Earlier today, General Motors announced a "temporary" return to zero percent financing. It’s a clear, unavoidable sign that the automaker’s June sales slump is, as predicted, cataclysmic. Staring down the black hole begun on Black Tuesday, GM had to do something, anything to move the metal. And yet, at the same time, GM also revealed it’s raising its prices by 3.5 percent across the board. This second piece of news is equal parts bizarre and revealing. In essence, in the final hand of the poker game for its existence, GM has just doubled down. And now it’s Toyota’s bet. Here’s the thinking…

GM NA is desperate for cash. It simply doesn’t have enough liquidity to stave off bankruptcy. The automaker’s cash cow– high margin pickup trucks and SUVs– has become an endless supply of mad bovine burgers. So what can they do? They can discount the moribund metal, sacrificing profits to generate some cash flow. This GM's done, via zero percent financing. 

GM knows it’s not going to work. GM dealers know it’s not gong to work. Hell, even the stock market knows its not going to work (the share price reacted by falling to a 33-year low). The fact that some GM stores point blank refuse to accept SUVs and pickups in trade is only one of several unavoidable signs that light trucks– GM’s life sustaining market– is dead. There’s only one other way GM can raise some money fast: up the prices on those vehicles they ARE selling.

With GM’s U.S. market share past the point of sustainability, below 20 percent, all Toyota has to do is hold the line on their prices, amp-up production of its hot selling fuel sippers and wait for GM to die. Even by GM CEO Rick “We have enough cash for ’08" Wagoner’s own admission, it won’t be long. Especially not for Toyota— a company that’s taken the long view of its business prospects since they had a view to take.

Keep in mind that ToMoCo makes more profit it one year than GM’s entire market capitalization. Toyota could afford to give their cars away for the rest of the year and shrug off the loss. Literally. BUT… why would Toyota want GM to go out of business? Answer: they don’t.

GM still sets the floor for vehicle prices in the U.S.; a floor that allows low-cost, no-legacy Toyota to make a healthy margin on their North American products. If GM files for Chapter 11, car prices will crater. Even worse, a post- or even intra-bankruptcy GM– OK, Chevrolet– could emerge a lean, mean competitor, forcing Toyota to engage in some serious trench warfare. For a change. Yes it’s a far-fetched scenario. But don’t think it hasn’t occurred to Toyota, because it has. 

You may recall that the last time GM was generally recognized to be headed for extinction, Toyota’s Chairman offered to raise vehicle prices in North America to help the beleaguered automaker. At the time, Wagoner (for it was he) dismissed ToMoCo’s proposal with the kind of arrogance you’d expect for a man who's led GM to where it is today. But times have changed. Wagoner is up a river of excrement without a rowing implement. So he’s taking-up that offer.

Wagoner’s calculating that Toyota will also raise its prices, either to save GM or, at the very least, add to its mountainous profits. After all, the transplant’s raw commodity prices have risen by a similar amount, and their cars are flying off the lots. Surely they’ll take the path of least resistance– and maximum profits.

I reckon Rick’s right. Toyota is not GM. It will act in its long-term interests by taking a short term profit. (Oh, go on then.) GM will get its 3.5 percent extra margin on those products that are, somehow, making their way into customers’ driveways. If needs be, they can kick back that 3.5 percent to the customer and, hopefully, tread water— as opposed to watching their margins slip even further into the briny deep. 

Of course, even that won’t be enough. The inherent, fundamental, inescapable problem is that Toyondissan, and soon Ford, makes more popular products than GM in those vehicle genres that a U.S. automaker now needs to survive. The General’s general trend towards a declining share of the American pie is not about costs. It’s about a decades-long lack of competitive vehicles and loyalty-inducing customer service. Is there anyone left who genuinely believes that the Cobalt replacement or the Prius-fighter will kick Toyondissan’s ass? That a Buick-Pontiac-GMC dealership's a nice place to visit?

In truth, there are plenty of consumers who wouldn’t buy a GM product at any price. And won’t. This is the sad legacy of GM’s broken branding, dealer bloat and safe-fail engineering. One way of another, it’s only a matter of time before all bets are off.

Truck sales are in the toilet, Toyota will be all hybrid by 2015. And yet there's this: The Ironman Toyota Tundra. No, ToMoCo's not trying to supporting Robert Downey Jr. rehabilitation (as Audi did). They're naming the most powerful-ever Toyota anything after truck racing legend Ivan "Ironman" Stewart. Hey why not? Along with the mu macho moniker comes 501 horsepower and 550  supercharged lbs.-ft. of torque. Autoblog reports that other, ahem, enhancements include "Magnaflow cat-back exhaust, Bilstein shocks, Hella lamps, a Hurst pistol-grip shifter and 20-inch Alcoa aluminum-alloy rims with General tires." All that kit should add $20k or so to the price of the heavily discounted, dust-gathering, Texas-built full-size pickup. No word on fuel consumption, but we predict somewhere between unconscionable and just plain awful. 

Earlier this year, GM Car Czar Bob Lutz announced that his employer was [theoretically] set to build about 10k plug-in electric – gas hybrid Volts in the car's first year of production, "so we can deal with any issues before we really crank up for high volumes." In an email to the Detroit Free Press, GM's Chairman of Vice confirmed the initial 10k run in 2011, and then set a number for 2012: 60k units. Considering that GM is what's commonly called a "volume automaker," and the fact that Toyota has sold 79,765 Priora so far this year, that seems like mighty small beer. Which just got smaller. Maximum Bob admitted that the production stats are "notional targets." GM may offer even less Voltage in the model's first year "to ensure that all vehicles built are safe and high quality." Oh yeah, and "the actual number [built in the first two years] is highly dependent on electrical component supplier capability and battery experience." So there you have it. GM will produce 10k Volts in the first year. Or not. And produce 60k Volts in the second year. Or not. But they definitely will produce Volts. Or not.

(The following email was sent to Chrysler employees today. It was released to the media with a note which read "'This information should help you cover Chrysler. We also sent it to our employees to help them as ambassadors of the company – Nancy." We leave it to you, our Best and Brightest, to make what you will of it.) 

Keeping Track of the Facts on Chrysler LLC
By Nancy Rae
Senior Vice President, Human Resources and Corporate Communications

As the industry goes through a period of great change and a slowing economy, we all face difficult questions about the status of the industry and our company.  Following are a number of the leading subjects that come up in the media and in our daily conversations, as well as information you need to know and share:

The State of the U.S. Auto Industry in 2008 .

Our full year plan for the market in 2008 has been aggressively conservative, allowing us to be better positioned for the current slowdown.  We are clearly in a challenging environment, but continue to be focused on building a profitable enterprise for the long term. We are committed to good business practices despite the market slowdown such as reducing fleet sales (volume down more than 20% YTD) and dealer inventory (volume is down 67,000 units from a year ago).

The State of Chrysler
. As a private company, we are like a $60 billion startup with a real owner-operator mentality. 
. Despite the challenges, we are meeting or exceeding our financial targets.
. According to Bob Nardelli (in The Wall Street Journal), "Cerberus nor its backers are second-guessing the deal. They are not looking back." 
. According to Tim Price, Cerberus spokesman, "We are comfortable.  We are long-term investors.  Chrysler is ahead of its cash flow forecast by $1 billion."
. We currently have our top 300 leaders going through a comprehensive leadership development program consisting of five segments focusing on strategic thinking, operating excellence and leadership.
. We are developing project-specific alliances to help bring the world's best technology to our customers, as soon as possible. Examples range from working with Nissan on a new small car for global markets to partnering with GM, Daimler and BMW on hybrid technology.
. We enacted a 5 percent cost reduction on certain non-production materials and services as a part of ongoing efforts to reduce our cost footprint in a highly competitive marketplace.

Chrysler's Sales in 2008
. Worldwide sales are down 14% YTD, which includes YTD increases in Canada, Mexico and International Markets. Fleet sales in the U.S. were down 40% in May and 23% for the year.
. Sales are rising for new products, such as Dodge Journey (2nd best selling mid-size crossover in May), Dodge Avenger (+15% YTD), Dodge Caliber (+9% YTD), Chrysler Sebring Sedan/Convertible (+11% YTD), and Jeep Patriot/Compass (+65% YTD).
. Our long-wheelbase minivans' U.S. retail sales are up 30% YTD, and retail share is up.
. In Canada, Chrysler is the #2 best selling manufacturer in the country, and up 5.5% YTD.
. In Mexico, Chrysler's sales are up 5.1% YTD.
. Outside North America, Chrysler's international sales are up 8% YTD, with markets like China and Russia becoming a larger part of our business.
. Dealers have embraced Project Genesis, and we are making progress in transforming the U.S. dealer network. Through May, 58% of our dealers are tri-branded, compared to 50% a year ago.  In the U.S., we now have 3,488 dealers, down from a year ago 3,684.

Chrysler's Alignment with Marketplace
. Chrysler is better aligned than previously for the shift towards smaller, more fuel efficient vehicles.  We also believe there is a strong and viable pickup truck market going forward.
. Through May, our U.S. sales were 41% pickup trucks and traditional SUVs, and 59% cars, car-based crossovers, compact vehicles and minivans.  (Industry is at 33%/67% ratio)
. Chrysler has six vehicles that achieve 28 MPG on the highway: Dodge Caliber, Dodge Avenger, Chrysler Sebring, Chrysler Sebring Convertible, Jeep Patriot and Jeep Compass.

Chrysler's Launch Lineup for 2008
These new vehicles have competitive advantages and are well-suited for today's marketplace:
. Dodge Journey – A crossover with class-leading (25 mpg) with a 4-cylinder engine.
. Chrysler Aspen/Dodge Durango Hybrids – Full-size SUVs offering up to 40% improved fuel economy in the city at a price thousands of dollars less than the competition.
. 2009 Dodge Ram – There is no better way to fight truck buyer malaise than with our best truck lineup ever boasting breakthrough new features. The new Dodge Ram lineup will also soon add optional light duty diesel and hybrid powertrain options.
. Dodge Challenger – This modern muscle car will come with a fuel-efficient V6 option at an aggressive entry-level price of $21,995.

Harbour Report for Manufacturing Productivity
. This year, Chrysler tied Toyota for #1 in manufacturing productivity (avg assembly hours).
. Chrysler has the #1 assembly plant (innovative Toledo Supplier Park) and #1 engine plant (GEMA joint venture with Hyundai and Mitsubishi).
. The combination of lower hours-per-vehicle production and a more competitive wage rate helps us compete with the transplants.

Quality
. In the latest J.D. Power IQS, the company improved six points, and Chrysler and Dodge brands showed improvement.  Unfortunately, the Jeep brand was last in the survey due to concerns about the Wrangler Unlimited.  We can do better and we know it.
. Dodge Durango and Dodge Dakota were tops in segments for least problems per hundred. Chrysler PT Cruiser took second place in the "Compact Multi-Activity Vehicle Segment".
. We have a corporate wide focus on the customer.  As part of this, we have put in place the industry's first Chief Customer Office, Doug Betts, and the Customer Advisory Board. 
. Chrysler LLC has approved more than 400 improvements in areas such as better materials, fit and finish and quieter operation.

Commodity Prices
. In the wake of mounting pressure from ever-increasing steel and other commodity prices, Chrysler is managing its costs and revenues to partially offset spiraling commodity costs.  
. Chrysler will continue its overall commitment to deliver the best values in the business through increasing standard equipment with our New Day packages to creative incentives, such as the $2.99 Gas Guarantee and our industry-leading lifetime powertrain warranty.
. At the beginning of the model year, Chrysler added, on average, $1,200 of new content to the vehicles in its lineup.

Investing in our Future with Advanced Technology
. Chrysler is in the midst of a $3 billion investment in advanced powertrains to develop new fuel efficient engines, axles and transmissions.
. ENVI is Chrysler's in-house organization charged with establishing Chrysler leadership in electric-drive vehicles and related advanced-propulsion technologies.
. Chrysler's UConnect® is a Bluetooth® enabled voice-activated, in-vehicle, hands-free communications system that recognizes more than 100,000 words and is capable of learning new words. Voice commands can input addresses to the navigation system, select satellite radio stations and access voice mail. New for 2009, the hands-free system automatically downloads up to 1,000 phone book entries per phone.

. Examples of new advanced technologies available on 2009 models include:
. In-vehicle wireless Internet connectivity: coming from Mopar® by year end 2008.
. Rear Cross Path: Chrysler-exclusive system warns drivers of approaching traffic in the parking lot aisle during back-up maneuvers.
. Blind Spot Monitoring: exclusive to Chrysler and Dodge in minivan segment.

We are committed to continuing to share information with you.  As an ambassador for this company, we hope you will communicate this information in your conversations about Chrysler.

Nancy

First of all, the National Labor Committee says that less than 15 percent of its money comes from labor unions. So this is not a United Auto Workers' front organization. Second, in a phone call [below] Director Charles Kernaghan was clear that Toyota's Japanese factories adhere to the country's labor laws (even though you may be surprised to learn that ToMoCo's been on a two-tier wage system for decades). Kernaghan's beef is with the automaker's suppliers. "Toyota's much admired 'Just in Time' auto parts supply chain is riddled with sweatshop abuse," he insists. "Including the trafficking of foreign guest workers, mostly from China and Vietnam to Japan. They're stripped of their passports and often forced to work– including at subcontract plants supplying Toyota– 16 hours a day, seven days a week, while being paid less than half the legal minimum wage. Guest workers who complain about abusive conditions are deported." The organization's report is low on stats, big on anecdotes and focused on pious Prius celebs. And yet, it's a point we've brought up before. International automakers'– and their customers'– willingness to turn a blind eye to their suppliers' working conditions is a black eye for the business– albeit one cleverly covered by makeup. 

Several readers sent us a link to "Honda: Extreme Meets Mainstream" (a.k.a. "Sipping Gas and Taking Names; How Honda is Going to Own Toyota"). It's a love letter straight from the ad department heart. To wit: "When times are tough and gasoline prices rise, people come home to Honda," Paul Lienert gushes. "There's something unique about this company that seems to speak to Americans." In his campaign for Honda's deification, Lienert mentions a couple of flops (Ridgeline, Accord Hybrid) and mentions styling and performance-oriented probs. But they are but speed bumps on the road to immortality. "It all comes from a willingness to think outside the box. Sometimes it wins and sometimes it loses, yet Honda is always willing to embrace things that are new and different… The payoff has been unswerving customer loyalty… If Honda seems suddenly clairvoyant, the foundation for its most recent triumphs has been carefully and consistently laid over four decades." While no one begrudges Honda their success, Edmunds gets enough press releases without having to pay for one. 

If you can't wait for Toyota to launch a plug-in electric hybrid vehicle (PHEV) Prius, there are several companies who will convert your hybrid to a PHEV. Sure they may set you back $10k on top of your Prius purchase, but being the first one on the block with a plug-in is priceless, right? First, consider what might happen to your carbon footprint if your PHEV suddenly catches fire. CRN reports (via DailyTech) that a Prius outfitted with a Hybrids-Plus PHEV15 conversion kit caught fire and exploded last week during routine highway driving. The late Prius, part of a test fleet operated by the Central Electric Power Cooperative of South Carolina, and had been experiencing charger-related malfunctions. Because the A123-sourced lithium-ion battery was "largely intact and functioning" post-kaboom, the cause of the fire is listed as "unknown." A specialized EV forensic team (yup, they exist) is investigating. Pending their findings, those who have criticized the OEM's tentative approach to li-ion technology might want to take the opportunity to eat a little crow. And those OEM's who are banking on a rushed li-ion release (cough, GM, cough) might want to take this as a sign to run one or two extra tests. Just sayin.  (Hat tip to Jalopnik) 

The Wall Street Journal [sub] reports some unsurprising news: "Toyota Motor Corp. is likely to struggle to make money at its two truck plants in the U.S. this year." The $2b San Antonio plant ran at about 92 percent of capacity last year. This year, it's limping along at 72 percent. Its sister truck/SUV factory in Indiana is said to be at a Chrysler-like 45 percent. Thanks to its flexible labor (i.e. non-union), Toyota has already re-assigned Indiana workers from the truck line to Camrys. Both Toyota truck factories are also cutting work hours: "Workers on each shift will work seven hours instead of eight assembling cars and will spend one hour in training." No layoffs, no jobs bank and no 95 percent pay for not showing up. Meanwhile, the car side of Toyota's portfolio remains strong and continues to gain share against Detroit. The Tundra is down, but Prius, Camry, Corolla and Yaris are rocking and rolling out the door.

VW has made big bucks in fuel crises past by offering diesel options where others had none. And though Wolfsburg has always charged a premium for its oil-burners, cheap-and-cheerful was the name of the TDI game back when it took an OPEC embargo to make Americans think about efficiency. Well, the 70's are over, man. VW's new Jetta TDI starts at $21,990 for the sedan, and $23,590 for the wagon. Er, SportWagon. That's five large more than a base sedan, and a $4,500 premium for the wagon. And not only are VW charging more for their diesels, they're also hyping non-EPA mileage ratings to claim 38/44 mpg in city and highway driving respectively. If, for some crazy reason, you want an apples-to-apples comparison to any other product on the market, the EPA ratings that everyone else seems to live with rate the Jetta TDI at 29/40 mpg. Factor in the fact that diesel prices have doubled in most markets over the last year, and you have a spin-free idea of how economical VW's TDI offering really is. Though the acolytes of Rudolph Diesel claim that battery replacement costs for hybrids give the TDI an edge, those costs are going down , while diesel prices continue to climb in most areas. The TDI will still serve well in those coastal enclaves where "powered by biodiesel" and grateful dead-affiliated bumper stickers offer TDI owners social status commensurate to the price premiums they paid. Otherwise, this baby has been priced right out of the market.

In yet another Lutzie-worthy display, "Maximum" Bob Lutz tells the Seattle Times that even though first-gen Volts will retail for $40k and generate no profit for GM, "for the first time, our well-thought-of Asian competitors will be left in the dust" by its magnificence. And who wouldn't be terrified at the prospect of competing with a $40k profitless wonder? But Lutz didn't only highlight the tensions between the Volt's aspirations to neo-Model T status, and its mounting sticker shock. He actually gloats about the project, saying "We are simply quite startled and amazed at how everything is working according to plan." Because apparently making money and offering an affordable PHEV were never part of the plan. But Lutz isn't totally delusional. He estimates that by 2020 or 2025 between a quarter and half of all new vehicles sold in the U.S. will be electric or hydrogen-powered, and that nuclear power is "the only real option" for this mass electrification. So why can't he stop spewing disingenuous optimism about the Volt project? When even the die-hard fanboys of gm-volt.com are starting to say things like "If they retail it at $40,000, the Volt is going to switch from a 'game changer' to 'another EV-1 disaster,'" what else can you do?

Yes, GM's light truck sales are in the toilet. Yes, it makes sense to plan their future carefully, given questions about [the loopholes in] new federal fuel economy regulations. But it's also true that GM's stop/start development process hurts its competitiveness. If GM wants to maintain its co-domination of this wounded though high-profit sector– and why wouldn't they?– the automaker would do well to remember that the new Toyota Tundra and Sequoia are still out there, somewhere. AND there's a new Ford F-150 and Dodge Ram coming down the pike. But no. GM has revealed that the next gen trucks– scheduled to go into production in 2013– have been postponed. Bottom line: GM's saving $300m. Bottom line: GM's cash position must dire. Even The Detroit News gets it, kinda. "GM has said it needs more and better passenger cars for the U.S. market. But money to develop new vehicles is tight. The automaker, which hasn't turned a full-year profit since 2004, is burning cash, losing $3.3 billion in this year's first quarter alone." Over at RenCen, the spin starts there. "GM's Wilkinson said the automaker is confident that the existing trucks can compete with other companies' new models. Even without a total makeover of the platform, GM can change anything from the trucks' powertrains to the interiors. 'Our intention is to remain a leader in the segment.' What was that about the road to Hell? 

Mergers have not always treated the car industry well (hello DCX), but in the cutthroat EV/HEV/PHEV game, joint-venture hookups now appear to be the order of the day. Toyota's got Panasonic for a partner, Daimler's got JCI-Saft, and Nissan has NEC, while GM juggles Cobasys, A123 and LG Chem. Now, two new joint ventures are joining the electric drivetrain development fray. PSA (makers of Peugeot and Citroen cars) has joined Mitsubishi to develop an EV drivetrain for city cars. Auto Motor und Sport reports that Mitsubishi will bring knowledge gleaned from its own partnership with battery maker Yuasa to the joint venture. Elsewhere, Bosch and Samsung have set up a joint lithium-ion battery venture in Korea, according to Green Car Congress. The new venture, SB LiMotive Co. Ltd, will open its doors this September with production beginning in 2010. Samsung's lithium-ion expertise from its consumer electronics battery business will meet Bosch's vehicle-based electronics experience in hopes of creating new industry-leading electric powertrains. Samsung has already developed a manganese-oxide-based lithium-ion cell for EV use; it's looking into vanadium-oxide as a next-gen anode for EV applications. For the eager EV suitors of Silicone Valley (hello Tesla), these hyperconglomerate hookups could mean even more competition for OEM affections, says CNET. Gotta pass those genes proprietary technology development costs along…

In today's most excellent editorial, Michael Karesh highlighted Toyota and GM's relative approaches re: creating and selling new automotive technology. Karesh didn't delve into the cultural differences between the two automakers. For insight into ToMoCo's slow and steady vs. GM's ADD, I offer this quote from Jeffrey Kluger's Simplexity: "Exploitative organisms are creatures with fixed niches and well-established survival strategies. An exploitative organism is unlikely to try something evolutionarily new, preferring instead to stick with what it knows and exploit its environment for familiar resources. This is good for the individual or the next few generations, since playing it safe prevents you from making adaptive mistakes. But it can be bad for the species, which may be slow to adjust to a rapid change in circumstances…. Explorative organisms tend to seek new niches, mutate fast, explore new survival strategies when the opportunities present themselves. This can be costly in the short run, since any evolutionary innovation has a chance of failing, but over the long run it keeps the species flexible." As mainstream manufacturers, both Toyota and GM are intrinsically exploitative organisms. But GM acts like an explorative. And therein lies its weakness. In case you were wondering. In any case, today's news…

Remember when we told you Toyota would be dropping $673m on new battery facilities? In addition to expanding next-gen Li-ion production (and next-next-gen development labs), ToMoCo also wants to increase its current-spec NiMH production capacity. And no wonder. Toyota can't keep the NiMH batteries in stock, limiting sales of its hybrid lineup. The AP reports via the San Jose Mercury that Toyota's investments in production capacity won't bear fruit until next year. "Hybrids are selling so well we are doing all we can to increase production," says executive VP for production Takeshi Uchiyamada. "We need new lines." But the ramifications of Toyota's lack of insight (pun kinda intended) aren't limited to lost sales. Uchiyamada acknowledges that white-hot demand for the NiMH packs are preventing him from extending Toyota's production-greening efforts to the production of "green" hybrid cars. (Figure that one out.) As the industry pioneer in hybrid manufacturing, Toyota's battery shortage is clearly a measure of its product's success. On the other hand, as a longtime leader in production efficiency, it's hard to believe Toyota was caught napping by demand for its hybrids. It seems that when it comes to hybrids, Toyota's "just-in-time" ethic translates a little closer to "hurry up and wait." 

Critics of Chevrolet's upcoming plug-in gas-electric hybrid Volt fail to realize one thing: it doesn't matter if the car isn't perfect. It doesn't even matter if the Volt fails to achieve ANY of its much-hyped metrics: price, range or reliability. It's what happens AFTER GM's Hail Mary is released that counts. If GM can keep plugging away (so to speak) on the Volt, they could, eventually, offer a genuine competitor to the the all-conquering Toyota Prius. One need only look at the fiddly roof still blighting the once red-hot Pontiac Solstice to know the odds of this happening are not high. Or, alternatively, contemplate GM's new product development history vs. the genesis of the Prius.

Back in the late 1980s and early 1990s, academics investigated why Japanese companies in general, and Japanese auto companies in specific, were doing so well. A key finding: while American companies tended to think the choice was between a breakthrough, “leapfrogging” product and more of the same, Japanese companies often pursued a “rapid inch-up” strategy. With the latter, you get a reasonably good product at a viable price to market, learn from the process, then follow up with an improved (if still not perfect) product. Lather, rinse, repeat.

Companies seeking a "moon shot" breakthrough are much more likely to get discouraged, ball up the entire effort, and start over from scratch. They miss the basic rule: companies that aim for and achieve a series of base hits with innovative products often end-up outscoring those that alternate between swinging for the fences and sitting it out.

Japanese companies have had a further advantage: a significant number of Japanese "early adopters." These consumers are willing to buy bleeding edge technology for its own sake. They’ll pay well over the odds for an imperfect innovation– as long as it’s more advanced than any available alternative. That goes double if the new technology can be conspicuously consumed. Lest we forget, the Prius was originally developed for Japan, not for Hollywood.

Are these purchasing decisions rational? In isolation and in strictly financial terms, no. But when people buy a new technology, it gives the manufacturer the learning experience and financial means to launch continuous improvements and, eventually, benefit from economy of scale. The rest of us eventually get an improved, less expensive iteration. So, in the long run, these initially expensive decisions make a lot of sense.

Remember all of the arguments against digital cameras? The same process of slow growth leading to a mass market tipping point applied to the Prius– and could well apply to ALL hybrids. Is the Prius perfect? No. Does offer leading-edge technology at a price many people can afford? Yes, as we approach the third generation, it does. 

This is a critical point. Toyota isn’t ready to say, “mission accomplished.” The next Prius, with slightly improved everything, will arrive next year. No doubt work has already begun on its fourth generation replacement.

Compare the Prius' slow and steady march to GM’s failed sprints. Time and time again, they’ve created a car they thought would leapfrog the competition. When it didn’t meet expectations, they cut off investment, often  abandoning the model name. GM didn’t learn from the Corvair-Vega-Cavalier-Saturn (or the less ambitious Cobalt). Each time, they failed to quickly follow up with incrementally improved versions until they got the product right. (The exception that proves the rule: the Chevrolet Corvette.)

Seeking a breakthrough, GM spent a billion dollars to develop the all-electric EV1 (while serving pushrods to the masses). When the EV1 failed to set the world on fire, GM crushed it. Despite the looming Toyota Prius, lost U.S. market share and anti-SUV grumblings, there was no EV2.

True, GM does have its “dual-mode hybrid.” Though technically superior to the system in the current Prius, it was introduced in GM’s most outmoded package-—a large, live-axled, body-on-frame SUV. The enormous cost differential would not be insurmountable to early adopters. But what are the chances of buyers of large conventional SUVs fitting that description? Predictably, GM hybrid SUV sales have been dismal.

There will soon be a dual-mode Saturn VUE. The “dual-mode” variant will look much like regular VUEs, and the costly system could send its price deep into the thirties. But it could work. The key question: will GM continue to iterate even if sales remain low— or will they abandon the dual-mode system entirely when the Volt's E-Flex architecture appears? No points for answering that question.

The plug-in Chevy Volt is, indeed, GM's best hope in this most recent technological arms race. It will come in a distinctive wrapper (we think). It will seat four (unlike the EV1). On the downside, it's increasingly clear– thanks to Car Czar Bob Lutz' shrug at a recent test of a Volt mule– that GM's Hail Mary won't be cheap.  Again, so what? The more important factor: does GM have the will (and financial ability) to learn from the experience and persevere through the inevitable setbacks to continuously improve upon the initial effort and bring the costs down?

We shall see. Meanwhile, critics of both the Prius and the Volt don’t get it. They knock the vehicles for failing to meet their expectations for a paradigm shift. By so doing, the naysayers delay the very things they claim to want.

Fantastic products rarely emerge from the lab fully-formed, like Athena from Zeus' head. And if everyone waited for perfect products, and criticized anyone who didn’t do likewise, we’d still be riding horses. The best possible products evolve over time when persistent visionary companies team up with technophilic consumers to engage in continuous innovation. At which point the naysayers say, “Now it’s good enough for me,” without the slightest sense of hypocrisy.