So Automakers "Won" on SUV MPGs -- Now They Need to Innovate

The carmakers and Washington have come up with their own grand compromise (sorry, debt-ceiling worriers) on a new federal fuel-economy standard. As my BNET colleague Jim Motavalli reported yesterday, the number is 54.5 mpg across vehicles fleets by 2025. Some critics are irked that an exception was carved out for certain trucks. But they're overlooking the newly opportunistic nature of the car business.

Been there, done that
Carl Pope, the Chairman of the Sierra Club, yesterday offered a fairly wide-ranging and mostly spot-on argument about all things automotive in the Huffington Post. But he also fretted about the truck exception:

...the auto industry negotiated for and received special treatment for what they call "work trucks," arguing that these cannot be electrified and are harder to make lighter in weight than cars. (True.) The danger, however, is that the auto industry may choose to exploit this loophole once again, to make vehicles that are really intended for family and passenger use, not genuine work vehicles.

But I think Pope is assuming that the carmakers haven't learned anything from the trials that they've faced over the past few years -- or from the vertiginous recent economics of the oil industry. Simply put, automakers are now getting serious about innovating their way out of gas-price cycles.

Don't bet the farm
The Detroit of the 1990s was all about trucks. The profit margins were so fat on them that it no longer made sense to mess with small cars. Besides, the Japanese and South Koreans did them better. So why not leave that market -- with all its difficulties -- to them and focus on attacking the luxury competition (BMW, Mercedes, etc.), another profitable segment?

It all went swimmingly until the 2008 gas crunch hit, followed in short order by the Detroit Meltdown. By that point, it didn't really matter if you were General Motors (GM) or Chrysler and could once make money selling full-size pickups and upscale SUVs. Customers were lining up at the Toyota (TM) lot to buy a Prius.

Or a Corolla. Or a Hyundai. Or a Honda Civic. A gas-sipper. Mind you, Detroit knew that this wasn't going to last -- Americans go for small cars when gas is expensive and immediately revert to their big-car-lovin' ways when prices fall -- but Motown also realized the error of its ways.

That's why today we have both Chevy Volt electric-vehicle and the Chevy Cruze, a small sedan that was the best-selling car in the U.S. last month.

A test of discipline
The automakers got what they wanted on fuel standards. So now they need to put the money they will save by not having to sell fewer trucks to work creating the truck of the future. Ford (F) has already moved in this direction, putting an efficient turbocharged V6 in its best-selling F-150 pickup.

I think they'll be able to do this because they've discovered the beauty of balanced lineup of vehicles. Ford right now has the best lineup in the car business -- a vehicle for every purse and purpose, to borrow a line from GM's legendary mid-20th-century president Alfred Sloan.
GM and Chrysler should follow. And what will drive this? Common sense, newly discovered. The conventional wisdom in Detroit for decades was small cars = waste of time. But suddenly, people are buying -- and praising -- small American cars.

Detroit has discovered that it can do it all -- just like real car companies are supposed to. This will benefit them globally. But it will also ensure their survival at home.

Related:

• New Mileage Standards: An SUV-Friendly 54.5 MPG Standard Now Looks Likely
• When It Comes to Cars, the U.S. Will Never Be Europe -- and That's OK