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Ford, GM Make Big Push To Promote 'Flex-Fuel' Vehicles
By KAREN LUNDEGAARD
Staff Reporter of THE WALL STREET JOURNAL

January 10, 2006

Although they've been working on vehicles that run on ethanol for more than
a decade, Ford Motor Co. and General Motors Corp. are now making an
aggressive push into the alternative fuel.

Last week, GM ran its first national advertising campaign promoting one of
its so-called flex-fuel vehicles, the Chevy Tahoe. Ford last month began
selling flex-fuel versions of its popular F-150 pickup. Vehicles that are
designated flex-fuel are capable of running on gasoline but can use the
alternative E85, a fuel mix that is 85% ethanol and 15% gas.

Both auto makers are also helping to increase the number of ethanol fueling
pumps at gas stations around the country. At least five million vehicles
that can run on E85 fuel already are on the road -- but most operate on
gasoline alone because of the unavailability of ethanol. Access to ethanol
is still sparse. Only about 600 gasoline stations out of 180,000 in the U.S.
carry E85, concentrated largely in the Midwest -- with roughly 200 of those
in Minnesota. Still, that number more than doubled in 2005 and is expected
to increase fivefold this year, said Phillip Lampert, executive director of
the National Ethanol Vehicle Coalition, a group that promotes ethanol use.
"This has been an uphill battle," he says, but in the past several months,
"people have begun to take notice."

In November, Ford said it will work with Brookings, S.D.-based ethanol
producer VeraSun Energy Corp. to convert existing fuel pumps to E85. GM last
week said it would lead a project in California to get the state Department
of Transportation to use between 50 and 100 of its flex-fuel Impalas while
Chevron Corp. will add ethanol pumps at some gas stations near the agency's
offices.

Ford and GM combined will produce 650,000 vehicles next year that can use
E85, which currently costs about $2 a gallon. Ethanol -- which is distilled
from corn and grain -- gets less mileage per gallon than gasoline. Vehicles
that use only gas get 5% to 12% better fuel economy, according to National
Ethanol Vehicle Coalition.

There's good reason for GM and Ford to make the push. There's a green war
among auto makers to appear environmentally conscious to their customers, a
battle in which Ford, and particularly GM, are coming up short.

But ethanol is an area where domestic auto makers have a competitive
advantage over their Japanese counterparts that don't sell flex-fuel
vehicles in this country -- except Nissan Motor Co., which offers a version
of its big pickup, the Titan, as E85 compatible. And they can present
themselves as patriotic by advocating domestic oil powering vehicles built
in the United States, which is exactly what the companies plan to do.

Bill Ford Jr., chairman and chief executive officer of Ford, used the podium
Sunday in front of some 6,800 journalists at the North American
International Auto Show in Detroit, to boast about the auto maker's
commitment to ethanol, noting it helps American farmers while reducing the
country's dependence on foreign oil.

Then the auto maker unveiled a massive concept pickup truck, the Super
Chief. Although its size makes it look like a gas guzzler, the engine is
designed to run on a combination of gas, ethanol and hydrogen. The Super
Chief is not slated to go into production because the tri-fuel engine isn't
needed yet.

High gas prices following Hurricane Katrina "finally brought into the
equation consumer awareness for an alternative fuel," says Curtis Magleby,
director of governmental affairs for Ford. "In the past, with gas prices so
low, consumers weren't really looking for an option."

Ethanol has been around for decades. The original Ford Model T was designed
to run on pure ethanol. In the 1970s, there was a big push toward gasohol, a
blend of 90% gasoline and 10% ethanol. All vehicles now are capable of
running on that blend.

Auto executives note that ethanol is never going to be a complete
replacement for gasoline. But if some fraction of gasoline could be replaced
by ethanol, even 10%, that could have a significant impact on foreign-oil
dependence.

Critics are concerned about the economic equation. Ethanol is heavily
subsidized, from federal dollars given to farmers to the 51-cents a gallon
given to companies blending the fuel. But corn is just one way to create
ethanol, and research continues that will allow it in the future to be made
from anything that was once green, including sawgrass, rice straw, tree bark
or sugarcane waste, to name a few examples.

Still, increasing auto and consumer interest takes flex-fuel vehicles from a
loophole auto makers received on federal fuel-economy requirements -- they
received credit towards their requirements by building a certain number of
flex-fuel vehicles -- to a viable alternative energy choice. "I'm the
biggest zealot for ethanol," said Mark LaNeve, GM's head of North American
sales and marketing.

Last week's ad promoting the Chevy Tahoe's ethanol capabilities the first of
a wave of new advertising. Mr. LaNeve said he would kick off an advertising
campaign at the Chicago Auto Show next month. He won't advertise much
nationally, he said, because few gas stations offer E85 in much of the
country. "We don't want to frustrate the customers." Still, he said,
promoting ethanol capabilities is "going to be a major emphasis for us."

While Ford and GM have a jump on the competition, the technology to make
vehicles' ethanol compatibility is relatively simple and inexpensive -- no
auto maker currently charges more to buy a flex-fuel vehicle than its
regular counterpart. Yet auto makers charge thousands of dollars for hybrid
vehicles that run on both gasoline and electric motors.

Toyota Motor Corp. and Honda Motor Co. have taken different environmental
paths in the U.S. than their American competitors. Ben Knight, vice
president of research and development at Honda, said the auto maker is
building flex-fuel vehicles in Brazil, where ethanol is more prevalent. (See
related article.) Honda is concerned that consumers in the U.S. will be
turned off by less fuel-efficient ethanol even if it becomes more readily
available, he said. Honda has chosen to concentrate more on hydrogen, where
the environmental benefits are even greater. Mr. Knight declined to discuss,
if ethanol interest grows dramatically, how long it would take the auto
maker to introduce flex-fuel vehicles in the U.S.

Toyota officials said they haven't produced ethanol-capable vehicles here
because they haven't needed the credits for government fuel-economy
requirements. Toyota doesn't believe that corn-based ethanol is an
environmentally friendly or sustainable solution, said Bill Reinert,
national manager of the advanced technology for Toyota's U.S. operation, but
the company's opinion could change if ethanol is successfully made from
other materials.

Write to Karen Lundegaard at
karen.lundegaard@ wsj.com