Why It Is Half-Time In America And We Are Losing The Game...To The Germans?

Includes: F, GM, TM, TSLA
by: FOHC Resources

For several years now, this author has been looking for a new car. But every time I enter a dealership, I walk away disappointed by the offerings. Now this is a little harsh I have to admit, in fact it makes me feel like a snob. But there is a good reason why I am still driving my beat up Subaru from ten years ago instead of something new and glossy. That reason (aside from not being a car-guy) is that the best cars cannot be bought or driven in the United States right now. And as gas prices continue to climb, the balance sheets of German automakers are following in step.

Now again this might seem harsh, there are many very competent and just plain neat cars in the US today. Many of the offerings from the big American car makers like Ford (NYSE:F) or GM (NYSE:GM) are very competent, relatively speaking. Tesla (NASDAQ:TSLA), the California based all-electric maker is putting together some very innovative vehicles, and their technology is even being used by the big players such as Daimler. Millions saw the recent Chrysler Super Bowl half-time ad featuring Clint Eastwood patriotically revving up Detroit, the auto industry, and national pride. Mr. Eastwood left more than a few people misty-eyed. And in my opinion the U.S. could use more of that general mentality now more than ever. But unfortunately when it comes to cars, and the needs of the American consumer, it pains me to say that Germans are providing the best.

Now when you read German, I am guessing that most people are envisioning the Volkswagens or maybe BMWs that you see on the road today. In fact I was recently in a BMW dealership checking out their new U.S. models, and they are artful pieces of machinery (not to mention all of the great VWs, Mercedes-Benz, and Porches). But the aforementioned is actually not what I am referring to. If you travel to Europe often or are an avid car aficionado (which I am not) you may already know what I am talking about. In Germany, you can purchase nearly that exact same 5 series model that you might buy in the U.S., however the German model can get upwards of 60 miles-per-gallon, and averages 52mpg. Even their smallest all-wheel-drive SUV, the 320dx gets 42mpg. Normally I am not one to complain about gas prices or compare mpg. I have witnessed family giving up driving and the freedom it can provide, so I consider it a privilege no matter the cost. But when a large luxury sedan in Europe can get the same or better gas mileage than some of the most popular small hybrids such as the Toyota (NYSE:TM) Prius here in the States, I have to admit I am disappointed.

The first time I converted the numbers (Europe measures fuel economy and emissions differently that the U.S), I thought I had made a mistake. But when I started thinking on a more macro level, it made perfect sense. As some readers have probably assumed, they accomplish this feat (I use the term lightly, it is not exactly rocket science after-all) with diesel engines that have decades of design fine-tuning. Some of this technology can already be seen in the U.S. with watered down diesels such as the popular Volkswagen Jetta TDI and diesel models of several other manufacturers. But the U.S. has not had to make adjustments that the European consumers have, as evidenced most currently by the latest financial headlines from Greece or Italy. Europe has been dealing with high fuel costs for decades, while in the US high fuel costs are a relatively new phenomenon. At the turn of the century, the average price of gas was $1.26 per gallon in the U.S. I would have filled up my then new Subaru fuel tank for under $20, and now it costs me nearly $60. European automakers had to tackle meeting demand for more efficient vehicles long before it was really a U.S. concern, except for perhaps in the late 1970s when fuel became a relatively short-term worry for Americans.

German Vehicles MPG

City Hwy Avg

Passat blu 45 65 55

BMW (320d)ED 45 61 53

BMW 520d ED 52

Passat reg tdi 40 60 50

BMW 320d 40 58 49

BMW 3 (320dx) 36 51 43.5

* These number are based off of the company European websites

So what is the difference between an American BMW 5-Series and it's European counterpart that makes up such a stark difference in efficiency? If I could only use two words to answer that question, they would be horsepower and emissions. The German diesel models tend to offer less horsepower than the American versions and different gearing ratios, although their 0-60 speeds are still quite competitive. Regarding emissions, many European countries base vehicle taxes off the emissions bracket they fall under. Higher emissions vehicles of course yield higher taxes. Comparing European to American emissions standards is not exactly apples to apples. And frankly, I do not have the background to get too specific. However I have found that generally, the U.S. has slightly higher emissions standards than Europe, although some would debate this. From what I have read, one of the main differences is in the allowable formaldehyde levels (yes the stuff that embalmers use). The diesels of Europe appear to have higher formaldehyde output than American diesels, however the percentage difference is not as stark as the mpg difference. The emissions problem is in fact the greatest direct barrier to entry.

You may be wondering why I have not just imported one if I wanted it so much? Well the answer as I am sure you can guess is money. There are about ten authorized importers throughout the U.S. who specialize in this business. I called each one, and of the ones I was able to speak with, only one was willing to consider the job. He estimated that I should expect to pay about $100,000 on the low-end, and upwards of $1 million on the high end. Keep in mind; this is for a car that is around $50,000. The shipping matter is small and cheap. However once the cars enter the U.S., all of the proper paperwork must be sent to the proper government entities (which sounds quite daunting).

The car must also be brought to U.S. standards. Largely in terms of safety, European cars are just as safe as their American counterparts. However, there are small things such as warnings on airbags, signal light placements, and steering side problems if British that all must be rectified to drive on U.S. roads. Basically, unless previously certified by the manufacture (which is nearly impossible), the German car must be modified to look exactly like it's American counterpart. Additionally any emissions issues must be rectified with the appropriate mufflers etc. My understanding is that many of the European diesel cars I refer to actually exceed many American emissions standards, however it can vary from state to state. Additionally, there is the aforementioned formaldehyde concern.

So why are American car makers touting great fuel economy at 40 mpg for compact cars that barely meet safety standards when a relative beast of a car in Europe can do better in efficiency? Well one reas

on is that we have higher emissions standards in the U.S. to an extent, of which we should be proud. But that is only

a small part of the equation. The truth is that Detroit needs to be ready to respond to the growing demand for more efficient vehicles. In the words of Eastwood's ad, it is certainly "half-time in America", and this author hopes that "the world hears the roar" of our American made engines, while we drive in our large, quiet on the inside, highly efficient but eco-friendly luxury sedans.

Disclosure: I am long TSLA.