The 100 MPG Question

Nine months ago, Popular Mechanics wondered aloud why the automotive industry couldn't develop a car that could get 100 miles to the gallon.  While progressive-minded individuals have reached triple digits on occasion by mixing solar energy with a traditional powertrain, no automaker has taken the initiative to mass produce an eco-friendly and reliable model.  The Honda (HMC) Civic compact came the closest of any 2006 gas-powered model with 40 mpg on the highway while the diesel-powered Audi (NSU) A2 and Volkswagen (VOW) Lupo 3L have reached 80 mpg, albeit with emissions that wouldn't measure up to EPA standards.  With new EPA testing methods knocking down mpg figures even more for the 2008 model year, the future doesn't look too bright for anyone looking to reach the 100 mpg milestone in the near future.

Experts point to the high cost of weight reduction in the body as the primary reason for the automotive industry's reluctance to build more efficient vehicles.  Modern lightweight composite frames with high durability would cost automakers nearly $100,000 per vehicle using the most recent manufacturing technology.  Lightening the wheels and internal circuitry in a new model can also prove cost-prohibitive for automakers focused on the bottom line.

In an effort to end the hesitation, the X Prize Foundation recently announced a $10 million prize for an affordable model that can break the 100 mpg barrier.  The contest begins in mid-2008 when judges assess different designs and their budgets.  In addition, computer simulations will test the contestants' safety features and emissions.  Those that pass this initial phase will move on to a qualifying race in early 2009.  Finally, the best of the best touch bumpers in a skills challenge and final road race scheduled for late 2009. 

While the winner takes home a cool $10 million, the stakes could rise even higher for the reeling domestic automakers that enter the competition.  Strong showings by domestic entries would mean more positive publicity and the increased confidence of investors who saw Chrysler (DCX), Ford (F), and GM (GM) lose a combined $16.2 billion in 2006.  Unfortunately, early reports don't offer much insight on who could emerge as the frontrunner.  Assuming that the major automakers enter and keeping in mind that the X Prize Foundation hasn't announced the names of any prospective contestants yet, I'll go with Toyota (TM) and Honda as the early favorites based on the government's list of most efficient 2007 models.  The Toyota Prius hybrid tops the list with 60 mpg in the city and the Honda Civic hybrid gets an impressive 51 in the city.  While Audi and Volkswagen touched 80 mpg in Europe, they may need time to draft a model that can meet the contest's emissions standards.  In any event, keep an eye on the developments in this highly anticipated competition.  The results could provide some early insight on the balance of power in the automotive industry as we enter the second decade of the new millenium.  

Disclosure: I do own a mutual fund that may contain one or more of the stocks mentioned in this post.  However, any interest that I may own is subject to the discretion of my mutual fund manager. 

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