Monday, July 02, 2007

WSJ on Prius etc.

Relevant to my previous post (Prius Ascendant), the WSJ has an editorial today titled "The Drive-a-Toyota Act" (LINK). Essentially it states that, "Nancy Pelosi, Harry Reid and most of their colleagues are siding with upscale environmental lobbies over American carmakers and workers".

Since the WSJ Editorial Page is a leading global warming denier (LINK), any WSJ editorial about fuel economy needs to be seen partly in that context.

But first, let's look at some of the core claims in the article. They declare that Detroit was unable to compete with Japan on small vehicles over the last decade not because they didn't want to but because they couldn't afford to! The WSJ essentially asserts that Detroit needed to make more money per vehicle because those damn unions forced it into cost a disadvantageous situation with all of their penion and healthcare benefits! GM had to make more fuel inefficient vehicles because they needed to get the additional profits! (They don't explain why Toyota, who should be equally motivated by profits, decided to take a different, longer term approach with fewer short-term gains.) But they do acknowledge that Detroit tried. As an example of Detroit's will, they trot out GM's Saturn project. Oh? I think it's more generally accepted that Saturn stumbled not for want of but for lack of trying. GM's attention was distracted by the short-term gains in the profitable big truck sector. But even with that lack of attention, even with a struggling product line, Saturn's sales rose by 6 percent last year while GM overall fell by almost 9% (LINK). In other words, GM was so wrong about what consumers wanted that even when they gave them half-baked but relatively fuel efficient Saturns, they still bought them over other the marques on which GM was focussed! What would have happened if GM had attended to Saturn a little earlier . . . maybe sometime around when Toyota was investing in hybrids? What would have happened if GM management had the obvious foresight to imagine a world with higher fuel costs?

The WSJ goes on to say that the debate about whether the government should impose higher fuel economy standards is actually a test of who has more clout, "the men and women who work in American factories, or the affluent greens on both coasts who can afford to pay a premium to own a Prius to indulge their concern about global warming."

But the Prius doesn't have a premium price. That's an old myth, traced back to when dealers were commanding a premium over sticker price. The Prius is directly competitive with other cars in its size segment. For example, a Chevy Malibu Maxx, the hatchback version of that class American midsize car, has a base price that's only $1600 less than a Prius. It's about a 12 inches longer but in most interior dimensions it's only slightly bigger except the trunk, which is about 50% larger with the rear seat up (14.4 vs. 22.8 cu ft). Still, the cars are definitely within the same league. Compromising slightly on space, the Prius owner gets dramatically better fuel economy, easily double, for about the same base price. Is it just affluent greens who are pushing Prius into the top ten most popular cars? I don't think so. Most of the truly affluent folks I know go for fancier marques like Lexus or BMW, placing their environmental checkmarks in other columns in their lives. The Prius is simply a good, basic car not a status symbol anymore.

What I think the WSJ is really upset about is that their world view is being challenged. They have a hard time acknowledging that it's the lack of foresight by the American auto industry to forecast the effect of energy prices and global warming on consumer pocketbooks and consumer tastes. It's WSJ-style thinking that has produced the situation that Detroit now finds itself, not left coast liberals.
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