Car of the future won't be cheap

LOS ANGELES - Dec 06 - USA TODAY

It all sounds so easy: Impose higher average gas mileage standards on the auto industry. Motorists will not only save money, but America will wean itself off oil.

Just one problem. In meeting the new regulations, cars could cost thousands more than buyers would ever save on fuel costs, industry leaders and experts warn.

"The American public should start getting used to paying more," says Joel Ewanick, General Motors' new marketing chief. High-tech cars built for big increases in gas mileage and lower carbon emissions a decade from now "are not going to be cheap."

To get a look at the car of the future, USA TODAY gathered top executives from five major automakers -- GM, Hyundai, Nissan, Mazda and Volkswagen -- at the recent Los Angeles Auto Show.

What emerged from their roundtable was a vision of cars that are cleaner, more fuel-efficient and more feature-filled, but perhaps smaller and less powerful.

And significantly more expensive. The inevitability of higher sticker prices, as federal gas-mileage rules tighten, looms large for an industry struggling to recover from the worst sales implosion in generations and attract more buyers.

Conventional engines can be modified with an array of techniques to save 37% on gas -- at a cost of about $2,200 per vehicle, an independent study by the National Research Council of the National Academy of Sciences found. That's the kind of change automakers need just for the government's 35.5 mile-per-gallon corporate average fuel-economy mandate for 2016. The requirement for cars now is 27.5 mpg.

That cost is relatively modest, however, compared with the cost of more ambitious goals that the Obama administration is considering -- 47 to 62 mpg by 2025. Those would require more drastic changes in cars, such as massive weight reduction and plug-in electric motors, that could add $10,000 or more in today's dollars to sticker prices. New cars could be out of reach of many more potential buyers, and automakers could face lower sales as a "new normal."

Since modifying existing engines and other changes won't be enough, automakers are investigating and even field testing just about every alternative fuel technology around, from electric variants to hydrogen power.

"In the longer term, if you picked the wrong horse, then you're ... potentially out of the game," said Jonathan Browning, CEO of Volkswagen Group of America.

Prices will rise significantly

Whatever that new horse is, it will cost more, according to the June study by the NRC.

Diesel engines, long popular in Europe, cost about $2,000 to $3,000 more than similar gas engines but can use about a third less fuel, the study found.

Gas-electric hybrid powertrains, such as on Toyota Prius or Ford Fusion Hybrid, cost $3,000 to $9,000 more than a gas engine alone, but the mpg increase can be big, too. The NRC found a Prius uses, on average, half the fuel of a Toyota Camry.

Then come plug-in hybrids or full electrics among currently commercial technologies. Nissan, for instance, is selling its all-electric Leaf for more than $33,000 with shipping. Chevrolet is charging $41,000 for its plug-in Volt, which has a backup gas-engine generator so it never runs out of juice. Similarly sized vehicles from Nissan, such as the Versa and Sentra, and Chevrolet, such as the Cruze, have sticker prices that start at less than $20,000.

A somewhat less expensive way to increase gas mileage is to pare weight, the report suggests: Shrink vehicle size and substitute aluminum, plastics or carbon fiber for cheaper steel, though also complying with safety rules can be complicated.

The reality is that automakers have largely already run through the relatively easy, cheap ways to gain miles per gallon. Cars today slip through the air, have advanced valve and fuel systems, and often run on low-rolling-resistance tires.

Achieving 60 mpg across a maker's lineup could add $10,000 to $15,000 to vehicle prices, estimates David Cole, chairman emeritus of the Center for Automotive Research in Ann Arbor, Mich. New cars would become so prohibitively expensive, he says, that many families would try to just keep their old jalopies running. America could "turn into Cuba," which still depends largely on long-maintained 1950s American cars because of its isolation after the Castro revolution.

Environmentalists and the Obama administration, however, believe automakers will find ways to bring down those costs.

"The auto industry says the sky is going to fall. Not only do costs end up being lower than predicted, but the industry thrives in part as a result of better technology," says David Friedman, research director for the Union of Concerned Scientists.

He notes that the government believes consumers eventually would see payback for the higher costs of cars meeting the 2016 rules through lower fuel bills -- in as little as three years based on a $3.50-a-gallon gas price.

And some automakers don't object to much higher mpg mandates. Hyundai Motor America CEO John Krafcik, for instance, said at the roundtable, "We're quite confident that something in the 50 to 55 mpg range is something the industry could get to."

Of course, the South Korean maker is in a better position than Detroit automakers, because it doesn't offer a full line of trucks, which generally burn more fuel.

But Detroit makers are not pushing back against such regulations, as they have in the past. Ewanick said that at the new GM, the attitude has changed. "We're going to be the company that embraces these new (mpg) regulations, the CO{-2} regulations, and we're going to find technology and innovations to confront these things head on."

It's up to the consumers

In the end, however, the consumers will decide. If the offerings aren't right, or too expensive, they won't buy.

Automakers believe many people will see higher vehicle costs as justified simply by environmental concerns. Carlos Tavares, chairman of Nissan Americas, said that Nissan's Leaf, the first pure electric from a major automaker in modern times, has put the industry on the road to not just cutting planet-warming carbon emissions from vehicles, but eliminating them.

"It's not going to happen overnight," he says. But "With the maturation of the technology, we are going to move to what we consider is the destination: zero."

The executives also said they'd like the government to substantially raise fuel prices with taxes, though they admitted that's politically remote. High fuel prices would help justify higher car prices, because higher fuel efficiency would be worth more.

"If fuel prices remain low, this is going to be a challenging industry for all of us for the next 10 to 15 years," Ewanick said. "If we see them go up $4, $5, $6 a gallon, we're going to be fine."

Mazda North America CEO James O'Sullivan said he supports a higher gas tax and said it could get public support if the proceeds are used to rebuild roads and other U.S. infrastructure.

Support for higher gas taxes is "a common point of view in the industry," said Krafcik.

The executives, however, collectively agreed they aren't gloomy about the industry's prospects. Rather, they said they believe the industry can meet its challenges and please customers at the same time. How:

*More features. GM's Ewanick said that even as cars become more fuel efficient and cost more, customers are demanding and paying for extra features to make driving more fun and fulfilling -- such as systems enhancing GM's OnStar to deliver connectivity and useful features through an owner's smartphone. "We're not taking stuff off. We're putting stuff on," he said.

Such features make new cars emotional must-haves and make customers willing to pay more for them. "When you walk into an Apple Store, do you haggle over the price of (a MacBook Air)?" said Ewanick of Apple's wafer-thin laptop. "Why can't the auto industry be that again?"

*Safer vehicles. The auto industry continues to find ways to make cars safer. Hyundai's Krafcik said ingenuity still rules. "Ten years ago, we didn't know precisely how we would put (electronic stability control) and six air bags and get everything into this car, but we did it."

*Thrifty diesels and small gas engines. O'Sullivan says Mazda will sell diesel cars in the U.S. in two years. Meanwhile, more cars have four-cylinder engines that perform like V-6s with big fuel savings. They are "perfectly capable of delivering the horsepower and torque that customers are looking for, but at the same time delivering improved fuel economy," he said.

*More innovation. Nissan's Tavares said the key will be innovation in adding features even to low-priced, entry-level cars. "This is the way to raise the value of our brand. Our industry needs to find collectively the road map to that goal."

*More globalism. Volkswagen's Browning pointed out that in the past, automakers had to make different cars for different countries.

Now markets are more intertwined, allowing automakers to sell nearly identical models worldwide. That lets them spread costs over much higher volume and offer more upscale vehicles across the globe.

"We have today more interchangeability, more flexibility between markets," Browning said.