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Daimler Chair and GM Vice Chair Discuss Fuel Reduction

April 04, 2008

DETROIT – Daimler AG Chairman Dieter Zetsche and General Motors Corp. Vice Chairman Robert A. Lutz recently discussed the financial aspects of environmentally friendly cars, why diesel engines haven't caught on in the U.S. the way they have in Europe, and other issues, with The Wall Street Journal's (WSJ) Jeffrey Ball. Here are edited excerpts from that discussion.

WSJ: I remember talking to people at both your companies [years ago] about fuel economy, and everyone said it ranked far below cup holders on the list of what mattered to people. I also remember people saying that $2.50 gasoline would change that. Well, we're now beyond $2.50 gasoline. Has it changed? What are you seeing in the market?

ZETSCHE: We are not seeing any significant changes of our mix or of our engine types within one name plate. What we do see is the tremendous success of the [small] Smart car, which we launched in the U.S. in January, and where the demand is really blowing all of our expectations by far.

LUTZ: What we're seeing is there is a portion, a very narrow portion of the population, that will make a financial sacrifice to be green. But I don't think we can count on the majority of the American public to make a financial sacrifice, or an uneconomic decision. So I think even as gasoline goes to $4 a gallon, you're still going to see people doing the calculation. How much more do I have to pay for a hybrid system? Most people, not the ecologically committed, but most normal people are going to take a look at how much more am I paying for this fuel-saving technology and will I be able to amortize it over the life of the vehicle?

Where we're seeing we have reached the pain threshold is with the Duramax diesel engine, in the full-size pickup trucks. To meet the latest emission regulations, we are now forced to charge $11,000 for the diesel option, and that is putting a kink in diesel sales, and a lot of people are opting for the gas engine again.

To provide an economic incentive to people to buy these much higher-technology vehicles that are going to be required to meet the CAFE [Corporate Average Fuel Economy] mandates, the customer has to be put in the equation. That means that at some point, fuel prices have to rise. I think that without an economic incentive, we are not going to see a wholesale shift in demand of vehicles.

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