When it comes to automobiles and personal mobility, California has long been king.

    California (Silicon Valley in particular) has also been a wellspring for technology, which more often than not makes its way into the auto industry. That’s why we maintain an important Research & Development presence in Palo Alto, keeping a finger on the pulse of the Valley.

    Roughly 10 percent of world demand for printed circuit boards is destined for automotive use, as is about 6 percent of total world demand for semiconductor devices. Electronics content, not including components such as wiring, batteries, or electric motors, makes for nearly 8 percent of the total cost of producing a motor vehicle – and that percentage is increasing. There are also from 20 to 30 microprocessors in the average vehicle – with 80 or more in high-end luxury vehicles.

    California is where mobility, technology and environmental concern intersect. The state embodies the question: How do we wisely apply new technology to retain our personal mobility, while balancing environmental concerns?

    Again, we find ourselves asking which technology will power our personal mobility into the future. However, in spite of our extensive experience with one dominant technology during the past century, the answer again is less than clear cut. Some of the choices are familiar. Our options today include electricity, hybrid power trains, fuel cell technology, the trusty internal combustion, and, of course, all of the above.

    Although battery technology has greatly improved since the early days of the automobile, issues related to packaging, driving range and high replacement costs still make electricity impractical for the vast majority of customers. Nevertheless, many manufacturers have brought electric vehicles to the market, including us.

    We sold EPIC (Electric Powered Interurban Commuter) minivans in the mid-1990s, mostly in California and New York, until, much as its predecessors, it fell prey to its inherent disadvantages of cost and range. However, as quiet, economical non-emitting vehicles, electric vehicles are well-suited for certain applications.

    In fact, DaimlerChrysler is the leader in the sales of street-legal electric vehicles with our GEM neighborhood vehicle line. This class of vehicle represents an excellent mobility solution in corporate, academic or government campus environments; major manufacturing facilities; and higher density new urban developments and master-planned communities.

    Next, let’s consider the alternative that aspires to transcend the limitations of batteries – hybrid power trains.

    Toyota, Honda and, more recently, Ford, have won acclaim for their hybrid sedans and sport-utilities and found a growing market. There’s no doubt that hybrid technology is an important component in the propulsion portfolio and is demonstrating potential.

    Frankly, the domestic industry (along with European and the majority of Japanese manufacturers) underestimated the interest that hybrids would generate.

    At the Chrysler Group, we’ve tested the hybrid waters in small volume with a diesel-electric hybrid version of our Dodge Ram 2500/3500 Quad Cab heavy-duty pickup, targeted at the contractor and military market.

    In addition to using the electric motor to improve the fuel efficiency of the turbo-diesel engine, this Ram pickup is also a powerful mobile electric generator. These trucks were sold to construction and utility companies in North America – most before they were built.

    We are working with General Motors to jointly develop a state-of the art, two-mode, full hybrid propulsion architecture for applications in GM, Chrysler Group and Mercedes Car Group vehicles. Several auto companies have expressed an interest in joining this technology partnership, and we anticipate adding another partner by the end of this year.

    We believe that the DaimlerChrysler/GM two-mode system has the potential to leapfrog traditional hybrid designs. The two-mode system has a technological advantage at higher speeds when the electric and gas (or diesel) motor work together to keep the internal combustion engine operation at maximum efficiency. It will achieve fuel economy savings of up to 25 percent. The Chrysler Group will first introduce this technology in our 2008 Dodge Durango sport-utility vehicle.

    This joint-development arrangement allows us to share the capital investment and risk and to leverage economies of scale. However, we believe that our combined hybrid development efforts will more quickly yield the next-generation of hybrid technology, positioning our companies as leaders in this technology. As my wife often says, if you know that you’re going to arrive a bit late to the dinner party, be sure you bring the best wine.

    The third propulsion alternative is hydrogen fuel-cell-electric vehicle technology. It is still years away from commercialization, but it holds the greatest promise for ultimately displacing fossil fuels. We can’t strike it off the list. So far, we’ve made good technical progress.

    At DaimlerChrysler, we’ve taken a leadership role in developing fuel-cell technology and putting vehicles to the test on the road around the world. We’ve put a total of 100 hydrogen fuel-cell powered vehicles on the road around the world already – significantly more vehicles than any other manufacturer.

    We’ve had our share of success with fuel cells, but we still have many significant hurdles to overcome to prove the commercial viability of this technology. Infrastructure will be one of the primary hurdles with migration to a hydrogen economy. A recent report from the U.S. National Academy of Science summarized the three key challenges: Hydrogen production, transportation, and refueling stations.

    These challenges will have to be addressed with short-and long-term strategies to enable successful deployment to the retail customer. In the vehicle itself, we still have some tough challenges related to cost. For example, the fuel cell stack — in which hydrogen and oxygen are brought together to produce energy — requires the use of advanced manufacturing processes and high cost materials such as the noble metal platinum.

    The current cost of the stack will have to be cut significantly to make it commercially viable at high volume. We’re now working to reduce the space and cost required to store the hydrogen. The leading concept is pressurized tanks to provide the driving range demanded by customers, but also require a cost of several thousands of dollars to achieve acceptable levels of safety. These are all tough technical challenges, but we’re gaining valuable data and experience by putting the technology into real-world use to see how it performs.

    So, while the industry continues to work on and perfect technologies such as fuel cells and improving hybrid power trains, car and truck buyers can find a lot of benefit in other technologies that are available today. That brings us to an existing alternative, the trusty internal combustion engine.

    Even from a purely environmental perspective, you can’t rule it out. In fact, the progress that’s being made in reducing tailpipe and evaporative emissions from gas engines goes widely unrecognized.

    The EPA’s stringent Tier 2 emissions standards — adopted in 1999 in a collaborative effort of government, auto manufacturers and the fuel industry — have been a success by any objective measure. Combustion engines are getting very clean. In fact, they are so clean that the equipment vendors are trying to invent new sampling systems to measure the low levels of pollutants they produce.

    Today, many new cars and light trucks produce just one percent of the smog-forming emissions of similar pre-emissions controlled vehicles. And all cars and light trucks will have to meet the same standards, regardless of the fuel, in the 2009 model year. Today, our 2005 Chrysler Sebring and Dodge Stratus with the 2.4L engine are 99.8 percent clean and among the cleanest-burning internal combustion vehicles in the world, qualifying as Partial Zero Emission Vehicles,

    To put this in perspective, consider that you would have to drive a PZEV vehicle from San Francisco to Chicago (more than 2,000 miles) to equal the ozone-forming emissions created by a single hour of lawn mowing. As an engineer, I personally find it amazing that – largely thanks to electronic controls - we also continue to wring better fuel-efficiency out of the modern gasoline engine.

    One of the latest innovations to join sophisticated electronic engine controls is cylinder deactivation. We were the first to offer a Multi Displacement System (MDS) in North America on modern large-volume vehicles. It’s a standard feature in the HEMI V-8 engine available in our Chrysler 300C, Dodge Magnum RT, and in our new Jeep Grand Cherokee. The MDS HEMI transitions from running on eight cylinders to four in just forty milliseconds.

    The customer only feels the difference at the gas pump, as MDS technology improves fuel economy by up to 20 percent, with a corresponding reduction in green house gas emissions. Several of our competitors, both domestic and import, are attempting to follow in our footsteps with their own versions of MDS technology.

  Internal combustion engines also have alternative-fuel and flex-fuel options with attractive benefits. Through years the Chrysler Group and other manufacturers have built thousands of vehicles that run on Compressed Natural Gas. However, the absence of a public re-fueling infrastructure limited their market. Nevertheless, CNG remains a very clean alternative for centrally-fueled fleets, such as shuttles and delivery vehicles.

    So, we may re-visit CNG as alternative fuel option in some of our new generation of vehicles. We also provided E-85 flex-fuel (a gas-ethanol mix) capability at no cost to more than one million U.S. and Canadian customers in all of our 3.3L V-6 minivans between 1998 and 2002. Unfortunately, virtually all of those minivans (some of you may even be driving them) are running on pure gasoline.

    Yet there are successful precedents for flex-fuel adoption. In Brazil, for example, where ethanol is widely available, sales of flex-fuel vehicles approaches 40 percent. We currently offer E-85 flex-fuel capability in the Chrysler Sebring and Dodge Stratus, Dodge Ram pickup to fleet buyers, and new flex-fuel offerings will be available in the future. And we’re looking at offering a FFV option in our new generation of minivans.

    Incentives for the introduction of E-85 FFVs should continue to help reach the critical mass of vehicles on the road required to help spur the necessary fuel infrastructure development.

    Continuing the internal combustion engine story is modern diesel technology. Diesel is a near-term opportunity to reducing fuel consumption that has largely been ignored in the United States. That’s not the case in Europe, where 40 percent of the new car market is diesel. In some countries like France, almost 70 percent of the market is diesel. In fact, 67 percent of all of the Chrysler and Jeep vehicles that we sell in Europe are diesel powered.

    Our international dealers are pounding the table and asking us for more diesel models. So, within the next four years, we plan to more than double the number of models available outside of NAFTA with diesel engines. Modern clean diesel engines are totally different animals from the old diesels, on which most of the data and perceptions in the United States are based.

    Today’s lean-burning diesels can improve fuel economy by up to 30 percent, reduce CO2 emissions by an average of 12 percent, and provide durable and smooth gasoline engine-like performance. They provide maximum benefit in highway drive cycles which dominate the experience of many customers in NAFTA markets.

    According to the Department of Energy, a 30 percent market penetration of diesel vehicles by 2020 would reduce U.S. net crude oil imports by 350,000 barrels per day. Diesel engines have long been popular in the United States in heavy-duty pickup truck applications. But American car and sport-utility buyers are now also catching on to the benefits of diesels.

    Last year the Chrysler Group became the first North American-based manufacturer to offer a modern diesel engine in this market (Joining our sister company, Mercedes-Benz, and our competitor, Volkswagen.)

    Another advantage of diesels is that they can run on bio-fuels. In fact, every Jeep Liberty CRD leaves the assembly line in Toledo, Ohio, with a full tank of B5 – a renewable fuel with a five percent biodiesel mix derived from locally-grown soy beans. DaimlerChrysler is committed to the development and introduction of a renewable synthetic fuel from biomass, known as SunDiesel.

    So, given today’s concerns for the environment and alternatives for mobility – electric, hybrid, hydrogen, and internal combustion - which technology do we choose as the future winner?

    Well, in 2005, much as in 1905, no clear winner has emerged. And recall that, even though the internal combustion engine did take center stage by the mid-teens, the old Stanley Steamer survived until 1927, and electric vehicles never completely went away. So, the intelligent guess for now is all of the above.

Dieter Zetsche is CEO and President of the Chrysler Group. His remarks are excerpted from a speech presented at the Commonwealth Club in San Francisco.