One of the challenges of being the front runner is that everyone is gunning for you.  GM learned this the hard way, and Toyota is seeing it, as well.  Most people have a story about their old GM or Ford vehicle with little quality problems that it seemed like the companies didn’t want to fix.  Meanwhile, Toyota and Honda were perceived as the gold standard, consistently getting deserved recommended ratings from Consumer Reports as well as glowing reviews from owners.

Those word of mouth recommendations are one of the keys that helped make Toyota’s brand bulletproof when it comes to quality.  But recently, Toyota has been seeing some problems that are vaguely reminiscent of the perceptions of GM, Ford and Chrysler quality as they fell from dominance. 

• In the late 1990s and early 2000s, Camry and ES300 engines were having much publicized (and criticized) sludge problems which left the vehicles useless. 
• Toyota has started recalling Tacoma pick-ups from the same period, for excessive rust on the frames. 
• The Yaris (Belta in Europe) and Vitz subcompact are recalled for seatbelt and exhaust system defects, affecting 1.35 million vehicles worldwide
• And now, 2006 and 2007 Prius HID headlights are experiencing enough consumer complaints to draw a NHTSA investigation [PDF] in April.

This last one should be of real concern for Toyota.  Toyota is in the midst of a critical launch of its third generation of the Prius.  Honda is gunning for the Prius with its new Insight.  So far, the Prius looks safe with very strong sales out of the gate, but these kind of little quality problems that get ignored are just the sort of problems that drove GM’s reputation in the wrong direction.

Advertising Age quoted Todd Turner, president of consultant CarConcepts, as saying Toyota should issue a service bulletin on the problem which would bring cars in for inspection before problems arise.  This would be a good way to head off the problem and keep customers happy without having to issue an actual recall. 

With the new Prius PHEV coming down the line soon and with Honda and GM (with the Volt) breathing down their necks, Toyota’s management can’t afford take a chance with the Prius image right now.  The Prius headlight problem isn’t yet big enough to set off alarm bells, but if Toyota wants to remain the green auto leader, ignoring minor problems like this starts to look more like a roll of the dice.

Recently, the Department of Energy announced their awards of loans for “the development of innovative, advanced vehicle technologies that will create thousands of green jobs while helping reduce the nation’s dangerous dependence on foreign oil.”  The awards went to Ford Motor Co. ($5.9 billion for new fuel efficient models across the Midwest), Nissan Motors ($1.6 billion to build electric vehicles in Tennessee), and Tesla Motors ($465 million to build electric vehicle plant in California).  This should all be great news, but anytime the government hands out money, there is sure to be controversy.

In Michigan, the unemployment rate remains the highest in the country (14.1% in May 2009) with two of the state’s three biggest employers in bankruptcy (which is why GM and Chrysler did not qualify for the DOE loans).  So when the loans were announced, many in Michigan didn’t much like the news.  Nathan Bomey of the Michigan Business Review put forth the argument as to why GM’s still in the game and opined on the problems with Tesla’s business model.  This was quickly followed by Detroit News commentator, Manny Lopez, who came out even more strongly against the loans to Tesla.  Both articles express an opinion that many in the Detroit area seem to agree with.  Tesla is basically for the rich and famous, silicon valley types, and is a money pit (though this opinion does seem to be dripping with irony as GM and Chrysler received billions in loans). 

I’d be remiss if I didn’t point out, that many of the comments that I have read in both articles also complain about Nissan (a foreign owned company) getting almost $2 billion of our tax money (despite the plant being in the U.S. employing Americans).

However, the green bloggers and Californians won’t sit silently and take this from Michiganders.  Sebastian Blanco shot back on autobloggreen.com with an article entitled “Huh? Detroit News columnist criticizes Tesla loan, but not exactly in a brilliant manner“  His title, in essence, sums up his argument, claiming that Mr. Lopez had some of his facts wrong, and that Tesla’s business model makes sense.  Much of this was based on another blog, businessinsider.com, which also jumped on Mr. Lopez for essentially the same reasons. 

All of this leaves us with the question, “So, who’s right?”  Well, first, I’m already on record as saying that Tesla serves a purpose, but it’s not as a mass production company.  To prove my point, Telsa celebrated its 500^th delivery on June 3, 2009, which went on sale in early Feb., 2008, taking almost a year and a half to hit that milestone (for comparison, Cadillac will likely sell its 500^th XLR roadster of 2009 either this month or next, which will essentially double the Tesla sales in a third of the time).  But does that mean Tesla doesn’t deserve the half a billion dollars?  That’s not a leap I’m ready make. 

Yes, the price of the vehicles will come down with mass production; but no, the new Model S at $49000 (after tax rebates – $57,000 before) is not a vehicle for the masses.  However, as the Not-So-Big Three, Toyota, Honda, Nissan, and every other automaker have so effectively demonstrated recently, the auto business on a whole is a money pit right now.  This $465 million will be burned through VERY quickly, and it’s an investment that has a low probability of ever being paid back.  The fact is, the answer to “Who’s right?” lies somewhere in the middle.  I remain skeptical that the business plan of Tesla is likely to succeed as an independent company in the long run, but the products of Tesla will likely help usher in much needed new thinking about electric vehicle capabilities within larger auto companies.  In this sense, the $465 million “loan” seems like a pretty good deal.

Hybrid versions of military vehicles make a lot of sense.  In a world where many of the battles are mired in the politics of oil, reducing oil consumption on the battlefield will certainly help with the politics.  The military also likes hybrid vehicles for their ability to run almost silent, reduction of heat, power generation capabilities, and oh yeah, they also reduce fuel usage.

So, where are the hybrid military vehicles?  There are many prototypes out there.  The U.S. Army has been testing a variety of hybrid trucks and hybrid “aggressor” vehicles.  The army was even testing GEM neighborhood vehicles for around the bases.  But so far there has not been significant adoption of hybrids.

The main reason appears to come down to the effectiveness of the vehicles.  However, the military does recognize the high cost of the fuel, particularly when arguing the budget within the Pentagon.  The military is expected to announce a replacement to the Humvee this year, and it’s not likely to be a hybrid.  However, it is likely to take advantage of some fuel saving technologies such as improved efficiency in transmissions, tires and driveshafts.  A new Bradley makeover is expected to yield prototypes in 2010 and 2011; whether these will be hybrids is unknown, but it wouldn’t surprise me to see prototypes with hybrid powertrains showing up.

Part of the challenge to hybridizing military vehicles is their weight and the abuse they have to stand up to.  The vehicles are not likely see the substantial gains in fuel economy that regular consumer vehicles do because they are so heavy – the new MRAP (“Mine-Resistant Ambush Protected” trucks) is a 10-ton vehicle and is reported to get less than one mile per gallon in city driving.  However, even modest gains in fuel economy can make big gains in budgeting challenges within the Pentagon.  While batteries have been proven on the battlefield in other electronic equipment and unmanned vehicles, the sheer size of batteries needed for vehicles adds new concerns about safety, reliability, and effectiveness.

It is highly likely that towards the end of the decade, the military will be utilizing some hybrid vehicles.  The number of prototypes and the variety of applications and benefits point to something coming soon (perhaps a combination of fuel cell and diesel engine).  The biggest challenge to adding hybrids to the military fleet may be the introduction of synthetic fuels made from coal which will do nothing for the logistical costs of transporting fuel on a battlefield, but will help with the oil-based politics.

Neighborhood Electric Vehicles (NEV) is the relatively new official classification of battery electric vehicles that are speed limited.  The National Highway Traffic Safety Administration created the NEV classification in 1998, launching a new market of vehicles.  In essence, there are two key parts to the definition of an NEV: speed limited (meaning that they cannot travel on freeways, and therefore do not require crash testing and safety features of traditional vehicles) and they are electric.  Licensing is required for NEVs (a driver’s license is required to operate it, and most states require a license plate for operating on public streets).  Their use is limited to streets where the speed limit is 35 mph (in most states) and their speed is limited to 25 mph. 

The NEV market has been quietly growing over the past few years according to IMS, and it is likely to continue for the next couple of years (11.5% growth per year).  Helping to spur this growth has been the development of U.S. communities centered around these vehicles (places like Peachtree, GA, Celebration, FL, Playa Vista, CA, and others).  Local governments and corporations have also been discovering the usefulness of NEVs.  NEVs are being utilized for neighborhood patrolling and parking enforcement by police and for working around corporate campuses by maintenance crews.

There is substantial competition in the NEV market from a variety of manufacturers.  Global Electric Motorcars (GEM) is the market leader (and is a division of Chrysler Corp.), producing and selling approximately 40,000-50,000 units since 1998.   GEM has recently made a lot of news with its iPod-esque new Peapod.  There are a variety of other small manufacturers and importers, including ZENN, Miles EVs, and Clubcar (the golf cart maker that makes not only electric vehicles, but also gas powered carts).   Most NEV manufacturers likely selling between 500 to 3,500 vehicles per year in the U.S. currently.

There are also several new low-speed “city cars” that are more familiar to European and Asian consumers, including the Th!nk City Cars, REVA, and Aixam (from France which recently acquired NICE from the U.K. – no news about either NICE or Aixam coming to the U.S., though).  However, these low-speed city cars are slightly different classification than NEVs, as they will travel at a top speed of somewhere between 40 and 70 mph.

Overall, the market influences on NEVs are very different from that of automobiles, and NEVs are likely to follow a very different trend due to lower costs.  Urban planning and development of communities focused on these vehicles is likely to have a much larger impact on the market than the forces that impact the automobile industry.  As cities and planners work to develop urban centers that reduce congestion, the market for NEVs is likely to grow in appeal.  Urbanites are likely to be drawn to high design (like the Peapod), and overall acceptance is likely to grow as plug-in hybrids and electric vehicles become more available to the mainstream automobile market.  While the market will see substantial growth, it will likely remain significantly smaller than the U.S. automobile market (or even the potential EV market) and is likely a slight addition to the market rather than a competitor to traditional automobiles.