GM exec says consumer desires at odds with government regulations

The Virginian-Pilot (MCT) - For the automotive industry, 2008 was a year like no other in recent memory.

Auto manufacturers scrambled to meet demand as consumers abandoned large SUVs and trucks, Detroit's stronghold, for small cars as fuel prices reached $4 a gallon over the summer.

Congress responded with new fuel-economy standards that demanded automakers meet a 35-mpg standard by 2020. Automakers, in turn, changed product plans and began investing in expensive new technology to meet those standards.

Then, a funny thing happened. Demand for small cars and fuel-efficient gas-electric hybrids bottomed out in the face of a slumping economy, tightening credit and gas prices that dropped as low as $1.50 a gallon.

Robert Lutz, GM's vice chairman for global product development, said the market volatility has made product planning difficult.

"When gasoline was $4 a gallon, we couldn't make enough (Chevrolet) Cobalts. Now we have trouble pushing Cobalts out to the dealers," he said during an interview at the 2009 North American International Auto Show in Detroit.

"A lot of the media and pundits are maintaining the fiction that we're in a new world and that Americans want small, fuel-efficient cars. But at a buck-fifty a gallon, they don't. I'm sorry, but they just don't."

While Detroit's woes have been well-documented, all automakers have felt the pinch.

Jim Lentz, president of Toyota Motor Sales, said in Automotive News that Toyota's slumping sales of fuel-efficient cars were a result of slumping fuel prices. Toyota's gas-electric hybrid car, the Prius, has seen its monthly sales drop by two-thirds in just six months.

While Lutz welcomed the short-term implications of lower gas prices _ they've helped GM clear its inventory of large trucks _ he thinks cheap fuel prices are harmful in the long term.

"It's a disaster, because it will mean that all of the investments we have made, are making for advanced propulsion technology, hybrid systems, electric vehicles, extended-range electric vehicles _ all of that becomes very difficult to sell in a world of cheap gasoline," Lutz said.

Lutz said American buyers usually choose the largest vehicle they can afford from a fuel standpoint. Breaking that habit is difficult.

"The only thing that is going to motivate Americans is some sort of consumer participation in the whole energy equation."

"But we can't have the world's most fuel-efficient energy park at the same time we have the world's cheapest gasoline; it just doesn't compute."

For proof, Lutz points to Europe, where gasoline ranges from $6 to $9 a gallon. Such prices force consumers to choose small cars. In the absence of such incentives, he said consumers would continue to buy large vehicles.

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So why did GM show a new microcar, the Chevrolet Spark, as well as a new compact sedan, the Chevrolet Cruze, and an electric luxury coupe, the Cadillac Converj, at the Detroit auto show?

"There will be an economic recovery (that) will manifest itself in higher vehicle demand," Lutz said. "Higher vehicle demand means more production, more gasoline used, more steel produced, more plastic made, and all of the things that consume petroleum will go up."

Lutz said that will strain petroleum resources, causing gasoline prices to rise once again.

"At least," he said, "that's what we're presuming will happen and, frankly, that's what we're counting on."

But the industry faces a new federal law requiring that all cars get 35 miles to the gallon by 2020, a plan that has its problems if gasoline remains inexpensive.

"It puts us in the industry in a position where we are at war with the customer, because the customer, given the gas prices, wants one thing, and we're going to be forced by regulation to produce something entirely different," he said.

He likens the government's fuel-efficiency requirements to combating obesity by discontinuing large-size garments.

"Don't raise the price of food, boy; we're not going to touch that one. But we will force the clothing manufacturers to manufacture only small sizes," he said. "That's what we've got right now."

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© 2009, The Virginian-Pilot (Norfolk, Va.).