinations of it. It's still a challenge to find the right mix. I don't think any one segment of the industry is going to benefit disproportionably to the other and shouldn't. It should be fair and open to everyone to be able to, for consumers to benefit.

Monica Trauzzi: Do you think it should be taken up separately from the larger energy and climate bill? I mean is it going to get sort of lost in the discussion?

Dave McCurdy: Well, in the House, obviously it was connected with that bill, but in the Senate it was actually scheduled for a vote yesterday in an unrelated bill, an FDA bill, but it was pulled because of really internal issues on appropriations versus authorization and some questions between the White House and Congress. But we hope that that doesn't derail the effort because I think a lot of people are actually waiting for this bill. You know, consumers, again, are very smart and they see the incentives today. It's a great time to buy a vehicle. Financing is available now. We see great bargains and if you throw in an incentive like this…again, take an old vehicle that gets less than 18 miles per gallon, a gas guzzler and replace it with newer, more fuel-efficient technology, saver technology and certainly a higher-quality product that's available today, I think it's a win-win.

Monica Trauzzi: Final question here, I want to get your thoughts on the Waxman-Markey bill that's making its way through the house right now. What are your thoughts on the requirements for reductions that it makes for the various sectors and how it allocate allowances?

Dave McCurdy: Well, we in the industry support an economywide approach, don't believe we should just be based on one sector. You had a recent interview I noticed where someone in California still said that autos are the number one source of greenhouse gas emissions. That's not correct. We're 20 percent of the total and so we are part of it, but the rest of the economy needs to play as well. You know, I think the key is not to get hung up right now on just one provision. It's got a ways to go. The House has a chance. The speaker just announced some new deadlines. I know the president wants something to go to Copenhagen with. We'll see where the Senate moves, but I think as this process works, hopefully there will be something emerged that addresses the entire approach, not just on one sector.

Monica Trauzzi: Okay, we'll end it right there on that note.

Dave McCurdy: Thank you Monica.

Monica Trauzzi: Thank you for coming on the show.

Dave McCurdy: Pleasure.

Monica Trauzzi: And thanks for watching. We'll see you tomorrow.

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