Green Tech May Cost Ford and Porsche Customers

Ford and Porsche have a lot more in common than most people might think.

Both brands are surfing good tides amid a roiling recession and are in decent financial shape (Ford less so, but relative to its Detroit brethren, the Blue Oval is King Midas). And even though the two brands rarely occupy the same headspace or engage the same customers, far more stringent regulations from the U.S. Environmental Protection Agency on fuel economy (fleet average of 35.5 mpg by 2016) are about to hit both brands quite heavily, if not equally.

These changes will also affect all other carmakers selling to the U.S. market, but Ford (F) has said openly—and has largely followed through on the promise—that it wants its vehicles to deliver the top fuel economy in every segment. And Porsche (PAH3:GR), surprisingly, is also promising dramatic fuel economy. The $74,400 V-6 version of the 2011 Porsche Panamera, the company's first full-size sedan, bests even such competitors as the $87,950 Mercedes-Benz S400 Hybrid in fuel economy, delivering 18 city/27 highway vs. 19 city/24 highway.

These two brands, despite having very disparate customer bases, want to be fuel-economy leaders. How they get there should shed light on how other brands meet the EPA's requirements, as well, and help paint a somewhat clearer picture of how the automotive landscape will look half a decade from now.

Tougher Hurdle for Sports Cars

Before looking at the Porsche and Ford responses to new EPA guidelines, you first need to understand what's required, and how the guidelines are quantified. The EPA math measures the "footprint" of a vehicle to determine target fuel economy. A bigger vehicle that seats more people gets a lower target EPA, while a small-footprint sports car—Porsche's erstwhile bread and butter—must meet a considerably higher fuel economy standard.

And that's just the point: The regulations won't affect all carmakers equally. If you sell to a luxury customer who doesn't give a darn about the price of gas (hello, Mister Porsche 911 mid-life-crisis guy), you'll have a tougher time meeting the requirements than larger, mass players such as Ford, in great part because Ford sells a lot of tiny cars like the new Fiesta to offset less-efficient models in their fleet. The rub for both automakers is zero lawmaking to create incentives for customers to buy nonhybrid-but-still-fuel-miserly cars vs. gas suckers.

This, by the way, drives Porsche's top management nuts. In Europe, gas is heavily taxed; if a gallon of fuel (gasoline or diesel) costs $6, the consumer will chase a more efficient car, which forces automakers to innovate while simultaneously nudging buyers.

Plea for a Gasoline Tax

But in the U.S., with gas costing half as much or less, the new requirements force higher fuel economy that isn't necessarily tied to market demand. That has led Ford's chief executive, Alan Mulally to plead openly for a U.S.gas tax.

Of course, for any member of Congress to propose a gas tax idea in the U.S. today is a nonstarter—it's political suicide. Instead, we need to count on regulations alone—which in a backward sort of way means the EPA is pushing Porsche to make bigger cars like a heavily revised 2011 Cayenne, which will also come as a Hybrid S model, and Panamera. Again, the carrot here is that bigger-footprint vehicles will be less stringently regulated. Yes, the Cayenne is already the best-selling vehicle in Porsche's history, so the market demand is there. In simplified terms, though, it's easier for Porsche to meet the 2016 guidelines with bigger cars, so you can expect Porsche to seek a greater percentage of its own volume in large cars precisely because these targets are easier to achieve.

Ford has it far easier, although it won't be a cakewalk. The reason is that Ford sells pickups—lots of pickups. In 2010, one in every four Fords sold is an F-series truck. For 2016, the EPA is targeting about 25 mpg for a full-size pickup.

While 25 mpg would seem a huge gain for vehicles that deliver in the middling-teens today (most full-size pickups sell with V-8 engines), Ford's already getting close. Its new 2011 F-150 with an Ecoboost V-6 is predicted to deliver roughly 20 mpg (average city and highway).

Greener Than Thou

With the rebirth of the Cayenne—especially the 2011 Porsche Cayenne S Hybrid, which sells for $67,700—Porsche is hoping to remake its image in Europe, where the Cayenne was painted with the same brush used to tar the Hummer H2 in the U.S. And with the hybrid's U.S.-estimated economy figures at 23 city/26 highway, the Cayenne will indeed leapfrog many less-green competitors.

Ford is also relaunching its Explorer SUV brand. This once-mighty seller from the 1990s is entirely revamped for 2011 (on sale this December), and Ford promises as much as 30 percent better fuel economy compared with the 2010 model. For Ford, this gain in fuel efficiency is critical. According to Julie Levine, the Explorer program manager, poor fuel economy is the No. 1 reason buyers didn't purchase the 2010 Explorer, whose sale pace has slumped to about 12 percent of its peak volume a decade ago.

Both Ford and Porsche have sought gains through radical, as well miniscule, steps. But both makers are walking a high-wire act, and ultimately their high-tech solutions are going to be risky.

Don't Annoy the Customer

Porsche has a brutal struggle. Its executives in the U.S. and Germany explain that its customers are rich enough not to care about fuel economy. Explains Alexander Schildt, product planner for Porsche N.A.: "Our customer isn't concerned about fuel economy for financial reasons, but for moral reasons." Yet being forced to be "green" doesn't work, either. "We don't want to introduce a technology that isn't in keeping with the spirit of Porsche and that annoys the customer. We don't want that guy venting his anger through J.D. Power IQS," says Schildt.

Which is why, although the new Cayenne S Hybrid has the capability to cruise at up to 37 mph on its electric motor, completely emission-free, the driver still has to tap a button on startup to opt for this fuel-saving (and planet-saving) feature. Or not.

Ford is hoping the Explorer buyer will pay extra for its fuel-saving technology, a four-cylinder Ecoboost engine that delivers 27 more horsepower (237 hp) and about the same torque as the outgoing V-6 while getting 30 percent better fuel economy. Which is dandy, but the Ecoboost engine won't be in the base model; instead, that $28,190 model gets a 3.5-liter V-6 with 290 horsepower—yes, that's more powerful than the four-cylinder Ecoboost edition. Ford has yet to announce pricing on the optional-engine model, but you can bet somewhere in a cubicle warren in Dearborn there are a lot of bean counters sweating.

Cutting out Extra Weight

Both carmakers mention a similar conundrum—buyers want greener tech and better fuel economy, but they don't want any compromise in handling or acceleration.

To help achieve that goal, Porsche cut an enormous 400 lbs. out of the non-hybrid Cayenne and about 70 lbs. out of the Cayenne S hybrid. That latter figure might be confusing, but hybrid batteries are tremendously heavy. Porsche says hybridizing the old Cayenne would've meant a total weight gain of more than 300 lbs., but the new edition gets a new all-wheel-drive system that's far lighter, along with unique technology that decouples the rear drive wheels and drivetrain from the gas engine in front. At well above U.S.-legal highway speeds, this allows an all-electric drive mode without the drag of the drivetrain slowing the Cayenne. And with a 3.0-liter 333hp, supercharged gas engine mated to a 47hp electric motor, the 8-speed (yes, EIGHT-speed) Cayenne S Hybrid can sprint to 60 mph in just over six seconds. This is the sort of performance Porsche says its hybrid crossover must achieve if it hopes to turn true Porsche believers into buyers of, yes, hybrid sports cars.

Meanwhile, Ford claims 12 percent better fuel economy via aerodynamic efficiency alone. Subtle gains come from a tiny rear spoiler and closing off more of the front grille.

Porsche, however, doesn't want to lead in aerodynamics. "Our cars are engineered for very high speeds," says Schildt, who explains that downforce—preventing a car from becoming airborne at 120 mph—is critical. In other words, Porsche wants its cars to create more high-speed drag, not less, even if it means losses in fuel savings.

Porsche says its eight-speed transmission increases fuel economy by about 2 percent to 3 percent when compared with the old six-speed transmission. Ford says its new six-speed transmission, which has extra-low gears for faster acceleration from a standstill but high final drive-ratios for less drag at high speeds, also enables incremental, but not phenomenal, fuel-economy gains.

Taking Tiny Steps

If this sounds like a meager return on investment, it is. But Porsche and Ford executives explain that the future of fuel efficiency depends on very incremental gains.

Unfortunately, with cheap gas prices—in the U.S., at least—both brands, and all carmakers trying to sell high-mileage vehicles, are pushing into a sales headwind. The top-selling cars and trucks through seven months of 2010 haven't been fuel-sipping minicars but full-size SUVs, which jumped 19 percent.

Still, we could see a repeat of 2008, when SUV sales began to tank as gas prices soared and carmakers had few higher-mileage cars and trucks to sell. If that happens between now and 2016, the feds will look brilliant for forcing the hands of automakers.

Perhaps. Meantime, though, GM has to sell a $41,000 Chevy Volt into a market that has suddenly rekindled an interest in full-size SUVs. Porsche really wants you to be attracted to a hybrid Cayenne. And Ford really wants you to spend more to buy an Explorer that's less powerful. Maybe. Or they could shock us. Ford recently let it be known that it is about to launch the 2011 Lincoln Hybrid MKZ sedan, which will sell for the same $35,180 price as the non-hybrid.

Green without the sticker shock? That's one way to get Americans to stop craving V-8 engines.

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