Page last updated at 09:27 GMT, Wednesday, 14 January 2009

Cheap fuel threatens emission cuts

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The big draws at this year's Detroit Auto Show are all electric.

By Michelle Fleury
Business reporter, BBC News, Detroit auto show

It is not every day that you hear a senior car executive call for higher petrol prices.

Bob Lutz
They're going to buy the biggest car they can afford the petrol for
Bob Lutz, General Motors

What makes it even more surprising is that the comment was made by General Motors' (GM) vice-chairman Bob Lutz.

For years GM and Detroit's other two home grown car companies, Ford and Chrysler, resisted calls to improve fuel consumption.

They argued it was not what customers wanted.

Last summer, when petrol prices in the US more than doubled, they discovered they were wrong.

Now they are in the global race to see who can produce the most fuel efficient cars with low emissions.

Drivers' choice

The problem is petrol prices have fallen back below $2 per gallon.

Toyota Prius
Toyota's new Prius delivers impressive mileage per gallon, but at a cost

Which brings us back to Mr Lutz.

He does not believe mainstream customers will pay more for an environmentally friendly car without an accompanying saving at the petrol pump.

"Even in a good economy, you're not going to get Americans to buy these cars if petrol remains at $1.50 a gallon," he says.

"They're going to buy the biggest car they can afford the petrol for."

Hard sell

In describing the problem as he sees it he draws comparisons with battling obesity.

Tesla
Whether it's in the US or in certain European markets, governments are stepping up
Diarmuid O'Connell, Tesla Motors

"If you want to fight national obesity," he says, "you have to increase the price of fatty foods. But the US won't do that so they force the clothing manufacturers to produce only small sizes."

He may have a point.

At the Toyota stand they have been showing off their environmental credentials, from the cars, to the recycled glass and the bamboo flooring used for their display.

But falling petrol prices coupled with the economic downturn have hurt sales of the Japanese carmaker's successful hybrid vehicle, the Prius.

Low emission cars may be good for the planet, but the technology they use is more expensive and that cost gets passed on to customers.

The question is: if petrol prices in the US stay at their current levels, will consumers be willing to pay more for the new Prius with its impressive 50 miles per gallon when it comes out in 2010?

Electric future

Tesla Motors, which has been very successful at generating buzz for its own electric sports car, certainly hopes so.

The Silicon Valley company, which is also supplying batteries and chargers for Daimler's new electric Smart car, hopes the government will inject money to help it develop an electric family car.

Given the costs involved, Tesla vice-president Diarmuid O'Connell thinks it makes sense for the government to offer tax incentives or other breaks to encourage manufacturers to make more environmentally friendly cars.

"Whether it's in the US or in certain European markets, governments are stepping up and are saying 'OK, we'll provide some sort of loan financing, loan guarantee financing, something that doesn't unduly hurt the taxpayer but something that keeps the momentum going'," he says.

In Washington they will be watching closely.

President-elect Barack Obama's team is considering whether to support battery production in the US as part of any economic stimulus plan.

But until people start buying new cars again, the electric dream will remain just that.

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