Why hybrids are the end of the auto industry as we know it

Back in the 1990's Congress gave a billion tax dollars to Detroit to create America's next generation of clean and efficient vehicles.

They failed.

Though they developed electric and hybrid prototypes, Detroit refused to push the edge of technology forward, citing numerous excuses for not better utilizing the billion dollars we taxpayers gave them.

Toyota and Honda; however, built on an industry always striving for efficiency, took a different take on the same technology and proceeded with their hybrid programs to the ridicule and scorn of Detroit.

Fast forward to today and no one in Detroit is laughing any more. Delphi and GM are facing bankruptcy, as shares of GM have dropped to the lowest levels in 18 years. Ford takes two steps backwards with each step forward. American automaking just isn't going in the right direction.

Toyota, on the other hand, is on the verge of becoming the world's largest automaker as it sits on a pile of massive profits.

Sure, Detroit has been in this kind of predicament before, and it survived. This time; however, it is different.

In the 70's and 80's, when high energy prices pushed many Americans into Japan's economy cars, there was one main difference compared to today: Japan's vehicles were fundamentally no different than America's vehicles. Sure, they were smaller and built better than expected, but they functioned just like any other automobile. This converted many Americans into Toyota and Honda owners, but SUV popularity gave Detroit a product that Japan just didn't have.

Today; however, things are far different. This time there will be no SUV to save Detroit. Even worse, hybrid vehicles have come full circle to haunt Detroit's arrogance and incompetence. I mean, Detroit had a billion tax dollars and what did they do with it? Nothing!

Many analysts, such as J.D. Power, believe that by 2012, hybrid sales will achieve around 600,000 total units. I'm here to tell you that sales will easily surpass twice that number by 2012. Toyota will sell 600,000 hybrids per year - by itself - starting around 2008, but that's just the beginning of the bad news for Detroit.

Around that same time, when Toyota starts to make J.D. Power analysts look silly, Toyota will be utilizing its third generation Hybrid Drive, a move that is going to make hybrids more fuel efficient, more powerful, and CHEAPER, possibly cutting hybrid costs in half or more.

As Toyota achieves this level of production, Ford hopes to ramp up development of its hybrid program to 250,000 vehicles per year. That's good news for Ford, but will Ford hybrids compete with Toyota hybrids then? If Ford is using the same hybrid drive at the same costs in 2008 as they are today, how will they compete with cheaper, more fuel efficient, and better performing Toyota hybrids?

Then there is GM. GM is still a bit of a wild card in the hybrid game because, well, they don't yet have any full hybrids. GM's hybrid technology is going to vary significantly from the technology of both Ford and Toyota - yet early reports seem to indicate that the core of GM's hybrid technology will achieve its greatest improvements in highway driving.

Twenty years ago, Americans did do the majority of their driving on open roads and highways, but we no longer live in that world. Not only do the majority of Americans live in urban areas, they drive in significantly more congestion than 20 years ago - even those that live in suburban and rural areas. Stop signs and street lights have turned even the small town commute into stop-and-go traffic during the morning and evening commutes. According to transportation studies by government and university alike, the problem isn't only going to get worse, it's going to get significantly worse.

City driving, not highway driving, MUST become the standard by which fuel efficiency is determined. In such driving, conventional vehicles and even clean diesel vehicles simply cannot compare with hybrid vehicles, and hybrid technology is just emerging. For example, second generation hybrid technology turned the first generation Prius into a second generation superstar. Toyota's third generation hybrid drive will make the Prius, and all other Toyota hybrids, even faster, more powerful, more fuel efficient, and cheaper than current Toyota hybrids.

By the fourth generation such gains will again be achieved. By that time hybrid vehicle costs might equal conventional vehicle costs. At that point, it becomes very hard to justify the costs of conventional technology, not hybrid technology.

Yet, GM might barely be on the map by then. Ford, with its similarities to Toyota - in terms of its hybrid drive - might be able to capitalize on Toyota's success via better supply channels, but could they ramp up production quickly enough to match Toyota? Maybe.

Regardless, the automotive world as we know it, is over. GM and Ford might compete in this new world, but without developing their own Prius, it's not going to be easy.