Automakers talk of stabilizing the price of gas

updated 7:43 p.m. ET Jan. 13, 2009

DETROIT - Deep inside the research centers of General Motors Corp., Ford Motor Co. and Chrysler LLC, the companies are spending billions to develop plug-in electric cars at a time when gasoline has dropped below $2 per gallon.

If their fears come true, gas prices will be so low when they start rolling out the cars next year that people won’t buy them and all the high-priced research will have gone to waste.

At GM and Chrysler, which have nearly run out of cash and are surviving on government loans, the companies can’t afford to make mistakes in spending limited research and development dollars, but they can’t predict the future, either.

“It’s obviously a challenge when you’re in a resource-constrained world,” Frank Klegon, Chrysler’s product development chief, said in an interview this week at the North American International Auto Show. “The market and the consumer are flexible from the perspective of what they want and what they need, and because the demand curve changes instantaneously, it appears, as good as we are, we’re not that instantaneous.”

In a five-month period from July to December, average gas prices nationwide fell 58 percent from $4.11 per gallon to $1.74, creating a huge problem for automakers to predict what vehicles to design or build to match consumer demand.

The fear of producing the wrong cars has created a whisper campaign, with industry officials saying they may approach the incoming Obama administration about raising the federal gasoline tax or setting up a system that keeps the price of oil above a certain level.

“It makes life very difficult if the market gyrates wildly over the course of several months, and that’s exactly what we’ve seen happen,” Ford Executive Chairman Bill Ford Jr. said in a recent interview with The Associated Press.

Gas price swings have trapped automakers before, especially last summer when the price spike caught many with too many pickup trucks and sport utility vehicles and too few smaller, more efficient cars. Lower prices cut sales of the Prius gas-electric hybrid by 45 percent in December and forced Toyota Motor Corp. to shelve construction of a new factory to make them in the U.S.

The changing market slammed automakers’ profits, especially among the Detroit Three, starting their slide toward financial doom.

Higher taxes or a floor would give automakers a “clearer planning horizon” because they design future models three to five years in advance, Ford said.

Jim Queen, GM’s global engineering head, said the Obama administration may be open to gas taxes or policies imposed by many European countries that reduce oil consumption and make it easier for manufacturers to match their products to demand.

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