Auto industry’s turbulent times put car shoppers in driver’s seat

In 1886, Gottlieb Daimler took his gasoline-fuelled internal combustion engine and put it into a converted stage coach to create the first real automobile.

Golfer Tiger Woods

VANCOUVER — In 1886, Gottlieb Daimler took his gasoline-fuelled internal combustion engine and put it into a converted stage coach to create the first real automobile.

Almost a century and a quarter later, most of us are still driving essentially the same vehicle.

Weren’t we supposed to be wafting down the road in smooth, silent, zero-emission electric cars by now?

“I don’t think the industry thought it would come faster,” says Nissan Canada president Mark Grimm as a “test mule” version of the Leaf silently circles a short demonstration track on a grey winter’s day in Vancouver.

“The internal-combustion engine, despite all its pitfalls … it’s served us very well. It’s very economical, but quite frankly things change.”

He says Nissan started tinkering with electric cars 60 years ago.

“Maybe we all thought it was going to be easier, but it isn’t easy.”

Notwithstanding the growing fleet of hybrids and promised electrics like the Chevrolet Volt and Nissan Leaf, we’re decades away from the wholesale replacement of cars driven by the controlled explosion of hydrocarbons.

Only time will tell how much of a distraction the near collapse of the North American auto industry has been.

General Motors and Chrysler are on taxpayer funded life support, a fate Ford avoided only by mortgaging itself to the hilt before the bottom fell out of vehicle sales late in 2008.

The dilemma for automakers is they’re being pushed by government to speed the introduction of Earth-friendlier vehicles such as the Volt while coping with sinking sales.

Despite its brush with corporate death, General Motors has maintained its commitment to the Volt. Chrysler, once a major investor in hydrogen fuel-cell technology, is not even assured of survival, let alone innovation.

“When we go through any downturn like the industry as a whole has had, sure you’re going to have to re-evaluate everything and prioritize,” says Grimm.

Many research and development programs require multi-year funding commitments, forcing hard choices on automakers.

“Have research budgets been scrubbed? Yes,” Grimm says of Nissan.

“But I would say on the EV side we’re solid and we’re going to be solid.”

Still, automakers like Nissan have no idea when their investments will pay off. Consumer acceptance remains uncertain, heavily dependent on energy prices rising.

Dennis DesRosiers, Canada’s best known auto analyst, notes that while hybrids — which use both electric and internal-combustion power systems — are well developed, it’s taken a decade to sell less than 100,000 in Canada, ”which gives you a sense of the acceptance rate.”

“It’s going to get longer than 10 years to get to 100,000 plug-in electric sales.”

Nissan will be selling the Leaf in the U.S. market next fall and in Canada in 2011, in cities that have committed to promoting recharging infrastructure.

Former GM chairman Bob Lutz, now marketing adviser to the new management, promised the Volt would debut next year. Despite its near-death experience, the giant automaker has done all it can to not make a liar out of the legendary product guru.

”We actually start building real cars in the plant next spring,” GM spokesman Dave Darovitz says from Detroit.

The car — electric drive but with an on-board gasoline engine to recharge its batteries during extended trips — won’t actually arrive in dealerships until the end of the year.

”We’ve got some tweaks to make here and there, some software updates but by and large nothing is standing in our way,” he says.

But even with expected heavy incentives, the Volt won’t be cheap.

Darovitz will only say the electric Chevy, about the size of a Toyota Corolla, will command premium pricing for a compact car. Rumoured pricing has ranged up to US$40,000.

Nissan promises the Leaf will be an affordable family car but is vague on the pricing “model” it will use.

The good news is that anyone shopping for new wheels right now will enjoy a buyer’s market for some time as automakers cut production capacity to fit shrunken demand.

Canadian new car and light truck sales are expected to drop to around 1.5 million for 2009 and stay near there in 2010, compared with 1.64 million in 2008, when sales crashed in the last couple of months.

That’s buoyant compared with U.S. sales, expected to be around 10.5 million after averaging 16 million for much of the decade. Sales might have been even lower without the government’s cash-for-clunkers incentive.

”Pricing’s going to be very lean, so they’ll be able to get deals because there’s just too much capacity and there’s too many people fighting it out,” says DesRosiers.

Michael Hatch, chief economist for the 3,400-member Canadian Association of Automobile Dealers, says intense competition and the effects of the economic downturn have pushed prices way down.

Cash rebates, low-interest financing and even a limited revival of retail auto leasing are all being used to entice would-be buyers.

“Right now prices are lower than in the last 25 years or so when you take into account average incomes and other factors like that,” says Hatch.

“That can’t continue forever. Eventually prices are going to stabilize and inch up a little bit. That could happen in the next year or so.”

Even consumer watchdog George Iny thinks this is a good time to be tire-kicking.

“My thinking is here that we are reaching the end of a period of great value, very good vehicles, over-production and so great pricing,” says the Montreal-based president of the Automobile Protection Association.

“There will be a new wave and it probably won’t be coming at the same prices as today.”

Brand and buyer loyalty, waning for years, is even weaker now as established GM marquees such as Pontiac and Saturn disappear, following on Oldsmobile’s heels. GM also cut lose thousands of North American dealers, including 240 in Canada — some in business for almost a century.

DesRosiers says the restructuring has created thousands of so-called free agents, people who bought, say, nothing but Pontiacs from their local dealer but now find themselves adrift.

The upheaval in the new-vehicle market may have an impact on the used-car market, which benefits from a steady supply of low-mileage, well-maintained off-lease vehicles.

With production cuts and the decline of unprofitable retail leasing, that supply could start to shrink after next year. But for now lease-return vehicles represent great value in newer used-car market.

Iny’s organization recently finished a cross-Canada mystery-shopper probe, which turned up high-quality, one-owner lease returns even on smaller independent car lots once known more for high-mileage beaters.

“My sense is that in fact used cars are still in a golden age,” says Iny. “Prices have come up but they were too low, really low for many segments.”

A decade ago, about one in two vehicle transactions involved used models, says DesRosiers. Today it’s 64 per cent and expected to rise to 70 per cent within two or three years, he says.

Improvements in build quality have made people more confident about buying second-hand. Now, two-thirds of light trucks and half of passenger cars built 15 years ago are still on the road.

”The traditional knock on used cars is you’re buying someone else’s problem,” says DesRosiers.

”You’re getting four owners through the life of a vehicle now,” says DesRosiers. “It used to be two, possibly three.”

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