Jerry Flint Commentary:
Time for Plan B

Detroit May 30, 2008; We’ve had a taste of $4-a-gallon gasoline, and the world has not come to an end.

We may cut back on things such as restaurants, Ben & Jerry’s and other treats – but we can get by. It’s a good thing, too, because auto makers can’t do anything about fuel prices. Neither can Saudi Arabia.

The main culprits are our own government, whose foolish policies have led to the collapse of our currency and the simultaneous run-up in the price of oil, which is based on the dollar, plus speculation in oil futures, which pushes up petroleum prices.

There will be some bouncing up and down, but I figure during the next couple of years gas prices will rise another $1 a gallon.

That still will be less than what Europeans have been paying for years, and they have not stopped buying new vehicles. What’s more, they still buy luxury models with 12-cyl.engines, lots of powerful midsize demons such as the BMW 5-Series, and pocket rockets such as the Volkswagen GTI.

What’s different is Europeans don’t buy fullsize pickups and use them like personal cars, and they don’t drive big truck-based SUVs such as the Chevy Suburban. But they get by and so will we.

But that’s “we” meaning consumers. If Detroit is going to get by, it needs a Plan B.

Here’s what it needs to do:

It needs to get back into the luxury-car business, where the profits are. The biggest and most powerful luxury vehicles are not going to get 35 mpg (6.7 L/100 km), so just pay the gas-guzzler fines, like Mercedes, Audi and many other foreign luxury brands do. Instead of milking big SUVs for profits, Detroit needs to build more cars rich folks will pay big money to own.

Detroit needs to export. The U.S. is turning into a lower-cost production base. Honda will start shipping Pilot cross/utility vehicles to Russia late this year. In the past, Honda has exported numerous vehicles from the U.S. BMW and Mercedes export from the U.S. as well. If Detroit can build a serious export business, it will expand the variety of cars it can profitably build.

There’s no question Detroit needs attractive new small cars that get high mileage. My friend Fred tells the story of a lady friend who went into a VW dealer to buy a Beetle. It was the old days, but the price had soared to $6,000. She was upset the little car cost so much, but the salesman said: “Lady, if you want economy, you’ve got to pay for it.”

That has to be the other piece of the strategy: building high-mileage cars that are little jewels and sell for top dollar, like $30,000.

Look at the Prius hybrid-electric vehicle: Without the fancy powertrain, it’s a $16,000 Toyota. Yet buyers wait in line to pay $26,000 for it.

It’s about time General Motors and Ford learned what selling fuel economy is about.

Alas, it isn’t about getting a 25% improvement on a 16-mpg (14.7-L/100 km) pickup. Sure, that makes a great report at an SAE meeting, but it’s tough to get Joe Consumer to pay $10,000 extra for a pickup that gets 20 mpg (11.7 L/100 km) instead of 16 mpg.

The trick is to excite buyers, make them say “wow.” Make them brag to neighbors about their mileage and make the neighbors so jealous they visit a showroom. You don’t do that with 20 mpg.

Now, 50 mpg (4.7 L/100 km) is exciting. It’s the 38DD of fuel economy. We sit up and take notice of sexy numbers like 50 mpg. All these years have gone by, and there’s no Ford Focus HEV or Chevy Cobalt HEV. Why isn’t every Saturn Astra sold here a full hybrid?

Four-month sales of the Ford Focus, which is hot, were 73,000 units. Sales of the Prius during the same period were 65,000 units. Focus and Prius are the same size, but buyers pay $8,000 more for the Prius.

The next important small car coming is the Ford Fiesta (that’s the sleek looking model that was called the Verve at the Detroit auto show).Will there be a full hybrid version, not just a “mild” hybrid with a starter-alternator system?

The mild versions cost less to build but add only a few miles per gallon and no “wow” factor.

Detroit has attacked the fuel economy issue like engineers rather than salesmen. GM has concentrated on advanced technology such as first the hydrogen fuel cell, then its dual-mode hybrid system, now the Chevy Volt plug-in HEV project.

Two aren’t ready and the dual-mode hybrid isn’t catching the public imagination, because it means paying a $10,000 premium for a vehicle that gets 20 mpg. Ford has a full HEV system in its Mariner and Escape hybrids but never seemed to figure out the way to catch the public’s attention was with a unique small high-mileage car.

And Chrysler has just been out of it.

These auto makers need leaders who not only understand the business, and the customer, but who also are salesmen at heart.

Jerry Flint is a columnist for, and former senior editor of, Forbes magazine.

Jerry Flint Commentary: Time for Plan B

Jerry Flint Commentary:
Time for Plan B