5 Reasons Green Vehicles Could Take Off

Even as they fight tougher mileage requirements, automakers are turning out better cars.

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Over the past couple of months, I've driven a hybrid SUV, a truck capable of running on ethanol, a "clean diesel" sedan, and an experimental hydrogen-powered fuel-cell vehicle. Oh, and a few plain old gas-powered cars, too. As an auto writer, of course, I try out different types of vehicles as part of my job. But the expanding variety of technologies available to journalists represents new choices that consumers will eventually enjoy, too.

The auto industry is still of two minds about alternative fuels and higher mileage. Carmakers strenuously oppose government efforts to boost gas mileage requirements, and a behind-the-scenes lobbying battle in Washington will soon erupt into open warfare as partisans on both sides begin fighting over legislation that will raise mileage requirements either by a lot or by a little. Yet at the same time, General Motors will soon put 100 fuel-cell vehicles—which run on hydrogen and emit no greenhouse gases—into consumers' hands for a three-month, real-world test. Honda will roll out a fresh fuel-cell car in November, with its own focus group of customers. More hybrids hit the market every month, and automakers now vigorously compete for green credibility—which means they've decided it can help them make money.

With automakers increasingly serious about finding alternatives to gas-powered cars, here are some of the key trends to keep an eye on:

GM is undergoing a conversion. Execs at America's biggest automaker used to trash hybrids as a PR stunt that didn't make economic sense, and Vice Chairman Bob Lutz has been a vocal skeptic of global warming science. Yet GM, acutely aware of the edge Toyota has gained through the Prius hybrid and other innovative vehicles, seems to be getting green religion. "Project Driveway," the three-month test of 100 fuel-cell vehicles, will be the biggest rollout of its kind; ordinary drivers in California; Washington, D.C.; and the New York City area will drive Chevy Equinox SUVs that are powered by hydrogen, fueling the vehicles themselves at special stations and reporting back their observations. And the company that used to mock hybrids now seems to think they make economic sense after all: It's boasting about two big hybrid SUVs, the Chevy Tahoe and GMC Yukon, that will average about 25 miles per gallon when they debut early in 2008. GM still has market heft, and if the company has decided that green vehicles are good business, it could move the needle across the industry.

Americans aren't all that green. Sure, there are earnest environmentalists, like the first Prius buyers, willing to pay extra for what they believe in. But surveys by market-research firm Yankelovich show that only 13 percent of Americans are passionate about the environment—and they tend to be affluent people on the coasts. "If you want to get people to act greener," says J. Walker Smith, Yankelovich president, "the best thing to do is talk to them about saving money, not about saving the environment." Learning that lesson has helped the automakers develop environmental products that have legs. They know there's a limited market for green products that come with a price premium. But Toyota and Honda have proved there's strong demand for cars with environmental and economic appeal. The killer app in the auto biz is now a green car that costs less, not more, than a conventional counterpart.

Expensive gas is an opportunity. With gas at $3 a gallon—and who knows, maybe $4 by next year—there's more incentive for everybody to invest in alternative-fuel technology: for consumers looking to lower their gas bills, for automakers deciding how much to spend on R&D, for venture capitalists interested in funding cellulosic-ethanol plants or other risky technology. The more expensive gas gets, the sooner we're likely to see cost-effective alternatives to internal combustion engines.

Green technology is multiplying, fast. Hybrids used to be a curiosity. Now, automakers realize that their most popular product lines—such as the Toyota Camry, Honda Civic, Nissan Altima, Toyota Highlander, and Saturn Vue—must feature a hybrid. More hybrid SUVs are coming, to be followed by hybrid pickup trucks bringing some relief to farmers and contractors filling their tanks at $60 a pop. More and better hybrids are forcing innovations in other technologies, too. Mercedes and Volkswagen are pushing new "clean diesel" technology that will meet California's tough emissions regulations, with mileage and performance consumers will love. I recently drove the Mercedes E320 "Bluetec" diesel, which is surprisingly quiet and satisfying. It averages 26 mpg, with as much power as a V-6 model that averages 19 mpg. The diesel engine and fuel both cost more, but the costs ought to come down if the technology catches on. Consumers will do the math, vote with their wallets, and reward the companies with the best offerings.

There could be a technological breakthrough. Toyota has won the early race on hybrids and is reaping the rewards. GM, Ford, Volkswagen, and others would love to leap ahead with their own technological surge, and they might. Several automakers are pushing hard on fuel-cell technology—and keeping fairly mum about their technical capabilities. "We could have something sooner than anybody predicts," says engineer David Friedman of the Union of Concerned Scientists. Breakthroughs in battery technology—they need to get smaller, more powerful, and cheaper, just as for laptops—could boost the prospects for electric vehicles such as the concept Chevy Volt. And cellulosic ethanol, a theoretical wonder fuel made from crops, could end up costing less than gasoline, if it's ever manufactured and distributed in large quantities. If gas drops back to $1.50, all bets are off. But the stakeholders these days seem more likely to double down than to pull their money from the table.

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