Wednesday, September 27, 2006

HONDA THROWS A BOMBSHELL

HONDA THROWS A BOMBSHELL
by Daniel C. Sweeney, PhD
This week Honda showed two prototype vehicles, one a car with a diesel engine that meets California emissions requirements and the other their latest fuel cell car. They also announced they’d be making Flex Fuel vehicles at some unspecified time in the future.

So what’s it all mean? With Honda and Toyota enjoying banner years while American firms lie on the verge of bankruptcy, you don’t take Honda announcements lightly if you’re sane. The American auto industry, simply put, isn’t driving change any more. The Japanese are.

Here’s our take.

The fuel cell announcement can be pretty much dismissed. Honda claims these are production vehicles, but the company also says they’re intended for pilot implementations in government fleets. That’s not production in our estimation, it’s just business as usual—fuel cells are the technology of the future and they always will be.

Flex Fuel is a bit different, and is basically a signal to the industry. What Honda is saying is we can respond to an E-85 push at a moment’s notice, we’ve already done the engineering. And that’s fairly important because surprisingly few auto manufacturers have openly embraced E-85.

The diesel announcement is really the kicker though. Japanese manufacturers have been relatively inactive in developing diesel engines for personal vehicles in the past, and that’s because their largest markets have been in the U.S. and in the Far East where diesel isn’t popular. Most of the recent exemplary work on improving diesels has been undertaken by European companies like Peugeot and Volkswagen because there primary markets are in Europe where fully half the cars use diesel today. For Honda to announce suddenly that they’ll be making a range of diesel engines and selling them in the United States is frankly pretty startling.

What to make of it?

Diesel represents hard times and permanent shortages. Diesel engines beat the hell out of gas engines in terms of efficiency and they always will. When efficiency becomes really, really important, so does diesel.

But how important will efficiency be in the future? The theme song in the mainstream press is that cheap oil is back to stay. We don’t believe it for a minute though. We think it’s the Bush Administration jawboning the oil industry, and by mid November if not sooner prices should be on the rise again. That’s assuming that the Administration does not begin a war with Iran, of course, a distinct possibility if Republican prospects at the polls remain dim. If that happens prices could and probably will take off. The Administration’s only option then would be to dump the entirety of the Federal strategic oil reserves on the market—an incredibly reckless action, but then so is a war with Iran.

Anyway, we think the days of cheap oil are past, and we think Honda knows it. And, in that light, diesel is an interesting option. Contemporary compression ignition engine designs are streets ahead of the clunkers we saw twenty years ago, and have performance characteristics and noise levels comparable with spark ignition engines along with vastly superior efficiency. Of course, Americans don’t know that. All they know is the prior art and it will take a hell of marketing effort to convince them that diesels are different today.

Honda, however, has a generous advertising budget, and they may just turn the trick. And if they combine the diesel with hybrid drive and continuously variable transmission, two of their other flagship technologies, they could make cars approaching 100 miles per gallon.

We have one real problem with diesel however. Cleaning it up to meet emerging standards requires a ton of hydro-treating and hydrogen is getting more and more expensive due to pressure on natural gas suppliers. Diesel engines can provide a big increment in efficiency but the cost of diesel is apt to rise faster than the cost of gasoline simply due to the hydrogen requirement. Nor is it all that easy for a refinery to change it product balance. Someone set up to produce a certain percentage of diesel and a certain percentage of gasoline can’t alter the balance significantly without incurring sizable expenses.

Compression ignition engines can of course run on biodiesel, but we don’t see that industry expanding sufficiently to cope with enormous demand.

The other answer could be synfuel. Quite a bit of diesel is already made from natural gas in Qatar and if stranded and/or unconventional resources elsewhere in the world can be tapped in a really major way a copious supply of diesel could be made available. And best of all you’d be getting really clean fuel that wouldn’t require a lot of hydro-treating.

The other possibility is coal based synfuel which is also extremely clean, though coal itself isn’t, but we don’t see such fuels coming on the market in the midterm in any quantities. Sasol in South Africa is the only major coal synfuel manufacturer active today, and though pilot projects are planned for China, they won’t change the equation any time soon for Honda or others pushing high performance diesels.

In the longer term, di-methyl ether from coal could constitute a very abundant, relatively low cost, ultra-low pollution fuel for compression ignition engines, but we are not at all certain that DME will figure even in fleet applications over the course of the next five years. In short, there is no obvious relief from soaring fuel prices in the offing, unless the optimists are right and cheap oil returns for good.

88 comments:

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very nice blog article. Honda is a stealthy trendsetter, having produced the 1st epa-certified car without a catalytic converter, and having sold the 1st hybrid in America. While they don't always get the first spot in the press, I believe they are consistently thinking in the right direction

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For Honda to announce suddenly that they’ll be making a range of diesel engines and selling them in the United States is frankly pretty startling.

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Diesel engines can provide a big increment in efficiency but the cost of diesel is apt to rise faster than the cost of gasoline simply due to the hydrogen requirement.