Calif. clean cars mandate gets a chance to become rule of the road

Wednesday, August 13, 2003

By BRIAN MELLEY, Associated Press

SACRAMENTO, Calif. — The nation's toughest auto emissions regulation may finally become a reality after three automakers said Tuesday they would drop lawsuits that have threatened a California clean-car rule.

General Motors Corp., DaimlerChrysler and Isuzu Motors said the latest incarnation of a policy that's been 13 years in the making convinced them to settle litigation with state air regulators, who agreed to drop appeals.

The settlement strengthens the possibility that automakers will be forced to build cleaner cars rather than continue fighting to weaken the emissions rules.

"This is good news for clean air in California and it's good news for the advancement of auto technology worldwide, because we're going to see clean cars hitting the streets," said Jason Mark of the Union of Concerned Scientists, which has fought to keep the regulation intact.

The deal means that GM — the company that inspired the 1990 rule by developing the first commercial electric car and then became its most vocal opponent — will focus on producing hybrid gas-electric cars and hydrogen fuel cell cars, said Beth Lowery, a GM vice president.

GM officials also conceded that persistent questions about why it was battling the California rules had taken a public-relations toll.

"When you have litigation, it tends to be the thing people talk about," Lowery said.

Last summer, the automakers and some central California car dealers successfully challenged the landmark requirement that 10 percent of cars sold in the state this year — about 100,000 vehicles — be nonpolluting.

When the rule was passed, only battery-powered electric cars met the standard. When the industry objected, the rule was eroded to allow low-polluting vehicles to help make up the quota.

The change was done to appease automakers, who sued anyway, claiming the policy promoted more fuel-efficient cars — policy turf of federal regulators.

Automakers won a round in state court, and in June 2002 a federal judge in Fresno, Calif., also agreed and put the regulations on hold. As a result, the state retooled the so-called zero-emission vehicle rule even as it appealed.

In April, the air board revised the regulation to reflect automakers' resistance to build electric cars and the technological improvements that have come since the rule was first passed. The rewritten rule requires automakers to put 250 hydrogen fuel cell vehicles on the road by 2008, 2,500 by 2011 and 25,000 by 2015.

The fuel cell car runs on electricity from a chemical reaction between oxygen and hydrogen and emits only clean water from the tailpipe. It has been touted by Detroit and the White House as the car of the future, and several experimental models are on the road in California. But they cost about $1 million a car and a fueling infrastructure could be decades away.

The rule also requires that nearly 120,000 hybrids and 2 million low-emission vehicles be sold by 2009.

Jerry Martin, a spokesman for the Air Resources Board, said the agreement does not prevent future litigation.

Lowery said GM will not sue if the rule remains unchanged from a recent amendment that allowed more types of hybrids that count toward the quotas. The industry has continuously fought mandates and Lowery said the required number of fuel cell cars may need to be changed after a panel reviews the technology's progress.

But the settlement seemed to present the possibility of a truce between those trying to clean the worst air pollution in the nation and those who make cars for the nation's largest auto market.

"I think it's a positive development they've backed off the lawsuit," said V. John White, a Sierra Club lobbyist. "Maybe it's also a sign that we're going to be able to work together."
http://online.wsj.com/article/0,,SB106149998755684000,00.html

Wall Street Journal

August 22, 2003

U.S. BUSINESS NEWS

MEDIA & MARKETING

Hybrid Autos May Proliferate But Their Profile Is Changing

By JEFFREY BALL

Staff Reporter of THE WALL STREET JOURNAL

A lot more hybrid gasoline-and-electric vehicles are likely to hit showrooms in coming years as a result of a legal settlement announced last week between California clean-air regulators and two big auto makers. But those hybrids may not curb U.S. fuel consumption as much as many people expect.

Not all hybrid vehicles are created equal. The only hybrids currently on sale in the U.S. -- small cars from Toyota Motor Corp. and Honda Motor Co. -- average 45 to 60 miles per gallon, but their size deters many buyers. In the next few years, several auto makers say they plan to roll out hybrid versions of sport-utility vehicles or pickup trucks. Those models are expected to prove more popular with average consumers. But that's because they'll use their electric power to boost acceleration -- not just fuel economy.

These performance-oriented models, while friendlier to the planet than today's conventional SUVs and pickups, may not be the ecological panaceas that Americans envision when they hear the word hybrid. "With this nascent technology, the public still will be grappling to understand how that [automotive] category is defined," says Alan Lloyd, chairman of the California Air Resources Board, the clean-air agency whose settlement with General Motors Corp. and DaimlerChrysler AG's Chrysler unit is likely to significantly increase the number of hybrids sold nationwide.

The confusion extends beyond California, the nation's biggest auto market. Several Northeastern states are likely to adopt California's rules once the state finalizes them. In Washington, Congress is considering differing proposals for tax credits intended to encourage Americans to buy hybrids by defraying the extra cost -- often several thousand dollars -- of those vehicles in the showroom.

The changing profile of the hybrid is exemplified by Toyota. In October, the company will roll out a new version of its Prius hybrid car it says will average 55 miles per gallon, about double the fuel economy of what Toyota says is the comparable gasoline-powered car, the Camry. Late next year, Toyota plans to roll out in the U.S. a hybrid SUV, a version of its Lexus RX 330, that will pair the SUV's six-cylinder gasoline engine with an electric motor. The hybrid version will average about 30 mpg -- about 50% better than the conventional model -- but will deliver more power. "The vehicle becomes focused on something consumers will pay for, which is performance," says Dave Hermance, Toyota's chief spokesman for its hybrid programs. "We're going to sell them performance and give them fuel economy."

So far, hybrids remain a tiny niche in the U.S., accounting for well under 0.5% of the nation's new-vehicle sales. Although hybrid sales spike a bit when gasoline prices rise, suggesting that some Americans are choosing the cars for fuel economy, most Americans buying them today appear either infatuated with technology or particularly committed to the environment.

In June, John August, a 33-year-old screenwriter in Los Angeles, traded in his BMW and paid cash for a Toyota Prius, which retails for about $20,500. Mr. August says he drives about 60 miles per week and has had to fill up his Prius only once since he bought it. "I bought it mostly because I didn't need a car that could race down the street. I live in Los Angeles, where you're lucky if you can go 30 miles per hour," he says, joking about the city's traffic congestion.

California legal settlement stemmed from a state program designed more than a decade ago to put thousands of nonpolluting battery-powered electric cars on the state's roads. The auto industry called the state's so-called zero-emission-vehicle mandate misguided, pointing out that battery-powered cars remained too expensive and cumbersome to attract many buyers. Acknowledging the criticism, the air board in 2001 told auto makers they could get credit toward the mandate by building hybrids that were especially fuel efficient.

That announcement prompted the suit from GM and Chrysler. The two argued that though California had created its zero-emission-vehicle program to fight the state's notorious smog problem, it now was trying to turn the program into an effort to attack a separate environmental issue: fuel economy, a surrogate for global warming. By doing so, the suit argued, California transgressed a legal line, because federal law says that only Washington can set fuel-economy policy.

Rather than continue to duke out the issue in court, California settled, removing the reference to fuel economy from its rules and giving the auto industry more leeway to comply using a variety of hybrids.

The rules, hugely complicated, give auto makers various options to comply. But California officials estimate that auto makers are likeliest to pick a scenario in which collectively they will have to sell about 430,000 hybrid vehicles in the state from 2005 through 2010 -- more than double the number envisioned before the state made its changes this spring.

Why did auto makers agree to that change? One reason is that their suit against California was giving GM and Chrysler a public black eye. Environmentalists frequently were lambasting both companies -- particularly GM, the world's largest auto maker -- for trying to thwart what the activists praised as the most aggressive attempt in the world to get the auto industry to build environmentally friendlier cars.

Another reason: California's latest changes reduce the amount of electric power that a hybrid needs to have to earn its manufacturer credit toward meeting the California mandate.

Both GM and Chrysler have said they plan to roll out versions of their full-size pickup trucks in the next year. Chrysler won't say how much of a fuel-economy improvement its hybrid will have over a conventional pickup, and the company says an even bigger factor in its decision to settle the California suit was that the state ensured that the auto maker could get credit for small electric vehicles it has been selling there. GM says its hybrid pickups will get about 10% better fuel economy than conventional models.

That's a far smaller percentage of fuel-economy improvement than Toyota's and Honda's hybrids offer. But GM and Chrysler officials say their strategy will do more to reduce U.S. reliance on foreign oil and global-warming emissions, because it's these big pickup trucks that are consuming so much gasoline.

The California air board's Mr. Lloyd makes no apologies for the settlement with GM and Chrysler. For the rules to have any environmental effect, he says, they have to be at least somewhat palatable to the auto industry. "This way we get cleaner air faster," he says. "We can't produce cars. They have to be convinced that there is a market out there."

Write to Jeffrey Ball at jeffrey.ball@wsj.com 4

MICHAEL HILTZIK / GOLDEN STATE

 

Feathers Fly in Hollister After Sparrow's Nose Dive

Michael Hiltzik

August 25, 2003

It's a safe bet that there aren't many fans of the Hanagan family left in the Northern California city of Hollister.

Certainly not as many as there were when Mike Hanagan and his son Tom first came up with their Corbin Motors Inc. venture in the late 1990s. They proceeded to fill the locals' heads with dreams of turning Hollister into the world manufacturing center of a snazzy electric car called the Sparrow, and accepted thousands of dollars in investments for their fledgling enterprise from their neighbors.

The townspeople embraced the venture for a while. They basked in reflected glory when the ovate three-wheeled runabout landed a cameo appearance in an "Austin Powers" movie. They watched prospective buyers and dealers fly in from all over the country to be shuttled around town in Tom Hanagan's luxury Bentley. They bought into the Hanagans' projections of millions of dollars of profit in years to come.

When the dream died — the company went bankrupt in March after building scarcely 300 cars — it seems much of the city came down to earth with a thud.

As the scale of the failure became clear, the locals, among other investors, started complaining loudly about the Hanagans' alleged mismanagement of the company. The local newspaper, the weekly Pinnacle, chronicled the spreading rage and, arguably, helped stoke it.

The 18,300-circulation newspaper freely quoted investors calling the Hanagans crooks and liars. At one point it reported, entirely erroneously, that Tom Hanagan had admitted to holding $6.8 million in Corbin Motors shares in a family account in Florida. This, in turn, fueled speculation that the family had systematically drained investors' funds to pay for what the Pinnacle termed their "extravagant lifestyles."

The Hanagans contend that the Pinnacle's articles made a bad situation worse by spreading the incorrect impression that the company had failed not for legitimate business reasons, but because of outright thievery.

They also complain that the newspaper's articles were rife with mistakes. The Pinnacle reported, for example, that Mike Hanagan paid himself a salary of more than $180,000 a year at Corbin, while he says he worked for free and lost, by his reckoning, more than $3 million of his own capital in the failed venture.

The Hanagans acknowledge that they failed to bring these errors to the newspaper's attention until last week, when they sent the Pinnacle a five-page retraction demand covering articles as far back as April 2002. (The newspaper says it would have corrected any errors had it known of them at the time.)

But the Hanagans also raise the legitimate question of why the Pinnacle, while recording the anguish and bitterness of local investors in what it hinted might be one of the "biggest financial scandals in the history of San Benito County," never got around to mentioning one fact that it knew beyond dispute: Among Corbin Motors' aggrieved shareholders were the newspaper's two owners.

Pinnacle Publisher Tracie L. Cone, who invested $18,000 with her partner, Editor in Chief Anna Marie dos Remedios, in 2000, says she can't now remember whether the paper ever disclosed the couple's investment in print. But no such disclosure appears in any article about Corbin available on the newspaper's online database. And certainly none is contained in any of the stories the Pinnacle ran after April 2002 detailing the company's decline and fall and wholesaling the accusations of fraud. At least one of these pieces bore Cone's own byline.

Cone told me she doesn't believe her readers needed to know about the investment. "If we were making statements that created a situation that we were going to benefit financially from —then absolutely, we should have disclosed," she says.

On the contrary, she says she and dos Remedios have written the matter off. "We haven't filed a claim with Bankruptcy Court," she says. "We figure we took a gamble and it didn't pan out."

*

Lack of Disclosure

Leaving aside the basic dishonesty inherent in the practice of referring in print to "investors" without revealing that the category includes themselves, Cone's and dos Remedios' investment loss in Corbin Motors may have colored their coverage of the company's downfall, possibly without their even being aware of it.

The only way to inoculate themselves to the charge that they may have a conflict of interest, which the Hanagans do indeed contend, is to have been open about it.

And the fact remains that some of the things the Pinnacle has said about the Corbin bankruptcy could well end up financially benefiting Cone and dos Remedios.

By reporting allegations that the Hanagans have cached corporate funds in personal accounts, for example, the newspaper could be helping to feed a nascent shareholder effort to fund an independent search for assets. That search, which might result in a financial recovery for the early backers of the company, would cost at least $200,000 — but will only take place if enough investors and creditors believe it will be worthwhile to put up the front money.

At this writing, it's unknown whether any hard evidence exists that the Hanagans spent any corporate funds on personal expenses. It's possible that bankruptcy officials and state securities regulators eventually will uncover evidence of fraud. "That's what we're looking at right now," says John W. Richardson, the company's bankruptcy trustee.

But as yet, they haven't produced any such proof.

The Hanagans insist that although they sometimes used the same credit cards for company and personal purposes, they rigorously kept track of which was which and paid for any personal expenses themselves. The documentation was "very specific and correct," Tom Hanagan says, and will be "clear as day" to the investigators.

*

Bad Choice of Investors

"If a person invests and loses their money, they're angry and upset and disappointed," Mike Hanagan says. "Add the accusation that people stole your money, and they feel betrayed too. That's where the hate comes in."

If that's so, the die was cast soon after Mike Hanagan hit on the idea of capitalizing on environmental fervor and the availability of venture capital at the start of the dot-com boom by building an ecologically friendly car.

Hanagan was already well-known in the motorcycle world as Mike Corbin, the owner of Corbin-Pacific Inc., a prominent private maker of motorcycle saddles and accessories. (He had picked the Corbin name out of the air years earlier as a trademark, and used the two names interchangeably.) With his son Tom, also known as Tom Corbin, he set up Corbin Motors to exploit some novel electric motor technologies, and distributed a business plan to investors.

In short order, however, it became evident that the Sparrow was a lemon. It was top-heavy and therefore prone to falling over in a sharp turn. Its battery system was too weak to drive as far as its designers promised between charges. At a South Dakota motorcycle rally in 1999, a rainstorm shorted out the electrical system of a prototype model, sending the driverless vehicle careening around the fairgrounds, headlights ablaze, until it smashed into a truck.

While the company was trying to fix the Sparrow's flaws, the dot-com boom faded. Investment capital became harder to come by. Then the economy turned sour, hurting sales of a $14,000 one-seat vehicle that was manifestly a discretionary buy.

By 2002, Corbin Motors had amassed piles of lawsuits from stiffed suppliers and disaffected Sparrow owners. "The company probably geared up too fast and never solved its technical problems well enough," Mike Hanagan says.

The Pinnacle ran a comprehensive article in April that year detailing Corbin Motors' overly optimistic sales projections, troubles with the cars, litigation with suppliers and other red flags.

In early 2003, state securities regulators started working on a lawsuit, eventually filed in May, alleging that Corbin had illegally issued unregistered stock by selling to investors who did not meet the legal standard of $200,000 a year in income or net worth of $1 million. The suit also contended that the Hanagans misrepresented the financial condition of the company to investors.

State officials say they are still in the process of assembling evidence to back up their allegations. The Hanagans, for their part, say they can document that every buyer signed certifications that they met the standard, and they deny that they misrepresented Corbin's condition.

After the company's bankruptcy filing, the Pinnacle's articles grew progressively more negative. Its single most damaging assertion, first made on May 1 and repeated in a later article, was that Tom Hanagan had admitted at a court hearing that the family was holding Corbin Motors stock through a Florida company worth $6.8 million. The report may have contributed to investors' frenzied speculation that, at last, a hoard of cash could be seized to restore losses.

*

Shares Held by Family

Laura Rasmussen, a lawyer for several investors whose direct questioning had elicited the statement from Hanagan, herself believes that "probably some people in the back of the courtroom simply misunderstood" what was said, and repeated their misconception to the newspaper.

That said, Rasmussen remains convinced that the Hanagans have squirreled away millions in corporate funds. "I've found the Pinnacle to be very reserved," she says of the coverage.

The Hanagans say the record eventually will bear them out. "The company spent every penny it got," says Tom Hanagan, "on payroll, marketing, business expenses — and building cars."

*

Michael Hiltzik can be reached at golden.state@latimes.com .

11:17:07 Aug. 27, 2003)

By LARRY EDSALL

Ford’s Escape will join the ever-growing list of hybrid-powered vehicles when it comes to the market in 2003. If it’s a success, look for more hybrid SUVs from other manufacturers.

“Hydrogen,” THEY whisper, as though we were Dustin Hoffman in the role of Benjamin in The Graduate. The experts are convinced that our future is in hydrogen-powered fuel cells to provide propulsion for our cars and trucks. But with development still to do on both the technology and the infrastructure, such vehicles won’t be commonplace until your unborn grandchildren get their driver’s licenses.

But cleaner, leaner vehicles are here now and will roll out in increasing numbers in the coming months and years. They’re hybrids, which use an internal-combustion engine and an electric motor to provide power.

So far, such powertrains have been available here only in the Honda Insight and Toyota Prius. But J.D. Power and Associates forecasts that by 2006 American car buyers will buy a half-million such vehicles a year, choosing from among 20 models of hybrid cars, trucks and sport/utilities.

Honda’s hybrid Civic (page 19) goes on sale next spring. Ford Escape and Dodge Durango sport/utility hybrids are due in 2003. Dodge and GM both plan full-size hybrid pickup trucks. General Motors’ ParadiGM hybrid system works in a variety of cars and crossovers, some of which are due around 2005. Honda recently unveiled the Dualnote concept car that gets 400 horsepower from its 3.5-liter V6/electric motor combination. Toyota president Fujio Cho says his company will produce 300,000 hybrids worldwide a year by 2005 (and there are hints from his company that if the Ford Escape hybrid is a success, Toyota can follow fairly quickly with a hybrid Highlander).

So consumers will have many hybrids from which to choose... but will they? “So far, the market has been driven by legislation in the United States and Europe,” says Thad Malesh, an economist and director of the alternative power technologies group at J.D. Power.

Before Sept. 11, says Malesh, that interest was driven by record-setting gasoline prices in the summers of 2000 and 2001, and the prospect of that trend continuing in 2002 and beyond. But in the aftermath of Sept. 11, J.D. Power research reveals new interest from a much larger audience that sees energy security as an important national issue.

“This is going to be a top-of-the-line issue,” Malesh says. “It’s not going away, and if the president holds true to his word for pushing a national energy policy, my hope is that it’s going to include a greater element of conservation.” “Social values are dynamic, they’re not fixed,” adds Robert Bienenfeld, senior manager of product planning for American Honda Motor Co. Hybrids will gain credi-bility with consumers as they appear in more mainstream vehicles. Malesh says his research shows that many people interested in hybrids don’t necessarily want their vehicles to scream, “I’m green!” “The Honda Civic introduction in March will be a huge event,” says Malesh, adding that the next big step will be the Ford Escape hybrid launch.

“From our perspective, this will be a real critical test of consumer acceptance,” Honda’s Bienenfeld says of the hybrid Civic’s launch. “Hybrid technology in and of itself doesn’t tell you what kind of vehicle you’re going to get,” says Bienenfeld. “We think we’ve got a really sophisticated and refined driving experience in the Civic.”

“Hybridization is the path to the future,” says Dave Hermance, executive engineer for environmental engineering at the Toyota Technical Center USA. But Hermance realizes (as do the others) that “the mainstream buyer wants proven technology,” so at first hybrids will go to “techno-friendly” customers, but word-of-mouth will spread, and soon more variations will follow.

J.D. Power’s Malesh says hybrids increasingly will “play to the heart of the mainstream automotive market. “An internal-combustion engine that gets better emissions but not better mileage is going to be at a competitive disadvantage to a hybrid that gets both,” he adds. Not long ago, Malesh says, research showed that only 25 percent of automotive consumers were aware of hybrid technology. That figure is now 75 percent, “but they really don’t understand the technology, and that the electric motor has all of its power available at a dead start, that it acts like a supercharger, that it’s fun.”

http://www.autoweek.com/cat_content.mv?port_code=autoweek&cat_code=carnews&loc_code=index&content_code=01865309

GM pins hopes on hybrids to help boost California sales

By RICHARD TRUETT | Automotive News

LOS ANGELES -- General Motors hopes its upcoming fleet of environmentally friendly gasoline-electric hybrid vehicles will help rebuild its sagging market share in California.

GM has just 18 percent of the California new-vehicle market, the nation's largest.

The automaker is conducting a nationwide "tech tour," in which environmental groups, government officials and others can test-drive GM's future hybrid and fuel cell vehicles. The tour stopped at Dodger Stadium in Los Angeles last week, where GM officials outlined the automaker's early plans for California.

"Unfortunately, GM has not been one of the state's favorite automakers in recent years," says Beth Lowery, GM's vice president for environment and energy. "California consumers have a lower opinion of GM and are less likely to consider GM brands than they were even a few years ago.