Green dreams, unplugged

MONTREAL, QUEBEC - In the dank basement of McGill University's Macdonald Engineering Building, a century-old stone edifice erected when buggies ruled Montreal's then-muddy roads, Jeff Turner is designing a car befitting the 21st century.

As co-captain of McGill's Formula Hybrid Racing Team, the 24-year-old graduate student in mechanical engineering tweaks his computer models to determine how hot his electric car's lithium-ion battery can get - and, hence, how fast the vehicle can go - before bursting into flames.

The university is counting on Mr. Turner's car to lead McGill to its third consecutive victory in the annual Formula Hybrid International engineering competition among major U.S. and Canadian schools.

Mr. Turner, meanwhile, hopes that the experience eventually will help him land a job in the suddenly high-revving electric-car industry. "I'm interested in applying engineering to reduce the impact of people on the planet," he explains.

The 2009 edition of the hybrid contest will be held in early May, just a few days after Chrysler LLC - the sickest of the three big Detroit auto companies - is slated to find out whether it will live or die under a U.S. government plan. It's purely a coincidence, but one that underscores the extent to which the beleaguered North American auto makers are out of touch with Mr. Turner's generation, a cohort that is just entering its car-buying years.

From gas-powered subcompacts to fuel-efficient diesel engines to all-electric vehicles, the market for green cars is about to reach a tipping point. "If the car makers don't get it, they are not going to continue to exist," says Jay Friedland.

Mr. Friedland is the legislative director at Plug In America, an organization that advocates the shift to electrics.

Just how fast it happens, though, will depend on how governments on both sides of the Canada-U.S. border juggle a set of conflicting objectives.

On one hand, they are vowing to crack down on carbon-emitting activities such as driving gas guzzlers. They are promising to impose tougher fuel-efficiency standards on automakers. They are pushing public transit like never before - witness Ontario's announcement this week of $9-billion (all figures in Canadian dollars except as noted) in new investments in light-rail projects in Toronto - and shaping consumer behaviour with incentives aimed at encouraging environmentally friendly choices.

To Mr. Turner's thinking, "what the government can do is increase the demand for these fuel-efficient vehicles we should be buying. If that involves a gas tax that is used to support further developments in technology, then that's an ideal scenario."

On the other hand, the same governments are propping up Chrysler and General Motors Corp. with billions of dollars in order to save jobs. Staving off the car companies' collapse revolves around getting consumers to buy more of the larger vehicles that dominate the companies' current offerings, emissions be damned.

In the throes of a deep recession, it's hard to fault governments for wanting to save jobs. And no one doubts what is at stake. In Canada alone, GM and Chrysler employ almost 25,000 people. Their collapse would strip bare the chassis of the entire Canadian automotive sector, which employs more than 150,000 and in its heyday generated an annual $80-billion.

The U.S., Canadian and Ontario governments gave Chrysler - now on artificial respiration thanks to more than $5-billion in government loans - a month to complete a deal that would see Italian auto maker Fiat SpA invest in the company.

If it completes the deal, Chrysler would be eligible for billions more in government aid. If it doesn't, it could be headed for the junkyard.

General Motors may not be as close to the scrap heap as Chrysler. But it, too, is now living off the state's teat. Since December, it has been promised $16.5-billion from Washington and $3-billion from Ottawa and Queen's Park to keep it going until the end of May. By then, it must file a new "viability plan" with all three governments in order to tap as much as $20-billion more in public money. Either way, it might still face a stint in U.S. bankruptcy court.

The auto bailouts, for all their expediency, represent a case of government policy at odds with itself. That was evident this week when U.S. President Barack Obama's auto task force concluded that GM's Volt, the all-electric car that was supposed to thrust the Detroit automaker into the green age, "will likely be too expensive to be commercially viable in the short term."

The verdict seemed to condemn GM to the role of a spectator in a green-car market Mr. Obama is counting on to meet his own government's objectives for reducing both carbon emissions and U.S. reliance on imported oil.

Electric cars are hardly a new idea. The first models existed in Europe about 150 years ago. By the early 1900s, electric cars were a common sight on the roads of Detroit. In the end, though, electric cars slower than buggies were no match for the internal combustion engine. Man's love affair with speed - and engine repair - soon won out.

The modern push into electric cars came in 1990, when California adopted regulations stipulating that 10 per cent of vehicles on its roads had to be emission-free by 2003. General Motors rushed to develop an all-electric car, the EV1, which was an instant hit with the state's environmental elite. But while a technical success, the EV1 was a commercial failure. When California backed off on that 10-per-cent rule, GM began recalling all of its EV1s and crushed them into scrap metal.

The public outrage - encapsulated in a hit 2006 documentary called “Who Killed the Electric Car?” - breathed new life into the electric-car dream. While campaigning for the Democratic presidential nomination in 2007, Mr. Obama embraced the cause.

The President's recent $787-billion (US) economic-stimulus package includes tax credits of up to $7,500 (US) for buyers of electric cars. The aim is to have a million of the vehicles on U.S. roads by 2015. But it now seems likely that most, if not all, of those battery-powered cars will be built outside North America.

When Mr. Turner graduates next year, odds are that he, too, will leave. Despite the presence of a few tiny niche players, the Great White North is a largely barren land for green car developers. Mr. Turner has already done a work stint in England with Reva Electric Car Co., the Indian automaker whose low-cost electric vehicle (EV) has generated brisk sales in London, in part because EVs are exempt from the congestion charge slapped on gasoline-powered vehicles entering the city centre (the equivalent of about $15).

One of Mr. Turner's teammates just had a job interview with California-based Tesla Motors, a niche player whose $134,000 luxury Roadster is a favourite plaything of the state's enviro-conscious celebrities.

The Obama task force concluded that GM - despite being the first of the Detroit Three (which also includes Ford) to move forward with an electric-car strategy - is "at least one generation behind Toyota." That is not about to change any time soon. GM may be too weak to risk the losses it would probably incur on the first Volts out the door. And even if it did put the car into production, it would still operate using batteries produced in South Korea by LG Chemical. (The battery in the McGill team's electric car is made by a German company.)

Indeed, Japan, South Korea and China have established such a lead in building green cars and their components that it may be impossible for North American automakers to catch up. As a result, instead of Volts, the first mass-produced all-electric car (also known as a plug-in hybrid) to hit North American roads will probably be the next-generation Toyota Prius - due out as early as next year - or the Chinese-built BYD, whose $27,000 sticker price is about half of the expected retail price of a Volt.

China, which has never been a contender in the gas-powered car industry, intends to compensate by becoming the world leader in electric cars. U.S. billionaire Warren Buffett has been so impressed with its progress that his MidAmerican Energy Holdings just bought 9.9 per cent of BYD and will help the company distribute its electric cars in the U.S. by 2011.

The road to greener cars is paved with good governmental intentions. But attempts to prod consumers down that route often end up hurting domestic carmakers. That is what happened when Ottawa introduced the ecoAuto Feebate in 2007, which sent $1,000 cheques to buyers of fuel-efficient cars. The program sparked cries of outrage since it appeared to favour imports such as the Toyota Yaris; Ottawa killed it last year.

In any case, tax credits are not as effective in promoting electric vehicles to baby boomers - still the biggest chunk of car buyers - as $4-a-gallon gas. It was only when oil prices surged last year that boomers' love affair with gas guzzlers started to sour. Were it not for the recession and lack of financing, they would probably be reconciling with their old flame, the SUV, at this very moment. That's what gas at $2 does to them.

In fact, GM and Chrysler are counting on it. The viability plans they submitted to the U.S. and Canadian governments in February - which the governments have since rejected - forecast a sharp upturn in traditional car sales beginning in 2010. GM predicted that U.S. car sales will hit 16 million in 2013, up from a 30-year low of about nine million in 2009, and that gas prices would remain relatively low for the next five years.

And though it plans to sell or close the division that makes the Hummer, that testimony to gas gluttony, GM also predicted that compacts and subcompacts - categories dominated by imports - will account for no more than about 16 per cent of overall car sales in coming years.

Though governments on both sides of the border sent GM and Chrysler back to the drawing board to rework their assumptions, most industry analysts agree that sales of traditional gasoline-engine cars will bounce back to healthy levels after the recession.

The nine million cars expected to be sold in the U.S. this year "is completely unsustainably low," says Michael Burt, the associate director of industrial outlook at the Conference Board of Canada. "At that rate, you'd see a massive shrinkage of the U.S. fleet" over time as Americans usually scrap their old vehicles at a rate of about 15 million annually.

"We may not see 16 million (U.S. sales) any time soon. But I can see getting to 14 or 15 million. That's a 50-per-cent increase over current levels."

What's less certain is the mix, which has direct consequences for the Canadian auto industry. More than 80 per cent of the cars built here are exported to the U.S., and the vehicles produced at Ford, Chrysler and GM plants in Ontario are mostly big ones. What's more, though the major Detroit companies' share of U.S. car sales has fallen below 50 per cent, they still account for about 60 per cent of the cars produced in Canada. So what's good for the Big Three is good for Canada's auto sector.

The inverse is also true. Any move by Americans to smaller cars, much less electric ones, would leave the Canadian industry in straits even more dire than where it is now. Next month, the recession will oblige GM to close its Oshawa truck plant, which makes the Chevrolet Silverado and GMC Sierra. Its Oshawa car plant has already stopped making the Buick Allure, GM Monte Carlo and Pontiac Grand Prix, focusing exclusively on the Chevy Impala and the recently revived Camaro. Though GM boasts about their great mileage, neither of those cars exactly fits the green description.

On the other hand, the North American run of GM's Chevrolet Cruze - its much-touted attempt to compete against imports in the small-car market in every category, from price to performance and reliability - will be built at a plant in Ohio starting next year. The Cruze was engineered at GM's German unit and designed in South Korea as part of its joint venture with Daewoo.

This raises a dilemma for the Ontario and federal governments as they consider extending more help to GM. One of the conditions for additional aid is a requirement that the companies maintain 20 per cent of their Canadian-U.S. output on this side of the border. But Ottawa and Queen's Park have been less clear about what they are doing to make sure that the 20-per-cent share includes at least some of the greener cars North Americans will be increasingly buying in the future.

GM recently retooled its Oshawa car plant, an initiative partly funded with a $450-million investment from governments here, to install a "flexible manufacturing" platform that allows it to assemble several models simultaneously. In addition to the Impala and Camaro, GM plans in the future to build mid-sized vehicles in Oshawa, including a hybrid model, spokesman Stew Low says. But no firm date has been set for that.

There is no talk at GM or Chrysler about building an electric car in Canada. If and when the Volt goes into production, it will be assembled in Detroit.

Chrysler's green-car strategy turns entirely on its proposed partnership with Fiat. The Italian automaker would share its technology and expertise in that area with Chrysler, but it's still not clear if that would mean a shift in the kind of cars it produces at its Canadian plants.

Environmentalism is not the only phenomenon driving the shift to greener cars. Economics is playing just as big a role. Once the recession ends and governments turn to paying off their newly accumulated debt, it will play an even bigger one.

"Governments are increasingly looking at road users as a potential source of revenue," explains Mario Iacobacci, the Conference Board's director of transportation and infrastructure policy.

"In the next three to five years, they are going be scrambling to find extra sources of revenue. They will be looking at user charges to fill the budget gap, at the same levelling the playing field between cars and public transit."

Mr. Iacobacci estimates that in Canada car owners currently pay only 40 per cent of the cost of driving, when transportation infrastructure, carbon emissions and accidents are taken into account. This free ride is about to end.

Indeed, it already largely has in Europe, as evidenced by congestion charges in London and Stockholm, massive gas taxes in most countries and toll roads across the continent. Little wonder greener and smaller cars are the norm across the pond.

Can GM and Chrysler go green fast enough to survive a similar shift in North America?

University of Ottawa business professor Christian Navarre is not optimistic. "GM and Chrysler produce the kinds of cars that are more than threatened," he says. "And the models they currently produce in Canada do not correspond to the kind of demand that will emerge in the next five to 10 years."

Yet, any switch by GM and Chrysler to producing smaller and greener cars is fraught with danger. "They abandoned their position in small cars years ago because they couldn't be profitable in this category," notes Prof. Navarre, who teaches at the university's Telfer School of Management.

Unlike SUVs, small cars are marketed to the price-conscious consumer, so their profit margins are much tighter. Costs must be cut to the bone to survive, he adds, an art that foreign automakers have mastered.

Prof. Navarre is not much more sanguine about GM and Chrysler's ability to make money in the electric-car business.

Not only are they starting from behind, they face much higher development costs than, for example, the Chinese. BYD employs more than 1,000 engineers to design its signature electric car. They earn salaries far below those paid to GM engineers, partly accounting for BYD's ability to offer a car comparable to the Volt for half the price.

This does not bode well for the future. Prof. Navarre cites a recent study by the Tokyo branch of U.S. investment bank Morgan Stanley predicting that hybrid electric vehicles - or HEVs such as the Volt, BYD and new-generation Prius - will account for more than 17 per cent of U.S. car sales by 2018.

"We believe 2009 will see HEVs move beyond the fledgling stage, marking a historical turning point that will bring a full-scale expansion in hybrids," the investment bank concludes.

It's not just the North American car makers that are lagging. Of the nine companies Morgan Stanley cites as contenders for the bulk of business for lithium-ion batteries, only one is North American - A123Systems, a Massachusetts Institute of Technology spinoff that counts General Electric, Motorola and Procter & Gamble among its investors.

That baffles Plug In America's Jay Friedland. He is nevertheless optimistic that Mr. Obama's stimulus package, which sets aside $2-billion (US) for advanced battery manufacturing, could help to turn the tide.

Plug In America is also pressing the Obama task force - which will determine whether GM is viable enough to qualify for more aid - to reconsider its harsh verdict on the Volt.

"It took five years for the Prius to become profitable," Mr. Freidland says. "I think we'd see the same thing with the Volt.

"People are accepting that the first iteration of a technology will be more expensive. But the cost curve will come down rapidly."

He is just as nonplussed by Canada's failure to become a player in the development of electric cars. After all, it's not like it would require a paradigm shift. What's more Canadian than a block heater?

"You guys had this tremendous advantage of growing up plugging in your cars," he notes. "And Canada has so much clean electricity."

But Canada's economy is also disproportionately dependent on a certain trio of auto makers. Concern for their health has traditionally topped governments' economic priorities.

One way or another, that era is about to end.

The biggest drawback of electric cars has traditionally been their lack of speed and power, often leading them to be dismissed as impractical, glorified golf carts. The electric car produced in St-Jérôme, Que., by Toronto-based ZENN Motor Co., for instance, has a top speed of around 40 kilometres an hour.

To overcome that hurdle, the Toyota Prius, the first gas-electric hybrid to take off commercially, depends on its internal-combustion engine to propel the car at highway speeds. The car's nickel metal hydride (NiMH) battery stores limited power and weighs several hundred kilograms.

The next-generation Prius will use a lithium-ion battery, the same kind used in most laptop computers and cellphones, which packs several times more kilowatts per kilogram. It will enable the car to run for long distances at highway speeds on its battery.

The new Prius, like the proposed Chevrolet Volt, is often referred to as a plug-in hybrid electric vehicle (PHEV). PHEV drivers would rarely use gas, plugging in to recharge the battery at home or at local "swap" stations along the road. The internal combustion engine would kick in only to recharge on long trips.

Though the cars currently produced in Ontario hardly fit this profile, Premier Dalton McGuinty has vowed to make the province the beachhead for the introduction of electric cars in Canada. In January, Ontario announced a partnership with California-based Better Place to build a network of swap stations in the Toronto area that would sell energy to electric-car users on a subscription basis.

The government also promised to study ways to make Ontario a player in manufacturing electric cars.