Ford & DOE Chiefs Weigh in on Planning for High Oil Prices
Josie Garthwaite Jun 25, 2009 - 5:25 PM CDT
Ford (s F) President and CEO Alan Mulally and Department of Energy chief Steven Chu don't agree on everything, but both are laying out plans for the potential of higher oil prices in the future, though neither are sure when, if or how high oil prices will rise. At the Edison Electric Institute conference in San Francisco on Thursday, the two took the stage, one after the other, and laid out their visions of their tasks, which have been aligned as of late; the two have been talking every three days for the last few weeks leading up to the DOE's agreement to provide $5.9 billion in low-interest loans to help Ford retool its plants and clean up its vehicle lineup, Chu told reporters today after his talk.
For Ford, that means it's going to start moving away from its bigger is better mentality. Only in America would a truck that's big enough for you to live in it and tow your house behind it at the same time, as Mulally put it, reign at the top of the sales charts for as long as Ford's F-series trucks. "Everywhere else in the world, it's smaller vehicles," taking at least the top two spots.
But pretty soon, we can expect to see Euro-style smaller, more efficient cars in the U.S. from the Detroit automaker. Asked if the company would introduce any of the fuel-efficient subcompacts and diesel vehicles that Ford sells in other markets in the U.S., Mulally said, "We're bringing them all." Like General Motors (s GM), Ford has long relied on higher margins from large vehicles, but can't skate by on that strategy in today's market. Mulally says the company is "just about done" restructuring to meet lower demand and changing consumer priorities — "people are appreciating smaller and midsize cars," Mulally said — but how fast Ford moves will depend in part on where fuel prices go and how soon. Mulally said if fuel prices rose quickly, the company could bring in super-efficient small-platform vehicles "right away."
If fuel prices go up long term, it can actually help car companies minimize their risk in the high-efficiency and alternative-fuel vehicle market. If it was up to Ford Executive Chairman Bill Ford, fuel prices could go up, and stay up — thereby helping to sustain demand for high-MPG vehicles — through a gas tax hike, as he suggested at the Fortune Brainstorm Green conference earlier this year.
But, according to the DOE's Chu, who spoke after Mulally, oil prices will go up, period. It's a matter of time, not necessarily taxes. "I don't know what it will do next year or in the next two years," Chu said, but "the price of oil will go up in 10 or 20 years." That fact, and what Chu understands as a given that we will eventually live in a "carbon constrained world," means we should take a cue from Wayne Gretzky. Chu quoted the hockey player saying, "I skate to where the puck is going to be, not where it's been."
Ford's plan for "skating toward" cleaner cars and better sales, if you will, involves finding more efficiency in conventional internal combustion engine models across all of its vehicles for the near term, while also moving ahead with hybrid technology and flex-fuel vehicles. "Our technology is such that we're on our second, third, fourth generation of hybrid vehicles already," Mulally said. Next up are plug-in hybrids, although "the really compelling vision is, of course, the all-electric vehicle," including the planned electric Ford Focus. "Considerably further out," Ford still expects its investments in hydrogen vehicle technology to pay off.
By contrast, the DOE recently decided to cut $100 million from its hydrogen fuel cell program for 2010 after the agency concluded that converting to a hydrogen car economy with the next 10 to 20 years is unlikely.
Chu and Mulally might have been talking more regularly of late, but their back-and-forth is hardly over. Next up is the climate and energy bill, which is scheduled to go to a vote in the House tomorrow but remains months away from a final version for the president's signature. Pressed to express support for the bill backed by the agency that just filled his company's coffers, Mulally said, "We're going to have a lot of time to really debate this. We've got a long way to go."
Image courtesy of American Progress Action Fund, and Flickr creative commons.