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Ward's Auto World - Hemi Vs. Hybrid

Byline: DREW WINTER

According to the latest cadre of instant experts on Detroit's woes, General Motors and Ford would be in fine economic shape today if only they currently were selling hybrid-electric cars and trucks like Toyota.

How ironic, then, to hear from the president of Harbour Consulting that a big, bad V-8 deserves the lion's share of credit for pulling Chrysler out of its most recent slump.

In briefing reporters last month on the results of his company's latest annual report on manufacturing efficiency (see story, p. 9), Ron Harbour says while the hot-selling 300 sedan is getting most of the credit for reviving profits at Chrysler, the 340-hp Hemi V-8 probably has played an even larger role.

Although the popular 300 sedan certainly is having a major impact on Chrysler's bottom line, the Hemi's influence is even more pervasive: It is available on numerous high-volume Chrysler products in addition to the 300C sedan, including the Ram fullsize pickup, Jeep Grand Cherokee, Dodge Durango, the brand-new Dodge Charger and the upcoming Jeep Commander SUV.

We hear every day that consumers are shunning gas-guzzlers, but the overall Hemi take rate on vehicles where it is available is 43%. The engine costs at least $1,000 extra on a Ram pickup, and in most cases it is bundled into packages that cost much more. In the new Charger, where the Hemi only is available in a package that costs $7,000 extra, the take rate is 72%.

The Hemi has a premium image, but Harbour points out the engine features a simple, old-fashioned overhead valve design that is easy and inexpensive to build. The Hemi also is produced in a highly efficient, low-cost plant in Saltillo, Mexico.

It does not feature overhead cams like most state-of-the-art engines, but the Hemi is not low-tech. Powertrain experts say the Hemi is very sophisticated in the way it manages combustion, which is why it delivers such addictive performance.

Combine low costs with an incredibly high desirability factor that makes consumers happily pay thousands extra, and you've got a true money machine.

"They've created an image in the market that pulls people up to a richer (price) level. That's how you make money in this business," says Harbour.

Last year, Chrysler sold 296,182 vehicles equipped with Hemi engines, compared with 172,186 in 2003. In 2004, the auto maker reported an operating profit of $1.9 billion, vs. a $685 million loss the previous year.

In the fiscal year ending March 31, 2005, Toyota showed a profit of *1.6 trillion ($11.1 billion), up 0.8% from the previous year. In 2004, global sales of six Toyota hybrid-electric vehicles reached 134,600, 93% of them the second-generation Prius.

Although this is not an exact apples-to-apples comparison, it is reasonable to assume that hybrids - which so far generate meager, if any, profit - contributed little to Toyota's prodigious earnings last year, while the gas-gulping Hemi was a primary factor in Chrysler's turnaround.

Before suggesting, as Thomas L. Friedman did in a June 17 column in the New York Times, that Detroit auto makers are idiots for not focusing all their attention on building fuel misers and pursuing hybrid technology as aggressively as Toyota, critics should do what two smart reporters named Bob Woodward and Carl Bernstein did 30 years ago: Follow the money.