Progressive Automotive X PRIZE

We've Met the Enemy, and He Is Us.. or Is He?

I've always been a big believer that to reduce automotive fuel consumption and toxic and greenhouse gas emissions, we need to take a three-pronged approach.  We need to ask or compel vehicle manufacturers to make more efficient and cleaner vehicles.  We need to ask or compel fuel suppliers to provide the fuels that will enable supply of such vehicles (e.g. ethanol, electricity, hydrogen...).  And we need to ask or compel drivers to consume less vehicle miles. 

Throughout the raging debate on this issue I'd estimate that 95% of the rhetoric focuses on the first two prongs: evil Detroit and evil Big Oil.  The American driver gets off the hook pretty easily (unless he or she is foolish enough to park a Hummer on the Berkeley campus!).  But let's face it, the cleanest vehicle is the one that is never bought, and the next cleanest is one that is never driven.  It takes a consumer to buy and drive cars. 

But it is becoming clearer that consumers are grudgingly starting to realize their role in all this.  Rather like overweight people who in public blame McDonald's for tempting them, while in private admitting that no one forced them to eat the Big Mac (yours truly can be said to fall into this category), drivers are starting to acknowledge that while Detroit feeds their oil addiction, they are ones who keep visiting the pumps.  A recent article in the New Yorker, by economics analyst James Surowiecki, illuminates this development.  In essence, it boils down to the point that while the individual driver wants the individual freedom to buy and drive whatever she or he wants, drivers are not happy with the collective result of these individual choices.  That is, we might want the freedom to buy the Hummer, but we wish the government would limit their supply somehow, because collectively there are just too many on the road. 

Surowiecki makes the analogy to the helmet rule in the NHL: prior to the rule, most players refused to wear helmets, since the devices disadvantaged them (e.g. poorer peripheral vision) -- but in secret ballots the majority of players wanted the League to require helmets, since the safety advantages were obvious. 

In the same way, American consumers seem to be coming around to the realization that their individual vehicle choices are collectively irrational.  Thus, in polls, the citizenry as a group votes pretty solidly for higher MPG standards... despite individually continuing to seek bigger and heavier vehicles.  Politicians should take heart from this: higher MPG standards might not be as toxic an issue as they might think.  As Surowiecki concludes: "Sometimes, [ voters ] know, we need to save ourselves from ourselves."

The High Cost of High MPG

Since the AXP is all about incentivizing and publicizing highly fuel-efficient (and thus very-low-emitting) vehicles, you might not think we have much sympathy for OEMs who have difficulty getting much past 20 or 25 MPG on average.  But far be it for us to lecture (after all, we haven't built a car ourselves yet, unless you count that converted wagon from third grade...).  The millions and even billions of dollars, yen, and Euro's that have been poured into powertrain development over the decades make clear how hard this task really is.  While one has to take the huffing and puffing about this that emanates from Nagoya, Stuttgart, and Detroit with large doses of skepticism, the challenge remains immense. 

If you don't believe the OEMs -- or even the think-tanks and analytical labs like ORNL -- there is some recent quasi-independent confirmation of this from the cold hard world of Wall Street.  As Alex Taylor recently wrote in Fortune (and Alex is always very well informed), the private equity firm Cerberus, which is in the final stages now of buying Chrysler from its German parent, is very worried about the new tighter MPG regulations Congress is considering.  In fact, he writes, "the moneymen from Cerberus behind the private equity buyout for Chrysler are said to be threatening to walk away from the deal if the new requirements go through."  Whether Cerberus believes Chrysler's own publicized punumber of $6,000 or more per vehicle to meet the standards we can't say, but the possibility that the biggest automotive deal of this millenium could go South based on what might seem to us a minor tightening of CAFE tells you how worried they may be.  Of course, for them it is all about making more or less money, so it is hard to feel sympathetic.  What is striking, however, is of all the issues Chrysler has to face: UAW contract talks in the Fall, gigantic underfunded retiree health care liabilities, an overbuilt dealer network, and brands that have weak appeal (as a result of which many Chryslers are sold primarily to fleets rather than to individual customers)... the only one Cerberus sees as a deal-breaker is the MPG challenge.

The point of all this?  First, we at AXP are under no illusions as to how hard the task we've set for our entrants is.  And second, we are going to be very, very proud of the winner, knowing as we do what an achievement victory is going to be.