Super-fuel-efficient 2-seater caps auto executive's career

The 130-mile trip from VW headquarters in Wolfsburg to Hamburg marked the end of a nine-year run that shook up Europe's largest automaker and left successor Bernd Pischetsrieder with a tough act to follow.

When Piech took over in 1993, the company was losing money. Last year, net profit was $2.59 billion and the stock is at $51.09, an increase of 9 1/2 times including a stock split.

During Monday's test drive of the literally named 1-Liter Auto, designed to get 100 kilometers per liter of fuel -- or 239 miles per gallon -- Pischetsrieder rode in the back seat.

As of today, he's in the driver's seat, moving into the precarious position of running a company that is thriving but facing strategic issues critical to maintaining its market position. There is ferocious competition for shares of flat markets in Europe and the United States, and that has pushed prices lower. Profits can grow only if costs can be cut using more efficient manufacturing, and market share must be gained with ever-new designs.

Last month, Pischetsrieder (pronounced PIH-shets-reed-er) announced that slowing sales would depress profit in the first three months of this year, although he didn't give a figure.

They're facing the same problem everyone else is,'' said David Cole, director of the Center for Automotive Research in the United States, pointing to the worldwide excess of production capacity over sales.

They are confronted with an industry that has too much capacity worldwide. The competitive environment is going to continue to be a challenge.''

Piech (pronounced PEE-etch) is a member of automotive nobility -- and ran Volkswagen with an autocratic flair. His grandfather, Ferdinand Porsche, was an early 20th-century auto pioneer and helped plan the factory that later made Beetles; his father, Anton Piech, ran Volkswagen during World War II, when it built military vehicles, and his uncle, Ferry Porsche, founded the high-end sports-car maker.

As chief executive, Piech rammed his ideas through even against resistance within his own company. He slashed the number of vehicle platforms from 16 to four. He ignored doubters and re-created the 1960s Beetle as the New Beetle, a hit in the key North American market.

Style is probably one thing that will change under the new boss. Many view Pischetsrieder as more of a team builder than the my-way-or-the-highway Piech --

a transfer to someone more like a coach than a king,'' as analyst Cole put it.

http://www.nytimes.com/2002/01/15/business/15FUEL.html

(Matthew Wald is a decades-long environmentalist...)

January 15, 2002

A Fuel Cell Initiative Too Costly for Use in Cars

By MATTHEW L. WALD

WASHINGTON, Jan. 14 The goal of the research partnership between Washington and the auto industry a midsize car that would go 80 miles to a gallon with no loss of performance or carrying capacity was a stretch, critics said, when it was established by President Bill Clinton in 1993. As it turned out, they were right.

But a successor program announced by the Energy Department last week, centering on fuel cells instead of hybrid diesel-electric systems, is in some ways an even larger leap, as portrayed by auto executives and fuel cell experts.

Fuel cells which convert hydrogen into electric current cleanly, quietly and very efficiently could turn up over the next few years in cellphones and laptop computers, and a while after that, in lawn mowers, scooters and perhaps vacuum cleaners. But not in cars, at least not soon.

"Cars, in the industry view, are down the line," said Peter Hoffman, editor and publisher of the Hydrogen and Fuel Cell Letter.

Among the problems, a practical technology for storing hydrogen in the quantities needed for a vehicle has yet to be invented. The carmakers hope for a metal that can absorb hydrogen and later release it when heated. But for now, they are working with tanks in which hydrogen is stored at pressures up to 10,000 pounds a square inch, a level seldom seen in consumer products.

And even if the technology for attaching the hydrogen to a metal for storage was perfected, the infrastructure for distributing and retailing it does not now exist. That is a formidable challenge, as the people who tried to sell a much simpler alternative vehicle fuel natural gas discovered to their sorrow in the 1990's. Natural gas cars require hardly any new technology, and natural gas lines reach tens of millions of homes and businesses, but extending them to filling stations proved impractical.

And natural gas has a cost advantage over gasoline. Perhaps the biggest problem for fuel cells is that, for now at least, the cost is roughly 10 times that of internal-combustion engines for the same amount of power.

Mr. Hoffman, the author of "Tomorrow's Energy: Hydrogen, Fuel Cells and the Prospects for a Cleaner Planet," said that since mobile fuel cells were not now commercially available their price was not clear, but that estimates ranged from $1,500 to $3,000 a kilowatt of capacity. A car would require about 50 kilowatts, which implies a propulsion system costing $75,000 to $150,000.

The cost could come down somewhat if the body were made of something besides ordinary steel and aluminum, as cars today are. But that, too, requires inventions.

At General Motors (news/quote), which is eager to produce fuel cells, executives say they may not have to make the fuel cells as cheap as gasoline engines, since a fuel cell car would earn its keep in higher fuel economy and the electric motors would not need expensive components like catalytic converters or transmissions. But they would still have to cut the cells' cost by at least 80 percent, the executives say.

Ford and DaimlerChrysler (news/quote), in conjunction with Ballard Power Systems (news/quote), a fuel cell manufacturer near Vancouver, British Columbia, have built prototypes and invested heavily in bringing costs down. Ballard says it has supplied fuel cells to Honda, Hyundai, Nissan and Volkswagen (news/quote), as well. Researchers have reported great progress on making the cells small enough for automotive use, but they still have a long way to go on costs.

Manhattan Scientifics (news/quote), a fuel cell company that is preparing several products for commercialization, said it thought that customers would pay $3,000 a kilowatt, but only for cells that generate about a watt and thus cost $30 or so. That would be enough for cellphones or laptop computers, not cars.

The company's chief operating officer, Jack Harrod, said he also hoped to sell units for lawn mowers and scooters, but not until the price was below $500 a kilowatt, and he thought it might need to get down to $250. Ordinary gasoline engines in cars produce a kilowatt for about $30, industry experts say.

A house is an easier choice, experts say, since even a midsize suburban home with central air-conditioning uses only five or six kilowatts at peak, making the cost disadvantage per kilowatt less of a problem. There is also no storage problem if the house has natural gas, from which hydrogen can easily be extracted. And a house uses energy 24 hours a day, which would extend the benefits of efficiency and low pollution; most cars, by contrast, are on the road two hours a day or so.

For car executives to justify the cost of fuel cells, whatever that turns out to be, they are considering branching out into entirely new areas. Christopher E. Borroni-Bird, director of design and technology fusion at General Motors, suggested using fuel-cell-equipped cars to generate electric current when they are parked, and plugging them in to deliver power to the grid.

Carmakers are optimistic that they can eventually push the price way down, although unlike the old partnership the new one has no timetable, or even specific goals, according to Jennie Sweet of the United States Council for Automotive Research, the private-industry side of the partnership. And it is also not as complete a break with the old program; the old partnership included fuel cell research, and the new one will continue research on diesel-electric hybrids.

Another problem for the new partnership is the all-or-nothing nature of a fuel cell vehicle. While the old partnership never produced the 80- miles-a-gallon sedan, it did advance some technologies that now have a toehold in the market and are infiltrating deeper into auto assembly plants and showrooms. The old partnership goaded Toyota (news/quote) and Honda, which were not members, into putting hybrid electric-gasoline models on the road, and American manufacturers are in various stages of developing their own hybrid models for sale.
http://www.businessweek.com/bwdaily/dnflash/feb2002/nf20020211_1704.htm?c=bweuropefeb13&n=link17&t=email

BusinessWeek Online February 12, 2002

Newsmaker Q&A

Running the Fuel-Cell Marathon

Shell Hydrogen CEO Donald Huberts on the long-term benefits and challenges of using hydrogen to power cars

Donald Huberts is CEO of Shell Hydrogen, a Royal Dutch/Shell subsidiary established in 1999 to explore development of the fuel-cell car industry. The fledgling sector received a boost last month when the Bush Administration decided to help subsidize the development of fuel-cell cars, with the goal of lowering pollution and U.S. dependence on foreign oil.

Fuel cells work by converting hydrogen or a hydrogen-rich fuel into electricity, which powers the motor. Pure hydrogen would be the ideal fuel, as it produces no emissions, but the element presents certain challenges, says Huberts. On Jan. 25, he spoke from Amsterdam via telephone with BusinessWeek Reporter Christine Tierney. Edited excerpts from their conversation follow:

Q: How do you view the Bush Administration's new policy to help subsidize the development of fuel-cell cars and the necessary infrastructure?

A: Rather than focus on short-term solutions, the Administration is saying we should try to make a fundamental shift in the way cars are fueled, because that would help ensure secure supplies. Hydrogen can be produced from almost any primary energy source. At ground level, it has zero emissions, and it's better from a global-warming perspective. You kill three birds with one stone.

The transition isn't going to happen overnight. But it's important for all of us working on hydrogen and fuel cells that the Administration has embraced this [long-term] vision and is willing to [apply] resources to helping develop it.

This debate has always been driven by three factors: concerns about ground-level emissions, global warming, and secure supplies. In different parts of the world, factors can [carry more weight]. In California, local pollution is the strongest factor. In Germany, it's concern about global warming. [Overall in the U.S.], concern about supply security is perhaps the strongest driver. But once you get the solution into the transportation system, you can satisfy all those needs.

Between now and 2008, we'll see expanding fleet trials of buses and cars in select communities in Europe and in the U.S., and there will also be trials on a smaller scale in Japan. Depending on the feasibility demonstrated in those trials and what we learn, the fleet use will be scaled up toward the end of this decade, to perhaps thousands of vehicles. But not until 2012 or so will we see these vehicles in the showroom. This is not a sprint, it's a marathon.

In Europe, DaimlerChrysler is producing fuel-cell buses for 10 cities, and that's the leading project to demonstrate these technologies in Europe under real-life conditions. Daimler has been working on this for a long time, but they're not alone. General Motors is right up there.

This technology requires much more development, but once we get past that, we believe it'll be possible to store big amounts of hydrogen in them. Also, because of the bonding between the metal and the hydrogen, it's very safe because the hydrogen is quiet without being under extreme pressure or extremely cold. Some researchers are trying to make the hydrogen sit comfortably in a carbon, such as charcoal. Because charcoal is very light, that may turn out to be even better than metal.

We're working on metal hydride storage tanks in a joint venture called Hera with Hydro-Quebec of Canada and GFE of Germany. We're also working on projects demonstrating how hydrogen can be supplied. We're building a hydrogen station in Iceland and one in Amsterdam. We've built a liquid hydrogen station for the California Fuel-Cell Partnership, and we'll be building more.

We can only afford to make such an infrastructure transition once. We have to make sure that what we're going to do is feasible, that it will deliver not only environmental and supply security, but that customers want it. And we have to phase it in in a way that's affordable.

JUNE 18, 2001 Business Week

PEOPLE

Bob Lutz: The First Virtual Carmaker?

The ex-Chrysler president has designed a super-luxury sports car--and wants suppliers to put it together

Robert A. Lutz is living large. The 69-year-old former Chrysler Corp. president still flies his Soviet-era fighter jet and speeds around Detroit in a Dodge Viper. His status as North America's preeminent car guy--earned in the early 1990s, when he helped reinvigorate Chrysler with cool, risky vehicles--is unchallenged. In fact, even though Lutz left the company after its merger with Daimler Benz in 1998, Chairman Jürgen E. Schrempp still consults him about how to fix the auto maker. Schrempp likes to call Lutz his rabbi. Indeed, Lutz is one of the few people in the industry who tells it like it is: At the Detroit Auto Show in January, he said many of the sport-utility concept cars "resembled angry kitchen appliances."

What's more, Lutz has enjoyed some success as a CEO in his own right. In the two years since he took over troubled battery maker Exide Technologies, he has settled its legal problems (the U.S. attorney's office accused Exide of deceptive sales practices), cleaned up its books, and acquired one of its rivals.

Now, Lutz is putting his good name and moxie to work for himself. He has started a company called Cunningham Motor Co. to build what would be the first super-exclusive sports car (it would go for about $250,000) to come out of America in 50 years. Actually, "build" might not be the right word, since Lutz only wants his company to design the car. He would like Cunningham's suppliers, whoever they end up being, to piece the vehicle together, with one of them handling the final assembly.

The idea is clever, and it certainly reduces the amount of money Cunningham needs to get started since there would be no plants to construct, no distribution centers to maintain, and hardly any offices to rent. Even so, Lutz is talking about some $80 million; just the engine could cost $20 million to develop. Raising that much will be tough. After all, automotive history is littered with romantic but failed startup efforts, from Preston Tucker in the late 1940s to John Z. DeLorean in the 1980s. Lutz and his partner, Briggs S. Cunningham III, the son of racing legend Briggs S. Cunningham Jr., have each invested about $1 million. So far, they've raised just $2 million from others.

Few fault the car's design. A model of the Cunningham C7, a sleek coupe with a much bigger interior than European sports cars, went over well at the Detroit Auto Show. Lutz describes it as combining the lush leather appointments of a Bentley with the performance--powered by a 500-horsepower V12 engine--of a Ferrari. He figures he can sell about 1,000 cars a year, even in an economic downturn. "There are enough wealthy people who have all the Mercedes-Benzes and Ferraris they'll ever own. If they could have something new that their friends don't have, they'll buy it," he says.

NO TAKERS. Lutz has tried before to "redefine American luxury," as he puts it. At Chrysler, he led the development of two prestige concept cars that never made it to showrooms. Now, after 30 years of working for the big carmakers, Lutz is operating on his own terms. The irony, though, is that he may need his old colleagues to get the C7 on the road. Industry analysts believe he'll have to work with another car company to cut development costs and share parts. "It's easy to talk about this, but it's very tough to do," says David E. Cole, director of the Center for Automotive Research in Detroit. "Someone like Lutz has presence, but he requires a partner, preferably another auto maker."

That's the trouble. Lutz may be the best-connected executive in Detroit, but no one seems ready to risk hooking up with him. He talked to another former employer, General Motors Corp. (GM ), about building new versions of a few engines for the C7. But GM is notoriously cheap these days. "There's very little chance GM would invest," says David E. Davis Jr., the former editor of Automobile magazine who is working with Lutz on the project. Lutz also approached DaimlerChrysler (DCX ) but hasn't been able to strike a deal.

What Lutz believes he has going for him that others didn't is his idea of creating a virtual car company. His plan is for a network of automotive suppliers to furnish parts and assemble them into modules, which would then be shipped to one large supplier that would put the vehicle together. This wasn't possible in the early 1980s, when former GM executive DeLorean tried to start his own company in Northern Ireland. In the years since then, auto makers have thrust onto their suppliers many more design and engineering responsibilities as well as more assembly work.

Basically, what motivates Lutz is a desire to prove people wrong. "If there is conventional wisdom that says this can't be done, Bob will want to do it," says Mark A. Lutz, Bob's younger brother and a retired economics professor at the University of Maine. That defiance dates back to his childhood, spent in Switzerland and the U.S. Their father, a banker who at 93 still goes into his Zurich office daily, was so strict at home that Bob grew to oppose anything that came as an edict, says Mark. Indeed, when Bob held executive posts at GM's German unit and at BMW in the 1960s and 1970s, he refused to follow European protocol. BMW's Quandt family expected Lutz to kiss the hands of aging baronesses at social events. He didn't. GM forbade him to ride his motorcycle to work or to race his car. He continued to do so. Eventually, he returned to the U.S. to work for Chrysler.

That same brassy approach may help recharge Exide. When he took the helm in late 1998, some colleagues thought Lutz had made a big mistake. The battery maker was bleeding money, had racked up $1.3 billion in debt, and was being investigated for selling Sears, Roebuck & Co. (S ) lower-grade car batteries marked as premium ones. "It was not a functioning company," Lutz says. Since then, he has written down millions of dollars in bad investments, paid $27.5 million to settle fraud charges against Exide in relation to the Sears case, divested ancillary businesses, and closed plants. He also dumped its high-profile but unprofitable deal to supply Sears Diehard batteries. After several years of losses, Exide eked out profits of $7.8 million in 1999 and 2000. Now, though, he has to contend with a weakening auto business that is dragging down battery makers.

Salvaging Exide would be enough for some executives. But Lutz wants to see a Cunningham car racing down a highway before he says "enough." Nonetheless, "I don't think even Bob knows if he can pull it off," says Davis. Chances are Lutz can't. But he will probably get closer than anybody else could. And he still has his day job to fall back on.

By David Welch in Detroit

Hyundai Joins 2 Automakers in Planning for Engine

By DON KIRK

SEOUL, South Korea, May 5 — Hyundai Motor, the South Korean carmaker, forged an alliance today with DaimlerChrysler of Germany and Mitsubishi Motors of Japan to work on engines that all three companies can use in their cars.

The chief executives of the three companies initialed an agreement today to form a company, the Global Engine Alliance, just five days after General Motors signed a contract to take over most of Daewoo Motor in 60 to 90 days.

Hyundai's agreement with DaimlerChrysler and Mitsubishi showed its determination to respond to the prospect of increased competition after G.M. revitalizes Daewoo under the banner of GM Daewoo Auto and Technology.

Under the agreement with DaimlerChrysler and Mitsubishi, Hyundai will provide the basic designs for engines for midsize and luxury cars that the other companies can tailor to specific needs.

The agreement was seen as the precursor of projects to make the same engines for all three companies and ultimately to produce a single car the companies can market under their own brand names.

The agreement marked a breakthrough for Hyundai's president, Kim Dong Jin, who had been criticized for saying that the companies would work together on a car. The agreement reflects a much deeper alliance among the three going back to the founding of Hyundai Motor in the 1960's. Mitsubishi provided the engines for the first Hyundai cars and still owns about 10 percent of Hyundai stock. DaimlerChrysler owns 37 percent of Mitsubishi Motor and 10 percent of Hyundai Motor.

Dieter Zetsche, Chrysler's chief executive, agreed the project could be "the starting point for closer cooperation" among the three companies.

Hyundai Motor has been pushing the alliance despite reluctance at DaimlerChrysler, whose executives at one stage seemed wary of investing in such a project while the company was having financial problems. Hyundai and its affiliate, Kia, which it acquired in 1998, both recorded their highest profits last year while together capturing 75 percent of the Korean car market.

Nonetheless, Hyundai fears it may lose ground to GM Daewoo. Daewoo has slipped to third place behind Hyundai and Kia with 10 percent of the market; GM Daewoo hopes to regain the 20 percent market share that Daewoo had held before going into decline.