Despite PNGV's efforts, Ford outsources to Japan

WASHINGTON - Last week's U.S. report on the successes and failures of a government-automaker partnership to create fuel-efficient vehicles skipped past a little industry secret.

When Ford Motor Co. introduces its first mass-market hybrid-electric vehicle in 2003, a Ford Escape, the automaker will rely on a Japanese supplier for a key powertrain component.

Ford's sourcing plan indicates that an overseas company beat out U.S. manufacturers. That is despite the eight-year effort, known as the Partnership for a New Generation of Vehicles. Backed by $1.5 billion in taxpayer money, PNGV has sought in part to make U.S. suppliers more competitive.

But Ford's move also reflects a more complex reality: Government efforts to promote the U.S. supplier base have limits when automakers operate on an international stage with global sourcing strategies.

Either way, Ford's decision could be an issue as the Bush administration completes a review of PNGV in the next few weeks. The review will pave the way for an overhaul of the program, which was launched early in the Clinton administration.

Ford's decision also might surface in Congress as it debates how much funding the country should commit to keep PNGV going.

One out of three?

Ford will buy the powertrain component - a sophisticated transaxle with two electric motors - from Aisin AW Co. of Takefu, Japan, a supplier partly owned by Toyota Motor Corp.

That choice has disturbed fans and critics of the partnership.

'Either we did not support the right things, or the Japanese have come up with a better widget,' said Robert Chapman, the government's technical manager for the partnership from its 1993 inception until 1997 and now a consultant with Rand Corp.

'It's another in a series of disappointments,' said Rep. John Sununu, R-N.H., about Ford's sourcing plans. Last year, he led an effort - ultimately unsuccessful - to cut taxpayer funding for the partnership. Sununu said government subsidies cannot ensure the competitiveness of any industry or company.

A former Clinton administration official, who was close to the partnership but asked not to be named, said the goal of boosting only U.S.-based manufacturers was well-intended but unrealistic in an era of globalization.

Last week's annual report on PNGV, by the National Research Council, echoed that conclusion without referring to Ford's decision to use Aisin.

All of the Big 3 participants in the partnership are 'global marketers, all have foreign subsidiaries, one is a foreign-owned company and there are even r&d collaborations with foreign companies,' the review said. 'On this basis, it seems inappropriate to justify the broad PNGV manufacturing r&d charter as addressing U.S. competitiveness.'

Despite its shortcomings - including the failure to create a production-ready, 80-mpg family sedan by 2004 - the partnership appears destined to live on. The Bush administration has proposed a $40 million cut from PNGV's $250 million annual budget. As part of the planned overhaul, administration officials say they want to see more partnership-derived technology on the kinds of vehicles people are buying, meaning light trucks, and they want to focus more research on big breakthroughs for the more distant future.

Assistant Energy Secretary David Garman told Automotive News he expects the administration review of the partnership to be finished by Sept. 1.

Meanwhile, Congress is moving legislation that would restore much if not all of the money that the Bush administration wants to trim.

Who is accountable?

Sununu said he did not renew his effort this year to eliminate the main part of the partnership budget, in part because of his experience last year and in part because he believes the administration deserves a chance to make its overhaul work.

The eight-year taxpayer outlay for PNGV now exceeds $1.5 billion. Much of that has gone to national laboratories, other research institutions and supplier groups. A tiny fraction has gone to the Big 3.

Much of the research has focused on hybrid powertrains - combining internal combustion engines and electric motors - and on advanced batteries, fuel cells and lightweight materials. Some say that's work the industry would be doing anyway.

But in 1993, the Big 3 were struggling economically and technologically, and they made the partnership deal with the Clinton-Gore administration, in part to stave off increases in federal fuel economy standards.

So, they became the principal managers of the research - and its intended beneficiaries.

No strings attached

Janet Mullins Grissom, vice president of Washington affairs for Ford, said it is 'good news' that the partnership is going to continue, in some altered form.

She declined to comment directly on Ford's plans for sourcing components for its hybrid-powered vehicle. But speaking hypothetically, she said there's a big difference between researching concepts in the partnership and building a vehicle with technologies studied in the partnership.

It is true the partnership exists only for pre-competitive research. That is, there is no requirement that any of the Big 3 use the research results to build any vehicle. And there are no restrictions on where they get components if they do build something inspired by the partnership.

In addition, Grissom said: 'We now have a foreign company as a part of PNGV. So I think that the whole subject (of overseas involvement) could be either incredibly complex or moot. Take your pick. I don't know which.'

Grissom was referring to the fact that an original partner, Chrysler Corp., now is part of Germany's DaimlerChrysler AG yet remains a full participant in the program.

DCX backs the goal

DaimlerChrysler believes the partnership has succeeded in the goal of making the U.S. supplier base more competitive in clean vehicle technologies, spokesman Max Gates said.

For its upcoming hybrid-powered Dodge Durango and Dodge Ram vehicles, the Chrysler group is reviewing competing offers from American and overseas companies, Gates said.

'We anticipate the U.S. suppliers will be among the successful bidders for this work,' he added. The Durango is due in the 2004 model year; the Ram is due in the 2005 model year.

General Motors is producing all its hybrid components 'in the family' - particularly at its Allison Transmission Division, said Greg Martin, a company spokesman. GM plans to sell hybrid pickups in 2004.

In any event, Ford is pushing to be the first of the Big 3 with a gasoline-electric vehicle in the U.S. market, the hybrid Escape in 2003. Hybrids already on sale are the Honda Insight and Toyota Prius, both small cars.

In May, Aisin AW, chiefly a supplier of transmission parts to Toyota, said it would be providing Ford with major components for the Escape, the Associated Press and The Asian Wall Street Journal reported.

Once those stories appeared, Ford put a tight lid on information about the planned deal. A Ford official said privately the company would not allow its announcements to be made by a supplier.

Since then, a source connected to Aisin provided to Automotive News a diagram of the transaxle planned for Ford. One of its electric motors aids in vehicle propulsion; the other recharges batteries. The diagram says the goal is ultra-low fuel consumption, like that envisioned by the partnership.

Ford spokeswoman Sara Tatchio said the company would neither confirm nor deny it is doing a deal with Aisin.

Aisin is here

Tatchio did say, however, 'The powertrain in the Ford vehicle is going to be unique to Ford.' And she said that any decisions Ford makes on sourcing for its first production hybrid will not necessarily carry over to future hybrids.

Aisin subsidiaries and sister companies already have research operations near Detroit and at least eight factories in the United States. Whether any of the U.S. plants will build the components for the Escape could not be determined.

Dick Ikuma, general manager of human resources at one subsidiary, AW of North Carolina, said, 'Toyota is our customer, our only customer.'

John Dunning, executive director of Electricore Inc. of Indianapolis, Ind., which has managed partnership research contracts for U.S. suppliers, said he's disappointed Ford didn't go to an American company for the hybrid components. But he can't fault the automaker for making the business decisions that it feels necessary.

Dunning speculated that current exchange rates and the struggling Japanese economy could have made Aisin's offer unbeatable.

At the same time, he believes the decision raises questions about whether the Big 3 gave U.S. suppliers proper guidance about what they wanted from the program or whether too much effort was wasted on parts for an 80-mpg car.

'They were looking for the moon shot' instead of looking for near-term technology for improving fuel economy,' Dunning said of partnership leaders. 'You have to wonder whether the money was spent intelligently.'

James B. Treece in Tokyo contributed to this report

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