Bob Lutz Says Americans Will Not Move to Small Cars Until Gasoline Is More Expensive

By Brendan Moore

01.28.2008

Last week, Bob Lutz, vice-chairman of General Motors, gave a speech to the Automotive News World Congress in Detroit in which he said that Americans were not going to start liking small cars until the price of gasoline went up. Way up, that is, like to close to European levels, which average around $8 a gallon for regular unleaded as I type this. Lutz’s point was that most American consumers have to want to buy a smaller, more fuel-efficient vehicle because it makes economic sense for them to do so, as opposed to expecting most American consumers to someday want to buy a small, fuel-efficient vehicle out of political or environmental concern.

Quoting from Automotive News (paid subscription required), the host of the World Congress event, Lutz said the following (Automotive News text in italics):

” If for the last 15 years we’d had a slow but sure rise in federal fuel taxation of, say, 15 cents a gallon per year — that would have gradually put the customer in the equation,” he said.

Over time and without any federal fuel economy regulation, the markets could have naturally and gradually transitioned Americans into smaller and more diesel-oriented vehicles, Lutz said.

” I’m not advocating tax hikes or calling for higher fuel prices, I’m just explaining the difference between the European fleet and our own,” he said. ” In America, instead of raising fuel prices, we’ll end up having to raise new vehicle prices, because of the increased use of lightweight materials and fuel-saving technology.”

That will cause more people to hang on to the vehicles they have longer, slowing down new sales growth, ” which is exactly counter to the intended effect,” Lutz said.

” Europeans, at their fuel prices, are willing to pay premium prices for premium small cars that deliver terrific fuel economy. That is not the case here in America, land of the big truck and big horse” and, he added, ” the big American.”

The new federal regulations will also fail to lower the U.S. dependency on petroleum and imported oil, Lutz said. The best near-term solution to doing that is to adopt more E-85, ethanol-burning vehicles.

” It’s just common sense,” Lutz said. ” You don’t roll over the whole fleet at once. It takes decades — and the bigger the price disparity between the old ones and the new ones, the longer it takes.”

Well, he’s right, of course, except for the part about E-85, which I think is at least a time-wasting cul-de-sac, if not a dead-end solution. But he’s right about everything else, but it really doesn’t matter if he’s right or not, because politicians make the laws, including the CAFE regulations and one thing that politicians are NOT going to do is raise the federal gasoline tax. It’s a lot easier to push off responsibility for encouraging Americans to use less gasoline on to the vehicle manufacturers.

But they know, and just about anyone else that that gives the matter any kind of thought knows, that Americans will stop using less gasoline when gasoline is expensive for a few years in a row. As an example, I guarantee that 36 consecutive months of $5 a gallon gasoline would have Americans embracing smaller cars in a hurry.

But instead we have the bad theatre that is CAFE. It is a joke, but the joke is on us, the American public, because CAFE is not going to be anything close to a solution to our oil addiction vis-à-vis the vehicles we drive.

COPYRIGHT Autosavant.net – All Rights Reserved

Author: Brendan Moore

Brendan Moore is a Principal Consultant with Cedar Point Consulting , a management consulting practice based in the Washington, DC area. He also manages Autosavant Consulting, a separate practice within Cedar Point Consulting. where he advises businesses connected to the auto industry. Cedar Point Consulting can be found at http://www.cedarpointconsulting.com.

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11 Comments

  1. He is right, and right on everything, including ethanol. Maximum Bob strikes again.

  2. I think that a move to EV cars is the way to go, but if gasoline stays cheap at $3.00 a gallon, then what’s the point?

  3. People do something when their pocketbook is affected. I think Lutz is a blowhard, but this makes sense because if gas doesn’t keep going uo, then people won’t seek out more fuel-efficient cars. Of course, if oil gets more and more scarce, then I guess we won’t have to worry about it.

  4. I am never able to understand why people (including you and Bob Lutz say that CAFE won’t work. Of course itw will work. It worked before. And it will work now because it will FORCE the auto companies to make the cars that people need to buy in order to use less gas. I want to buy an SUV that gets 40 mpg, don’t you? I want to buy a car that gets 70 mpg, don’t you? If I had the same car I have now and it got triple the gas mileage I’d be pretty happy and I’d be using a lot less gas and those are the kinds of cars that CAFE will force the auto companies to build. How is that not effective?

  5. I loved the line about the cul-de-sac.

    kyle r, you say you want a 40 mpg SUV, but you probably also don’t want one the size of today’s 40 mpg cars. I learned 15 years ago when I was a freshman in economics 101 that there’s no such thing as a free lunch. You either pay big bucks for expensive technology (i.e. hybrids, diesels, exotic lightweight materials), you lose nearly all performance, or you drive a smaller vehicle. You’re not going to EVER see something the size of a Suburban or even an Acadia/Enclave getting 40 mpg with the same performance, space, and safety of the current models.

    The thing is, people are happy with their Suburbans for the most part. But the result of CAFE is that manufacturers are forced to build smaller more efficient vehicles, that consumers don’t really want. You’re not going to see 40 mpg Suburbans, you’re going to see 50 and 60 mpg subcompacts and fewer Suburbans.

    You will NOT have an Accord-sized vehicle for $24,000 that gets 70 miles per gallon and goes 0-60 in 7.5 seconds. You might get 2 out of 3, but it’s virtually impossible at this point to have all three (all three being cheap, economical, powerful). You can have economical and powerful (Lexus LS600hL sedan) but it’s $115k. You can have economical and cheap (Toyota Yaris) but it’s not powerful. You can have cheap and powerful (Ford Mustang) but it’s not economical (not in the sense that you’re talking about). Get the idea?

  6. i wouldn’t call the LS600hL economical (in terms of fuel consumption or anything else)…

    in my opinion, it all boils down to having reasonable performance with reasonable safety measures with a reasonable price this is possible, but the entire industry decided to make their profits (and recently losses) differently…

    the entire auto industry in NA dropped the ball over the past 15 years. you used to be able to buy a mid sized sedan with a V6 that got 34 mpg (but, it took 10 seconds to go from 0-60 mph – oh my)… in today’s market, you can buy a mid sized sedan with a 4 cylinder engine that gets 33 mpg and takes 8 seconds to go from 0-60 mph. I would not call that progress to be proud of…

  7. I’m not saying the LS600hL is a smart economic choice, but relative to the V12 flagships of BMW and Mercedes-Benz, and compared to its own cousin, the LS460L, it’s economical.

    The 600hL gets 20/22.
    The 460L gets 16/24.
    The M-B S600 gets 11/17.
    The BMW 760li gets 13/20.

    So yeah, you could argue that it gets 62% beter economy than the M-B and 40% better than the BMW.

    I’m not a fan of the car, but it is relatively economical for what it is.

    I also agree with your example with the family sedans. A modern four is better than an old V6 (the old GM 2.8L 60 degree V6 was a whopping 125 horsepower WITH fuel injection for years). However, the same way Geo Metros used to hit 50 mpg on the highway at the expense of comfort and safety, modern consumers do not appear to be willing to drive extremely lightweight vehicles because of added safety equipment and reinforcements in the structure, etc. (plus airbags, ABS, etc. that the aforementioned Geo lacked).

  8. “in my opinion, it all boils down to having reasonable performance with reasonable safety measures with a reasonable price this is possible, but the entire industry decided to make their profits (and recently losses) differently…”

    Yeah, but they did that because gasoline in the US is cheap and always has been cheap. To Lutz’s point. If gasoline were $8 a gallon, consumers would REALLY, REALLY WANT small cars, and since auto companies want to sell what Americans want, then that’s what they would be selling, not big SUV’s and “personal use” full-size pickup trucks.

  9. Doesn’t matte whether you like him or not, Lutz is right. Facts are stubborn things.

  10. Yeah, for all the criticism I see heaped on Lutz, I think he’s pretty spot on here (although I question, as does the author, the viability of E85). Higher gas prices is the most obvious, fundamental way to change people’s car buying and gas consumption habits.

    People say a gas tax inordinately affects lower income people. To this I say: 1) You can easily give a tax break to people under a certain income bracket, 2) Where’s the outcry about cars inevitably getting more expensive to meet these MPG standards? Do people really believe that car makers will just snap their fingers and double their cars’ fuel economy? There will be a price. There always is.

    If politicians weren’t so afraid of telling their constituency this inescapable fact (or conversely, if their constituency would actually accept the truth), we wouldn’t have these half-baked ideas like CAFE.

  11. It didn’t take $8 a gallon, it only took half that to turn the U.S. market upside-down. At $4 a gallon, small cars are a pretty hot ticket right now. CAFE has become irrelevant for the most part. The auto-makers are in a panic for the most part, and I don’t think there will be too many personal use pickups and SUV’s in the future.

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