MUNICH, Germany — After a phase of lethargy that lasted several years, large parts of the German automotive industry are now setting the course for hybrid and all-electric drive schemes. The bad news: The worst is far from being over for the industry.

At the Handelsblatt Automotive congress in Munich (July 3), representatives from OEMs and tier ones rushed to commit to almost all types of alternative drives and fuels. After all, critics have said for years that the European automotive industry, and in particular the Germans, overslept the trend towards Hybrid Electric Vehicles (HEVs).

At the high-level meeting, the new buzzword was 'sustainability' in all conceivable manners. "In the future, the zero-emission vehicle will be the basis for our business model," said Bernhard Mattes, vice president of Ford of Europe's Customer Service Division. Similar statements came from Volkswagen CEO Martin Winterkorn and from Karl-Thomas Neumann, CEO of tier one Continental AG.

Bernd Bohr, general manager of the vehicle technology business segment at automotive supplier Bosch group, delivered a more differentiated commitment that could be summarized by the words "yes, but". Notably not a commitment to own development of electric drive technology came from Manfred Kantner, CEO of Fiat Germany.

Hurdles for the electrification are many. All experts agreed that a number of required technologies for the changeover towards electric power trains have by far not reached market maturity. In particular, under aspects of reliability, affordability, safety (in the case of the batteries) and range (in the case of all-electric vehicles), future electric power train components and electric vehicles are not competitive against conventional cars. The development for these components including related control electronics will take another couple of years, and conventional drives will dominate the market for at least two to three model generations.

For the long time until electric cars and HEV eventually will find acceptance of the masses, the industry sees a high potential to improve fuel efficiency and emission characteristics for conventional drives.

Fiat, for instance, is preparing an engine with an innovative fuel-mixture generation, Kantner said. The technology, dubbed MultiAir will be introduced at the IAA 2009 automotive exposition in September. By such measures as electronic individual valve control and electro-hydraulic valve drives, Fiat promises to significantly improve the combustion process, leading to reductions in fuel consumption by up to 25 percent.

Also other companies regard the conventional engine concepts as far from being dead. Most of the improvements currently under development heavily involve electronic controls; most of them are not possible without putting more intelligence under the hood. Measures such as engine downsizing, double turbo charging and start-stop system can improve efficiency and emission characteristics. In the quest of better fuel efficiency and reduced emissions, OEMs and tier ones also will use tricks such as variable valve travel and better (that is, electronic) thermal management, or electronic performance map control for the oil pump will bring conventional gasoline engines to an efficiency and emission level comparable to HEVs. "The internal combustion engine strikes back," said Bohr.

Nevertheless, in the long run, the industry clearly sees alternative drives as the more sustainable approach, with the term 'alternative' referring to renewable fuels as well as hybrid and electric drives. But electric drive approaches clearly take center stage. "With electro-mobility, the automotive industry is facing a radical change, the turn of an era," said Volkswagen's Winterkorn. While he warned that the current hype for HEVs and e-cars triggers wrong expectations among customers, he announced that Volkswagen will actively drive the development of electric cars. "We however should not hope for a quick break-through," Winterkorn warned.

The Volkswagen CEO who also oversees R&D for the company, hinted that in order to achieve a higher sustainability in individual mobility the source of the electricity will be a critical question. "Electric is not sufficient as a criterion," he said. With these words, he referred to the ongoing debate about the 'smart grid' which at the same time anticipates and enables integration of renewable energy sources such as wind power and photovoltaics.

Karl-Thomas Neumann, CEO of tier one Continental AG took sides with the electrification fans by confirming that from his perspective the strongest trend of all in the automotive industry currently is sustainability. But he also had an alternative to the alternative in his pocket. "The electric vehicle will be technology of the future — but it won't prevail for the next years," he said. In the meantime, optimization of the traditional approach will help to ease the transition.

According to Neumann, HEVs, in particular as 'Mild Hybrid' concepts, will see most of their success in the luxury class where they help to increase the social acceptance for this type of car. Electric cars will find its first stronghold in small cars for urban traffic, Neumann believes.

While OEMs as well as tier ones displayed confidence that from the technology side the German and European industry can master the challenges associated to the changeover, the industry representatives were unable to spark something such as an atmosphere of departure. In particular, two factors spoiled the sentiment. One is Germany's technology lag in particular in batteries but also in other components for HEVs and e-cars. In contrast, Japan has already an edge and China is on the passing lane, the experts noted.

Winterkorn remarked that 90 percent of the future growth for the automotive industry will be generated outside the classical 'triad' formed by North America, Europe and Japan. And for China, the ambition to become independent from petrol generates a strong momentum to develop all-electric vehicles. "We see a very strong commitment in China to build electric cars", said Continental's Neumann. Thus, the European automotive industry will face increased competition from emerging players.

The other downer was a study on the situation of the global automotive industry, published a day before the Handelsblatt congress and distributed along with the proceedings. In a nutshell, the study created by management consulting company Alix Partners, says that the European, Japanese and North American automotive industries still have huge overcapacities and the worst for the industry has yet to come.

The study attracted interest at the congress in Munich. Professor Ferdinand Dudenhoeffer, one of the leading academic automotive experts in Germany, predicted for 2010 a wave of insolvencies among OEMs and probably even a worse one among tier ones. In this context, Dudenhoeffer criticized government stimuli to buy cars since they fail to motivate car manufacturers to adjust their capacities. As a recipe against the impact of the crisis, he suggested reduced vertical integration and a higher degree of outsourcing.

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