"Those who have knowledge, don't predict. Those who predict, don't have knowledge." —Lao Tzu, 6th Century BC Chinese Poet

I may not have all that much knowledge but I do understand prediction. Prediction is the art of assembling as many semi-related facts as possible, deciding which ones may really be relevant, and then deducing logically which ones will mature into something we call the future. In the hands of many prediction and guessing are kissing cousins.

We have been in the Hybrid Generation now only for about eight years since the first Toyota Prius was sold in Japan in 1997, with the Honda Insight following two years later. Not much time for patterns to emerge. Generally speaking, the auto manufacturers have since been underestimating future hybrid production and sales by about 100% every year.

"An unsophisticated forecaster uses statistics as a drunken man uses lamp-posts - for support rather than for illumination." —Andrew Lang

I will readily admit I am like that drunk in writing this article. My whole point of prediction is not to validate the author's greatness as a prophet but to use relative conjecture to launch a thousand discussions. My predictions will ultimately only be as good as my underlying assumptions.

{Be pre-warned! Anything beyond the semi-facts presented here is purely my own supposition and may or may not become fact in the future. For those things that do not come to pass, I want to say I never believed them anyway. For those that do come true, please spell my name right when submitting patents or giving me credit.}

My No. 1 Assumption: U.S. Gas Prices Are Driven by Accelerating Forces Out of Our Control

Over the past five years U.S. Weekly Finished Motor Gasoline Production (Million Barrels per Day) has increased by less than 5%. In fact, in the past year we have actually reduced our average production from about 9 million barrels to 8.6 million barrels (according to EIA.DOE.Gov) while our reserves have increased year-to-year. In the same periods gasoline prices have increased from about $1.30 in 2000 to the current $2.25 (April, 2005 average) or about $0.48 in just the past year. Clearly, further conservation will not help lower pump prices.

The world oil market is being driven by the emerging Asian consumer markets in India (1.2 billion) and China (1.5 billion). The Chinese Gross National Product has grown by nearly 10% every year since 1980 and now stands at $1,400,000,000,000.00. Toyota will have their new Prius Hybrid Plant completed by the end of this year in Chang-Chun.

In 2003, for the first time, China overtook the United States as the largest recipient of Foreign Direct Investment, with $53 billion. The U.S. Treasury Deptartment estimates U.S. investment in the rest of the world hit a peak in 2003 at $7.2 trillion while at that same moment foreigners owned $9.63 trillion of the U.S.

In the next five years I assume that customers and corporations in Asia, and in the consolidating economies of Europe, will be making economic decisions that will affect our daily lives. It is they who will decide the price of our gasoline, our interest rates, and the size of our tax burden (if we cannot control our government spending).

My No. 2 Assumption: U.S. Auto Makers Are 3-5 Years Away From a Turn-Around

Next year Toyota will pass General Motors as the world's largest vehicle manufacturer. This will not be just something that happens; it is planned. I admire the Japanese, who entered the technological age after WWII, and who have often been leaders. U.S. Automakers have often been the followers, as they are once again. Over the long haul the U.S. will again lead because they are here, as are most of their customers. They just have to produce the product we want and need, and do it as cheaply as the foreigners.

U.S. Auto Companies began to invest in foreign companies and get access to their technology and their customers. Their mistake was it was the wrong technology and the wrong customers. Those customers did not want, nor could they afford, the power and weight of large SUVs.

The turn-around really began several years ago with new investment in alternative solutions. Even GM (the current dog) was mostly on the right track. Deep down the marketing geniuses knew that they could not continue to rebate up to $8,000 per car and truck, loan money for free in a time of rising interest rates, and let vehicle quality and service slip by cutting back at the factory and at the dealer. Right now we are halfway into the four year transition required to turn a new vehicle idea into a proven sales product with enough units on the road to turn a profit.

News that billionaire investor Kirk Kerkorian wants to dump $868 million more into General Motors, raising his investment to $1.5 billion and 50 million shares, caused me to check my own portfolio. Raise your hand if you think Kirk is a loser or dumb. He is predicting, not betting, that GM (the dog) will return to the stock price in five years that it had five years ago; from the $31.00 today back to $83.00. In order to do that it must get back ahead of Toyota and outrun Ford.

Industry insiders looking closely at the Old Big Three see tons of investment in the new hybrid, hydrogen, fuel cell, and other technologies. These alone will not win the race. What will win is running the weight race by using plastics, exotic metals, and composites to reduce curb weights. What will win is running the hybrid-hybrid race by incorporating in designs bits and pieces of technology once thrown into the dumpster like the options of plug-in hybrid batteries, new lightweight battery compounds and configurations, solar power onboard, and optional fuel mixtures in dual-use engines.

I am placing my bet on our Big Three winning in three years mostly because I know their ultimate dirty little secret. The once and future great Chrysler Corporation learned long ago how to beat the foreigners. Use the government. I predict the GWB U.S. Auto Protection Bill of 2006 will offer $10-20 billion in low interest loan guantees for our home-grown auto makers. Another $10 billion will amend the currently expiring Working Families Tax Relief Act of 2004. That deduction amount is limited to $2,000 for cars first put into use in 2004 and 2005. The deduction will be limited to $500 for vehicles placed in service in 2006, and no deduction will be allowed after that year. The new law I think would replace the $500 tax deduction with a $5,000 tax credit for the following five years, but only for American-built hybrids. Project your own estimates upon what will happen at this instant to the sales of Hondas and Toyotas, and the Japanese stock market. Write your senator today!

I predict this will happen for sure because I am also betting that early in 2006 GM will abandon it's pension program either after declaring bankrupcy or as a threat against bankrupcy. With the government picking up GM's burden, Ford will have no choice but to also dump both its pension program and transfer a large percentage of it's worker's health costs onto the union. Bush and Congress will decide loans and government rebates will be much easier to stomach than economic collapse. This secret plan must certainly be the reason American Hybrids are being marketed so timidly while everything needed for a rapid increase to mass production is being put in place.

Much of this assumption is made with tongue-in-cheek. That said, everything that could make it come true is in place and is supported by real facts.

My No. 3 Assumption: U.S. Auto Makers Can Count to Ten

Those customers that bought the first hybrids in the U.S. in 2000 were really pioneers. Only a handfull were sold. By 2003 the number sold was approaching 45,000. This nearly doubled last year to over 83,000 and perhaps conservative projections for 2005 are over 225,000 hybrid units to be sold (Prius 100k; Honda 55k; Lexus 28k; Highlander 30k; Ford 10k; Mercury 10k)(From R.L. Polk and Edmunds). As of today there are over 150,000 Priuses on U.S. highways. There is enough of a pattern here, even not factoring in increasing gas prices and/or tax deductions, to envision an exponentially expanding market. The Public Policy Institute of California found in a recent poll that 47% of the public were considering purchasing a hybrid, even if they had to pay a premium in money or wait time. Large SUVs, once the fastest growing sales component now comprise 37%, and their sales price now averages a negative $8,608.00 off of suggested list price, according to Edmunds.

Some guess that auto makers are losing money. I don't think so. Most development costs on winners are written off quickly and newly developed technologies appear in associated models like topsy. The average American-made car sits on a lot for 91+ days and then huge rebates or free or reduced interest rates are required to get rid of it. Hybrids are as close as you can get to the factory building only what is ordered. Little inventory is tied up or lost to inflation. And best of all, it is a seller's and financier's market. The lack of a $6,000 rebate plus a $3-6,000 increase in base price plus a dealer premium of $1-5,000 can go a long way towards offsetting loss leaders in other models.

My No. 4 Assumption: The Big Players Are Not Yet At the Table

According to the Department of Transportation, in 2004 there were nearly 20 million vehicles in U.S. Fleets. Very few of these have had the opportunity to purchase hybrids and these are the guys that turn vehicles over every 3-4 years and in large part fuel a stable used car market for the masses. According to USA Today, many fleets have been stalled in their efforts to "go green." I recently spoke with a representative of EV-Rental Cars, a Los Angeles-based company specializing in alternative-fuel vehicles. He lamented that there were several reasons the car makers were not selling to rental companies, utilities, or taxi fleets. There are no mass discounts when full price is easily available on the market. The only way some fleets are getting their cars is to pay dealers a premium and buy individual units. In a conversation with a Ford marketing representative I suddenly realized the real reason. The bottom line is that Ford, and others, do not want a used hybrid market to compete with the new cars. They like the fact that currently used hybrids are bringing near the same price, even with tens of thousands of miles on them, as new models. Right now the manufacturers only trickle out a limited number of hybrids to parks, electric companies, and politicians as public relations or research projects. When the time comes they understand that the fleets will line up to buy millions of hybrids.

And at that time the price will be high enough to add a bit of profit to the R & R budget for hydrogen research. It does not hurt(z) that Ford owns the number one fleet in America - Hertz.

My No. 5 Assumption: It's Not the Parts That Are Missing

I continue to be amazed, and sometimes critical, of our country's response to the hybrid challenge. We already know that several years into the assault on our Big Three (or is it Big Two and the Dog?) only one will sell up to 20,000 hybrids this year in response to over 200,000 from abroad. And next year, according to published plans, it does not get much better, even if the Hybrid Fusion and Saturn VUE come on line as quickly as hoped. By that time the score could be 400,000 to 40,000.

Ford Hybrid owners keep chatting about supposed increases in production based on erroneous media reports. All along I have heard Ford would build 20,000 2005 Escape Hybrids, 20,000 2006 Escape Hybrids, and 20,000 2006 Mariner Hybrids. This is just wrong! I have been corrected several times by Ford Marketing who said less than 10,000 2005s will have been sold from August, 2004 to June, 2005. The plan was, and is, to build and sell 10,000 2005 and 2006 units in the twelve months beginning in August, 2004. The Mercury Mariner will be on sale around September and no one has stated yet the number to be built. Beyond that there is no published plan other than to shunt available parts and resources to whichever model is selling the best.

Last year I was comforted to read an article that said that Sanyo, the producer of Ford's batteries (and apparently some of those used in the Civic and Insight) thought they could increase production to the 10,000 per month level by the end of 2005. I thought that would mean a boost in Ford production. I was assured by Ford that their future hybrid production has nothing to do with the availability of parts or batteries at this point or in the foreseeable future. In other words, parts are not the problem here.

Normally, the media looks no further into why car production is low other than poor appeal to customers and/or lack of available parts. Both my dealer and Ford Marketing has continually said that they are selling every unit they build. If I can sell every widget I can make and I have plenty of parts why wouldn't I build infinite widgets? Maybe building too many will lower the price too much or lower demand. I remember Capitalism 101.

What in the world is going on here?

You would think that auto execs would be losing their jobs left and right but I know a few and every one has a smile on his and her tight lips. This assumption may well be just as wrong as my No. 2 Assumption but it also could be as right as any.

I think there is a Manhattan Project underway here. Our friends in Dearborn know they cannot win this derby against Japan, Inc. aboard their current horse in the near term. So they are just riding an old American plowhorse (some might say a Trojan Horse) until they spring their surprise next year. It is just like that Hummer Ad where the kid in the Soapbox Derby car cuts cross country.

First, Ford had to buy a number of patents from Toyota to get in the race. Our friends, the Stoic Japanese, never once thought about how much this hurt American Pride. Now Ford will produce a number of next generation patents that leapfrog the Japanese, force them to buy from Ford, and repay the favor. These will certainly include new, lightweight, long-lasting battery packs from EnergyCS/Valence Technologies. This plug-in at home pack would replace the current battery with a 9kWh high-energy lightweight Valence Saphion lithium-ion battery pack

(http://www.calcars.org/H2BridgeV3.pdf)

By incorporating other off-the-shelf components mileage would be boosted to a combined 80-100 MPG.

Second, frame and body parts are about to change to those more resembling those produced by the aircraft industry. High impact plastics, lightweight metals, and carbon-based composites will replace the bricks we now drive. The manufacturing process will be faster and use less energy. The cars will hold up better in safety tests. The materials will bend absorbing impact and then pop back into shape.

Third, I am sure Ford has been secretly working on the next generation of onboard computers and software. There is no way American cars can be as computer-dumb as we seem to be now. There must be something in the works!

I am positive that Ford has a Skunk Works where a new engine for the hybrid is about ready for testing. I have read too many articles lately that must have been noticed by Ford that dealt with dual-use engines using fuels as divergent as gasoline, corn oil, natural gas, and injected liquid hydrogen. There is no way that the Hybrid Escape dynasty is being built upon the ten year old Japanese Mazda engine. It had to be just a temporary stand-in.

Lastly, I know I have upset many of my fellow 2005 and 2006 Ford Hybrid Escape owners who are now aghast that our cars are about to become as obsolete as Dodo Birds. Don't worry! I am sure that is part of the American Hybrid scheme. Ford could buy back (or give a $30,000 instant credit towards another Ford product) all 20,000 units previously sold. They could do the GM thing (like was done with the experimental EVs), junk them and take a tax deductible write-off, or ship them to a third-world country as a donation and probably get an energy credit under the Kyoto Agreement.

In Summary:

"Forecasting is the art of saying what will happen, and then explaining why it didn't!" —Anonymous (communicated by Balaji Rajagopalan)

Those of us that frequent forums, write blogs, or send nasty emails blasting authors that pass along errors of fact in the media are not without fault. In this article I have taken what I have heard that is probably true, quoted internet research that I mostly understand, and made predictions that I think are based on existing factoids and that readers will either hope, or not hope, come true.

Some may use their fifteen minutes or fifteen megabytes on the web to expouse the truth. I have just used mine and, as they do, I claim freedom of the Press, and Journalistic License.

I have hopes that some or all of my assumptions will be attacked and supported in future posts. Is not one of the jobs of a good moderator but to bring up points of view in order to begin conversations? I look forward to reading relevant portions of this article in uncopyrighted posts on other forums.

"Cutting up fowl to predict the future is, if done honestly and with as little interpretation as possible, a kind of randomization. But chicken guts are hard to read and invite flights of fancy or corruption." —Ian Hacking in The Emergence of Probability

Thanks for listening. Mike Maline