"In our view, the key to winning this race is not declaring a winner until the technology has actually run the race."

John Mendel American Honda’s Executive Vice President of Sales John Mendel, along with other business leaders and academics, gathered at The Ohio State University...

John Mendel

American Honda’s Executive Vice President of Sales John Mendel, along with other business leaders and academics, gathered at The Ohio State University May 3 to discuss ways of reducing gasoline in transportation in a three-day conference called: Moving Ahead 2010. Following are his excerpted remarks.

It’s great to be in Columbus... a real hometown for Honda. Our first U.S. manufacturing operations were established here 30-plus years ago … and we have a major R&D center that creates many of the products we build here.

Both our manufacturing and R&D operations have a strong relationship with our host, Ohio State University. We have partnered with OSU in advanced research … we employ their graduates … and our associates root fanatically for the Buckeyes. So, we’re very happy that this important new event is kicking off here.

And this is a critically important event. The realization of more efficient and sustainable forms of mobility is key to the future of our planet … and to the future of personal transportation for millions of people around the world.

It’s also key to the future of the auto industry. I’ve been a part of the industry for more than 30 years now. And I think I can say that for all automakers … the ability to develop advanced environmental technologies is no longer just a means to gain competitive advantage. The truth is that any manufacturer without these technologies will not long survive. And you can look at the mergers and joint technology ventures in our industry over the past year as proof of this new reality.

This pursuit of sustainable transportation solutions amounts to something of a new race for our business, with many promising technologies vying for the lead and various companies racing to bring these technologies to market.

But in our view this shouldn’t be the kind of race where different companies or technologies are pitted against one another. Rather, we should race with each other toward a common goal … of creating technology that provides the world with greater mobility … while dramatically reducing CO2 emissions and creating a more sustainable energy future for generations to come.

"The effort to promote the virtues of one technology should not result in the demonizing of another" In our view … the key to winning this race is not declaring a winner until the technology has actually run the race. That’s a critical distinction, because the race for a cleaner and more sustainable future is a marathon, not a sprint. It will be decades before any new technology can be called the all-out winner. And while there are a lot of opinions … and even more desires … no one can say with certainty today which technology or combination of technologies will be first to the finish line. The effort to promote the virtues of one technology should not result in the demonizing of another. … or in policymakers laying all of their chips on the technology du jour … rather than promoting fair and open competition among all the players and all promising technologies.

This is a crucial point. Because rushing to select a winner could lead us in the wrong direction … resulting in the loss not only of time and substantial investment of development resources … but, more importantly, the trust of our customers and society.

Regulators and legislators at both the federal and state levels should adopt this perspective. To put the country on a course toward a single technology without fully understanding the implications … including whether consumers will buy it … will put us behind in achieving our objectives. And in the long run will be very costly to boot.

Rather, the critical role of policymakers should be to tell industry what goals must be met … a performance standard if you will … and leave it to the industry to figure out how to get there. To do that, we will vigorously pursue a variety of viable technologies for the near-, mid- and long-term to determine which approaches best meet the multiple challenges of air quality … climate change … and energy sustainability.

Certainly, there is a lot riding on the ability of the auto industry to create a new technology pathway. But it would be wrong to believe that the right path to the future of the automobile rests solely with the automakers. Indeed, real progress can not be achieved without the efforts of energy companies, governments and NGOs. And all of us must keep our focus on the customer.

Automakers can’t just build technologically advanced automobiles. We must make automobiles fully functioning … so people want to buy them … and affordable … so people can buy them. Government can have tremendous influence on this outcome through regulations and energy policies that foster a marketplace that will remain open to a fair competition among the various technologies. This will allow the marketplace to do its job as the ultimate judge of who wins and who loses.

As a case in point, a little more than ten years since Honda introduced America’s first hybrid vehicle, there are some 26 distinct hybrid models on the market … but they still represent just around 2 percent of the total market. And even this level of

penetration has benefited from generous incentives from the government and industry. The reality is that the price of gasoline is the single greatest influence on the sales of more fuel-efficient vehicles including hybrids. If we can’t convince people to move to a hybrid … which is as fully-functioning and as easy to refuel as an internal combustion engine vehicle … we have to seriously consider what will get them to accept battery electric and plug-in hybrid vehicles with their myriad limitations including cost, driving range, and re-fueling or recharging issues.

"We must ultimately replace petroleum as the fuel that powers personal transportation." What we do know … is that we must ultimately replace petroleum as the fuel that powers personal transportation. But accomplishing this challenge requires that we focus on two critical needs … a reduction of petroleum use and a reduction of greenhouse gas emissions. These are related goals in many cases because burning less gasoline reduces CO2 emissions. But the size of that reduction depends on which alternative is adopted and how it is deployed.

Looking at the technology race … will this mean hybrids … plug-in hybrids … biofuel … battery electric vehicles … fuel cell electric vehicles? The answer is … well … “yes.” Because we need to manage short, mid- and long-range demands of society in balance with the evolution of all these technologies. And the reality is that each technology has unique challenges somewhere along that timeline. And even long term solutions require step-by-step progress that must begin today.

So, developing multiple pathways makes more sense than trying to pick tomorrow’s winner today. And by the way, there may well be more than one winner. For instance, we might find that small battery electric vehicles work for commuting … with a fuel cell electric vehicle a better solution for heavier vehicles or for longer trips.

Surely, the internal combustion engine will continue to play a role in personal transportation ... and can be made more efficient. Additionally, bio-fuels represent a great potential alternative to gasoline. But it has to be the right biofuel. The key to the success of biofuels is that we should be able to simply “drop it in” to the existing fleet using the existing infrastructure.

But the drive for bio-ethanol derived from food stocks was a case where prematurely picking a winner may not have made a big contribution to the reduction of greenhouse gas emissions. And while I realize that it was good business for our nation’s farmers, it actually created a host of unintended problems … and undermined credibility with consumers.

Honda is now working on so-called second-generation biofuels – which means the sustainable production of alcohol-based fuels from plant waste material, instead of edible plants. The potential for algae-derived bio-gasoline is also promising because it would offer the additional merit of not needing to change-over cars to run on ethanol…and avoids new infrastructure costs. But these technologies are a long way from mass production.

One of the best alternative fuel opportunities in our grasp today is natural gas. I don’t suggest this to promote the fact that Honda is the only automaker mass-producing a natural gas vehicle … the Civic GX. Natural gas is an inexpensive, clean burning and abundant domestic fuel. The Civic GX is the cleanest vehicle powered by an internal combustion engine that the EPA has ever certified for everyday use. And natural gas results in 25 percent lower CO2 emissions than gasoline.

However, without a convenient and affordable refueling infrastructure natural gas cannot succeed. It’s an important lesson. When it comes to an alternative fuel … no matter how good the technology … no automaker can go down the path alone.

For the near-term, expanded use of hybrid technology represents the best direction to reduce petroleum use … because hybrids leverage both existing internal combustion engine technology and our existing petroleum refueling infrastructure … and represent a bridge to the next generation of electromotive technologies.

But even with hybrids, cost and affordability must continue to be addressed. As I said earlier, there is a strong correlation between hybrid sales and the price of gasoline which demonstrates that consumers are looking closely at the cost benefit ratio … and many still don’t see the overall benefit.

"Honda's strategy is focused on affordability" That’s why Honda’s strategy is focused on affordability, with the goal to make hybrid technology available and appealing to more people. We have created a family of hybrid models that meet a variety of needs and interests … high fuel economy … a fun-to-drive sporty coupe … and a mainstream family sedan … with additional plans to introduce hybrid technology to our luxury Acura brand lineup in the coming years.

Looking ahead, what will advance and extend the contribution of hybrid vehicles is the introduction of lithium ion battery technology. But improvements in both the performance and cost of batteries are required. Toward this end, Honda has invested in a joint venture to accelerate our ability to introduce lithium ion batteries in future hybrids.

Plug-in hybrids are also being looked to with increasing interest. Certainly, plug-ins would contribute positively to energy sustainability and energy security concerns. But in some areas plug-ins are actually worse than regular hybrids in reducing CO2 emissions.

Also, the larger battery required for a plug-in hybrid vehicle increases the vehicle weight and cost, reducing overall efficiency, while raising additional concerns about battery durability and cost. These issues diminish the payback for a smaller-sized plug-in hybrid vehicle. I don’t mean to suggest that Honda doesn’t believe in plug-ins … with our focus on original technology, we obviously have a few things in the kitchen. But any near-term alternative energy technology we green light for production must offer promise in reducing CO2 emissions and be affordable and practical for the customer.

Of course, there is renewed excitement about battery electric vehicles. And Honda understands electromotive technologies as well as anyone. Starting in 1997, we leased some 340 Honda EV Plus electric vehicles to customers … primarily in California. We developed the EV Plus from scratch as an electric car and it was the first to use non-lead acid batteries.

Looking at real world electric range … which includes the EPA’s 30 percent downward adjustment … our 1997 EV Plus had superior or at least comparable driving range to most of the models now coming “to market.” Fifteen years later, even with the advent of lithium ion batteries, the cost of the battery remains extremely high … as much as half the cost of the vehicle. So, despite legitimate advancements … the technology and the infrastructure remain significant hurdles to high-volume market appeal.

Battery electric vehicles contribute to energy security and the reduced use of petroleum … but like plug-ins they’re not the best solution to reducing greenhouse gas emissions until there are fundamental changes in the nation’s grid. This is a concern shared in other regions of the world. A top executive with a Chinese automaker said just last week that with China deriving 83 percent of its electricity from coal that now is “not the right time to promote pure electric vehicles” in that country.

"Honda is conducting research on a short-distance battery electric vehicle as a 'city commuter car'" There remains hope for the future … and that’s why Honda is conducting research on a short-distance battery electric vehicle as a "city commuter car" – which we see as the practical limit of the technology at the present time. We're now studying the U.S. market with a view to introducing this electric commuter car in the future.

But we continue to believe that a fuel cell electric vehicle is the ultimate solution to reduce CO2 emissions … and meet the real world needs and expectations of consumers. A fuel cell car is a full electric vehicle. But rather than use electricity from the grid, it generates electricity on board.

Among all electromotive technology options fuel cell electric vehicles are about as close to identical to the functionality of existing gasoline-powered automobiles as you can get. As a practical daily driver, the Honda FCX Clarity is a fuel cell electric vehicle with 240 miles driving range … nearly triple that of today’s EVs. And compared to the slow recharging requirements of a battery electric vehicle, the fuel cell electric car can be refilled with hydrogen in minutes. Clarity is also a spacious and comfortable mid-size sedan that has surprised the people who have driven it … including our 15 lease customers in California now driving it on a daily basis.

Importantly, even using natural gas to produce the hydrogen, the Clarity achieves a 62 percent reduction in CO2 emissions. And a 40% reduction versus a battery electric vehicle that uses electricity from the U.S average power grid. For the long-term, we are working on producing hydrogen from renewable sources. One such interesting approach is Honda’s long-term investment to develop a next-generation prototype solar hydrogen station … now operating at our Los Angeles R&D center. This compact system was designed with the idea of daily home refueling of a fuel cell electric vehicle.

Certainly, as with other alternative fuel technologies, fuel cell electric vehicles have challenges to overcome … including a refueling infrastructure and cost reduction. But the full functionality of the vehicle and the potential of a solar hydrogen station are the reasons we view the fuel cell electric vehicle as the ultimate alternative to petroleum … and the best path to reduce CO2 emissions in the long run.

But as I said at the outset … when it comes to alternative fuels, no automaker can be successful without support from energy companies, policymakers and consumers. For fuel cell electric vehicles, there was the promise of a hydrogen highway in California … as well as federal support for fuel cell technology. But this seems to be in constant peril … whether due to the difficult economy or as some new technology comes along. There must be consistent and sustained policy in the near term … to realize the tremendous benefits that fuel cell electric vehicles offer for the long term.

"Policymakers must play an expansive role by defining the goals but not the specific technologies." Policymakers must play an expansive role, not a limiting role … by defining the goals … but not the specific technologies. Government can also contribute through effective energy policies that support both near and longer-tem solutions, and working in partnership with all the key players … while avoiding the temptation to pre-determine the winners and losers before the race has been run.

You know … I realize there is a lot of skepticism about the will and skill of the traditional auto industry to make a real contribution to the reduction of greenhouse gas emissions … and to wean America and the world from its dependence on petroleum. After all, we have earned a reputation … as an industry … as being anti anything the government wanted us to do. Years ago, this actually prompted a quote from our founder Mr. Honda that I will paraphrase for you … he said “when the government passes new regulations, some companies hire 50 more lawyers while Honda hires 50 more engineers.”

I know that the industry CAN lead. Air quality advances over the last 40 years have been nothing short of astounding. And I’m proud to say that Honda led the way … or as some have said … showed the way in meeting virtually every low emission vehicle standard established by the federal government and the state of California.

I’m talking about a thousand-fold reduction in hydrocarbon emissions that the entire industry has now achieved … to the point where we have gasoline internal combustion engines that can achieve credit as Partial Zero Emission Vehicles.

I cannot make the case that this success is an indication of what we can do on every issue … but I think it demonstrates what can be accomplished when the industry and policy makers focus on a key objective. And that’s what we must do now.

The challenges we now face are different … but by entering into a race with each other. by focusing on the same finish line … and by making certain our technology solutions meet the needs of our customers … I know we can advance personal mobility … and protect our planet. And that will make winners out of us all.

Thank you for your attention. And enjoy the rest of the conference.



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