Can Electric Whirr Save The American Auto Industry?

DETROIT – The old sound of Detroit’s automakers was an octane-stoked Vroom! The sound of Detroit’s future, say top auto industry executives, is an electric whirr. General Motors plans to introduce its breakthrough Chevy Volt plug-in hybrid electric vehicle in November 2010.

Ford is already selling the 40-mile per gallon hybrid electric Fusion sedan and is preparing a plug-in model for introduction in 2012. Last December, Chrysler introduced three electric vehicles it is developing for the American market: Jeep and minivan plug-in hybrids, and a pure electric sports car with a range of 150 miles.

Yet the question dogging American automakers as they unveil these promising new products is this: Will they stay solvent long enough to benefit from the revenues and new jobs generated by the next wave of fuel-sipping technology?

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The Obama administration, business leaders, and state officials across the Midwest say the industry is too important to the nation’s economy to let it fail, a tenet embraced by the Apollo Alliance. Both G.M. and Chrysler have already received, respectively, $13.4 billion and $4 billion in government loans to help them cope with massive revenue shortfalls.

Restructuring Under Way: Preserving Jobs and Benefits Top Priorities
Last week, 84-year-old Chrysler filed for bankruptcy and unveiled a reorganization plan that includes shared ownership between Fiat, the United Autoworkers Union, and the Canadian and U.S. governments. The Obama administration also said it would lend Chrysler $8 billion more to stay in business.

Meanwhile General Motors last week unveiled pieces of its restructuring plan weeks ahead of a June 1 government deadline. The company said it intends to phase out Pontiac, cut 21,000 U.S. factory jobs by next year, close 16 more factories, and reduce its dealerships by 42 percent. The 101-year-old auto company, hoping to avoid bankruptcy and retire most of the company’s $27 billion in unsecured debt, also plans to ask the government to take more than half its stock in exchange for half of its government debt.

A deeper reading of the restructuring plan, according to analysts, sets up a formula for settling with its three principal creditors: the company’s bondholders, the United Auto Workers, and the government, which has already lent the automaker $18 billion.  Bondholders would receive 10 percent ownership. The government would put in another $9 billion, and own half of G.M. The U.A.W. which is owed about $20 billion by the company for its health-care system, would get $10 billion in cash and receive a nearly 40 percent ownership. The basic principles of the G.M. restructuring are similar to those that guided the Chrysler plan, which set as one of its top priorities preserving union manufacturing jobs and benefits.

Officials with the U.A.W.have been cautious in their public statements. But last week Ron Getilfinger,  the president of the U.A.W., responded to the Chrysler plan this way: “Our members have responded by accepting an agreement that is painful for our active and retired workers, but which helps preserve U.S. manufacturing jobs and gives Chrysler a chance to survive.”

Ford, while in better shape due to the tens of billions of dollars it borrowed privately before the downturn, is also losing billions of dollars. The number of cars and light trucks sold in the United States this year is likely to total roughly 9 million, down from 13.8 million in 2007, according to the Department of Transportation.

Independent experts in government, academia, and the auto sector say that the industry must vastly reshape production practices, product lines, and marketing strategies to compete in a world constrained by energy costs, sinking incomes, and more rigorous environmental safeguards. That, too, is consistent with the Apollo Alliance’s view of what it will take to strengthen the auto industry and secure the millions of jobs that rely on it.

New Apollo Program Principles and Apollo GreenMAP
In September, in The New Apollo Program, a comprehensive national clean energy economic development strategy, Apollo called for the federal government to focus its clean energy investments, in part, on retooling the auto industry in order to capture the low-carbon markets of the future. This month, Apollo released Make It In America: The Apollo Green Manufacturing Action Plan as part of a national campaign to secure federal investments to ramp up the domestic manufacture of renewable energy parts and components, including next generation vehicle technologies.

These ideas are penetrating Washington and the auto-manufacturing states of the Midwest. In February, President Barack Obama signed the American Recovery and Reinvestment Act, which provides car buyers with a $7,500 tax credit if they purchase a plug-in electric hybrid. The law also provides $2 billion for the development of advanced lithium ion batteries used in plug-in hybrids; a 30 percent investment tax credit for building plants that manufacture next generation vehicles and components; $400 million to states and local governments to build charging infrastructure for the national plug-in fleet; and a 50 percent tax credit to businesses that install their own plug-in charging stations. In December, 14 companies with expertise in batteries and advanced materials joined with Argonne National Laboratory to establish the National Alliance for Advanced Transportation Battery Cell Manufacture. The group said it will raise up to $2 billion in government funding over the next five years to build a manufacturing facility with an “open foundry” for the participants to pursue the goal of perfecting lithium-ion batteries for cars.

Last month, House and Senate energy committees opened debate on a new energy bill that could hasten the achievement of all of these steps. The House measure, The American Clean Energy and Security Act, includes a Vehicle Manufacturing Assistance Program to provide financial help for auto manufacturers to retool and retrain workers to produce cleaner, more efficient autos and purchase advanced batteries. A separate measure in the Senate Energy and Natural Resources Committee would create loans to help auto companies and other manufacturing firms become more energy efficient in both their industrial processes and buildings – an essential step to building the clean energy economy.

Kate Gordon Testifies
“We encourage you to think big,” Kate Gordon, co-director of the Apollo Alliance, told members of the House Energy and Commerce Committee late last month during a hearing on the House proposal on Capitol Hill. “Think not only about the millions of barrels of imported oil and the billions of dollars in energy costs we will ultimately save if we reduce the carbon we pour into the atmosphere; think also about the countless Americans who might finally be able to earn a living wage, or enter the middle class, or invent a new cutting-edge energy technology if we embrace and invest in the transition to a clean energy future.”

Energy efficiency and the development of next generation vehicles also has been a focus of state legislation and policy. Last year, Michigan approved a $335 million package of credits and subsidies to encourage the development of an advanced battery industry in the Detroit region. The package was, in part, a response to calls for state assistance from G.M.

G.M. is building a $30 million plant in southeast Michigan – to assemble battery storage packs – that will employ more than 100 union workers. The batteries themselves are manufactured by LG Chem, a South Korea company. In January, A123 Systems, a Massachusetts-based battery manufacturer, said it had applied for a $1.8 billion federal grant to build a 7 million square-foot factory in Michigan to produce energy storage systems for plug-in hybrids and hybrid-electric vehicles. At full capacity, the plant could employ 14,000 people.

“If we capture and produce advanced energy storage systems for autos and defense, for applications for wind and solar energy storage, that would be huge,” said Stanley “Skip” Pruss, the director of the Michigan Department of Energy, Labor, and Economic Growth. “The lithium ion battery market for autos could easily be $50 billion in seven or eight years. The question is where will it be deployed and where will it be commercialized. We want to capture the value chain for batteries and other clean energy investments. We want the plants and the jobs here in Michigan.”

Michigan’s Clean Car Future
There’s nothing new about electric cars. The first vehicles to emerge from Detroit’s turn of the 20th century car shops were electric. What is new is the convergence of powerful regulatory and market trends pushing electric vehicles to the mass market. The 2007 energy bill required automakers to raise fleet-wide fuel efficiency standards to 35 miles per gallon by 2020. During the 2008 election campaign, then-candidate Obama called for manufacturers to build 1 million plug-in hybrids by 2015, and he promised to buy the first vehicles for the White House fleet.

Another important factor is that engineers are powering the cars with lithium ion, the same type of battery that runs laptop computers. Lithium ion is lighter than a traditional nickel acid battery, and holds a longer and more powerful charge.

No company is pushing harder than General Motors to get a plug-in hybrid on the market. GM is advertising its Chevy Volt on television and public radio. At the company’s Technical Center in Warren, MI, engineers are running batteries through tests intended to simulate the lifecycle of an average vehicle: 10 years, or 150,000 miles. Last week, even as it announced the company’s plan for restructuring, it also provided a Volt test drive to USA Today reporter James R. Healy, who said the car was fast, quiet, and “punchy.” G.M. says the Volt will sell for $35,000 to $40,000, a price made easier with the new $7,500 tax credit approved in February.

This is Volt chief engineer Andrew Farah’s second go-round with an electric car project. In the late ‘80s, he began working on the revolutionary, all-electric EV1. GM built thousands of EV1s, but, in a much-disputed decision, ultimately abandoned the model due to drawbacks that made it impractical for most drivers, Farah said in an interview with the Apollo News Service. The battery weighed 1,200 pounds. In order to wring 40 miles out of a single charge, the car had to be a tiny two-seater, with no trunk. “You had to build the car around the battery,” he said.

The Volt, on the other hand, is what GM calls an “extended-range” vehicle. Once the electric charge runs down, a gasoline engine takes over. But the engine doesn’t power a drive train, as on a traditional vehicle. It powers the electrical system that runs the car. The energy required to drive 40 miles on battery power is equivalent to “well under a gallon” of gasoline, according to Farah.

The Volt and other energy efficient vehicles may represent the last chance to revive American auto manufacturing and the development of high-wage green collar jobs. By using less petroleum-based fuel, they will help the nation sever its dependence on foreign oil. And plug-in hybrids emit zero climate-changing emissions when running on electric power.

A study two years ago by the Department of Energy’s Pacific Northwest Laboratory estimated that if 200 million — or 84 percent — of the nation’s vehicles were plug-in hybrids, the country’s consumption of oil would decline to 3.5 million barrels a day, a mere 35 percent of current levels. Vehicles are the fastest growing source of greenhouse gases. A national plug-in fleet would reduce climate-changing emissions nationally by 27 percent.

“There’s at least three sides that are coming together to make the electric car viable,” says Chrysler spokesman Cole Quinnell. “You’ve always got a small sector of the market who’s willing to take steps to reduce their environmental impact. You’ve got the technological segment. Three to five years ago, people in the auto industry decided to use the lithium ion battery, which offers more power per pound than traditional batteries. Then there’s the regulation side. There’s been a drive to reduce tailpipe emissions, and hybrids are falling short. We need to take the next step.”

Still, tempering the hopefulness within the industry is the reality of the present. Can the whirr of hybrid plug-ins save the American auto industry? The new restructuring plans, the Obama administration’s clear willingness to provide financial support, and all of Detroit’s new technology reflect a nation’s hope for the industry – if it can at least hang on.

— Keith Schneider

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