Hybrid effort: Trio takes on Toyota

Hybrid effort: Trio takes on Toyota
GM, Chrysler and BMW have gotten together to save money and combine gas/electric knowledge
By Rick Popely
Copyright © 2006, Chicago Tribune
Published September 1, 2006


General Motors is just getting into the burgeoning hybrid vehicle market and Chrysler won't be there until 2008, so both badly lag industry leader Toyota.

But GM and Chrysler, along with German luxury brand BMW, have something Toyota doesn't: a three-way alliance that the partners say will save money and speed development of hybrid systems that work on a variety of vehicles, from large sport-utility vehicles to sleek luxury sedans.

Whether three cooks are better than one remains to be seen, but such collaboration may be the only way even major auto manufacturers can compete with industry juggernaut Toyota in hybrids.

GM and its partners will invest more than $1 billion in their collaborative effort with no guarantee of a return. Toyota reportedly spent more than that during the 1990s to develop its first hybrid model, so it takes big bucks to compete in this arena.

To catch Toyota, GM and its partners are adopting common specifications for a hybrid system built around a GM automatic transmission. They will use a single factory to build hybrid systems, a GM plant in Baltimore, achieving economies of scale none could realize on its own.

The three-way alliance on gas/electric hybrids is a sign of the times as automakers search for partners as a way to save money globally on purchasing, product development and new technology.

GM, which recently teamed with Ford to develop a new automatic transmission, is in preliminary talks with Renault and Nissan about possible partnerships and joint ventures.

Any deal among those three is bound to get other manufacturers talking, and recent news reports have said Ford would be interested in talking to Renault and Nissan if GM backs away.

Phil Gott, an analyst with industry forecaster Global Insight, calls the hybrid alliance "an excellent strategy" that lets three rivals pool resources and tailor the system to their own vehicles.

"The transmission is versatile enough that each manufacturer can talk about the benefits of it in their own vehicles," Gott said.

"You could say it puts them ahead (of Toyota). You have three manufacturers sharing the research and development and the manufacturing. That means they should have a lower cost structure."

But Toyota is a rapidly moving target, and it could be years before the GM alliance matches Toyota's current hybrid sales.

Toyota has sold more than 370,000 hybrids in the U.S. and globally expects to sell its 1 millionth hybrid next year. Honda ranks second in U.S. sales with 141,000 and Ford is third with 33,000.

Without talking specifics, Toyota says it reduced costs of the hybrid technology by 50 percent in the 2004 Prius compared to the first-generation Prius, introduced in Japan in 1997.

Toyota expects another 50 percent cost reduction by early next decade, when the company's goal is to sell 1 million hybrids annually around the world, with 600,000 in the U.S.

Analysts estimate a full hybrid system like the one in the Prius currently adds $3,000 to $4,000 to a vehicle's cost, but the amount is coming down with higher volume.

"It's a numbers game, and Toyota has the advantage in production," said Anthony Pratt, director of global powertrain forecasting for J.D. Power and Associates.

"They're already a volume player. If anyone's making money on hybrids, Toyota's probably doing it."

Toyota also is selling its hybrid system to Nissan, which will use it in the Altima sedan starting next year, and is working on a deal with Fuji Heavy Industries, maker of Subaru cars.

Power sees U.S. hybrid sales growing to 900,000 in 2013, about 5 percent of the market, from 270,000 this year or less than 2 percent of sales.

The cost will need to come down to attract buyers beyond early adopters who embrace hybrids as an environmental statement. Power says the higher price is the main deterrent among consumers considering hybrids.

"Environmentalism is a wealthy person's hobby," Pratt said.

Power's research shows that the average new-vehicle buyer has annual family income of $82,500, but hybrid buyers earn $113,400.

GM, DaimlerChrysler and BMW have not projected sales for the hybrid system they are developing or talked price, but they have ambitious plans to spread their hybrid technology across a range of models to maximize return.

It will appear first in late 2007 on the Chevrolet Tahoe and GMC Yukon full-size SUVs. DaimlerChrysler will offer it on its Dodge Durango SUV in early 2008 and later will adapt it to rear-wheel drive luxury sedans in its Mercedes-Benz brand.

"You will certainly see further rollout of this technology. It has to work on other vehicle applications," said Andreas Truckenbrodt, director of DaimlerChrysler's hybrid program. "We're talking about DaimlerChrysler here, not just Chrysler."

BMW and GM also plan to use it on rear-drive sedans, and GM and Chrysler are interested in adapting it to their mass-market front-drive cars.

GM says the hybrid versions of the Tahoe and Yukon will get about 25 percent better fuel economy than conventional models, which average 17 m.p.g. in EPA mileage tests.

Toyota hybrids like the Camry sedan and Highlander SUV get fuel economy improvements of more than 40 percent, but Pratt says those are car-based vehicles that don't do heavy-duty chores. GM will have the first truck-based hybrid and says it will not reduce towing or cargo hauling capabilities.

"Each company is playing to its strengths and is defending their most profitable segments," Pratt said. "Toyota doesn't have that, so it's a competitive advantage."

That advantage may not last long because Toyota has said it intends to eventually offer hybrid versions of all its models.

As GM and its partners race to catch up to Toyota, that leaves financially strapped Ford Motor Co. with a choice of continuing to develop its own hybrid technology or find a dance partner.

Ford was the first U.S.-based manufacturer with a hybrid, offering it in 2004 on the Escape, a car-based, compact SUV. Ford plans to introduce Ford Fusion and Mercury Milan hybrid sedans in 2008 and four other hybrid vehicles by 2010.

Troubled Ford, however, is in the midst of a major overhaul that could make it a smaller company with less money to spend on technologies like hybrids.

That has sparked speculation that Ford may eventually join the GM collaboration, especially since it could use the hybrid technology in its large trucks.

At a recent industry conference, Tom Watson, Ford's hybrid manager, said "collaboration is always a possibility," but he added that Ford sees developing its own system as an "intellectual and competitive advantage."

Pratt notes that BMW and Mercedes-Benz are archenemies in the luxury field yet are on the same team with GM on hybrids. Ford already has jointly developed an automatic transmission with GM, so there is precedent.

"Market forces can make for strange bedfellows," Pratt said.

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rpopely@tribune.com