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Ford Motor Co. of Canada Ltd. president David Mondragon uttered words seldom heard from a chief executive officer of a car company, but they illustrate how the gas price spike of 2008 has dramatically altered the auto industry.

"It's hard to believe that I'm going to say this, but we need higher fuel prices," Mr. Mondragon told an audience in Toronto Thursday.

That's a stark turnaround from a company that generated billions of dollars in profits in the early years of the 2000s by selling hulking sport utility vehicles, including one nicknamed the Ford Valdez by environmental groups in honour of an oil spill that devastated the Alaska Coast in 1989.

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Those profit-spinning behemoths now are "dinosaurs," Mr. Mondragon said, pointing to a present and a future for Ford that is geared much more heavily toward such cars as the new subcompact Fiesta introduced last month and a redesigned compact Focus that will be available early in 2011.

Higher gas prices would drive more consumers to buy those vehicles and offset what he described as unsustainable incentives on trucks that have enticed Canadians to buy more trucks.

Oil prices will rise to $100 (U.S.) a barrel in the not-too-distant future, he said, which will help encourage drivers to buy more fuel-efficient vehicles.

But Mr. Mondragon said it will take oil prices higher than that level to get drivers to trade in their internal-combustion-powered wheels for electric vehicles. Without government incentives to buyers of electric vehicles, oil prices will have to be as high as $120 to $140 a barrel to make economic sense for consumers, he noted.

There is an immense amount of hype around pure electric vehicles, but Ford sees them representing just 1 to 2 per cent of the vehicle market by 2020.

He outlined well-documented problems that still need to be overcome before electric vehicles become much more common, such as the development of a recharging infrastructure and drastic reductions in the costs of the technology.

"For battery electric vehicle customers, there has to be a behaviour change," Mr. Mondragon said. "You have to charge every day and you have to think about how far you're going on each trip."

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It will take gas prices of close to $4 (U.S.) a gallon in the U.S. market - compared to about $2.60 now - to encourage consumers to shift to electrics, said industry analyst Bill Pochiluk, president of consulting firm AutomotiveCompass LLC.

"The market needs some kind of shock of some kind," Mr. Pochiluk said.

Nonetheless, the race among auto makers to develop electric vehicles is starting to resemble the Indy 500.

There are about 50 electric vehicle models or prototypes on the road around the world now, he pointed out. By 2015, that number will soar to 92.

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About the Author
Auto and Steel Industry Reporter

Greg Keenan has covered the automotive and steel industries for The Globe and Mail since 1995. He also writes about broader manufacturing trends. He is a graduate of the University of Toronto and of the University of Western Ontario School of Journalism. More

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