Why Is Ford Happy About 54.5 Miles Per Gallon?
Aug 5th 2011 5:36PM
Updated Aug 5th 2011 5:38PM
Fifty-four-point-five miles per gallon. On average. By 2025.
It almost sounds a little crazy, but that's what the man said. And the man in question being no less than President Obama himself, this was serious.
The president announced this "breakthrough" goal in a room filled with cars and trucks, and, almost unbelievably if you know the history here, happy-looking auto executives.
Yep, there they were -- Alan Mulally of Ford (NYS: F) , Dan Akerson of General Motors (NYS: GM) , Sergio Marchionne of Chrysler and Fiat (OTC BB: FIATY.PK), and others representing Toyota (NYS: TM) , Honda (NYS: HMC) , and nearly every other automaker doing business in the United States. Up on stage and looking pretty happy about it.
All of them had signed on to this plan, many with visible -- and genuine -- enthusiasm. That's a huge change from the kicking and screaming we saw when this issue last came up a few years back.
First, it's not really 54.5 miles per gallon
Like most results of Washington sausage-making, this one gets a bit ... interesting on closer examination. The details of how this will all work are still being worked on, but some things are more or less clear:
Long story short, the big headline number doesn't tell the whole story. Yes, the automakers are being pushed to improve fuel economy across their fleets. But while they're being pushed in ways that will require them to make vehicles lighter (and maybe smaller) and more reliant on new technologies, they're ways that build on what the automakers are already doing.
Why the automakers like this
New federal rules or no, better fuel economy is going to be a requirement to compete on a global scale in coming years. That's a no-brainer. You want to do business in China or Brazil or Europe? You're going to need fuel-efficient vehicles. Ensuring that they'll be required in the U.S. as well means that automakers can now justify big investments in smaller cars. That means more top-notch small American cars like the impressive new Ford Focus, and fewer like the nasty tin cans we all remember from decades past.
But there's another, more nuanced reason why the industry supports long-term plans like this -- especially when they're based on technology that already exists (sorry, Tesla Motors (NAS: TSLA) ). Unlike, say, cell phones, cars can't be developed from scratch in a few months. Even the best-run automakers average two to three years to get from a clean sheet to the first car off the line, and a development program for a major all-new model can cost $1 billion or more.
Figuring out what the market is going to want in a few years is a tough game, and guessing wrong can be catastrophic -- we all saw what happened when Detroit was caught with SUV-heavy lineups once gas prices rose sharply. A plan, even an aggressive plan, gives them predictability. Ford and GM and the others can now make investments in fuel-efficient new models with confidence, because they know there will be a market for those vehicles when they arrive at dealers three or four years from now.
That's a good thing. And that's why Akerson, Mulally, and the others were smiling.
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