Confronting Slow Rate of Auto Technology Change

There’s little doubt that a new era of advanced technology fuel-efficient cars has begun. Automakers are responding to the combined forces of fluctuating energy markets and increased climate regulations by introducing hybrid gas-electric cars and other efficient technologies—and planning to roll out plug-in models in the coming years. But industry analysts are beginning to acknowledge the most significant constraint on deploying these vehicles: the slow rate of turning over the fleet of existing cars.

Stalled Traffic

Photo by th.omas.

Hybrid cars have been on the US market for nearly 10 years. Sales have grown to about 2.5 percent of the new market, and are expected to double in the next five years. Yet, there are fewer than 2 million hybrids in a US fleet of approximately 230 million vehicles.

The rate of growth for hybrids, advanced fuel-efficient gas-powered cars, clean diesel vehicles, and plug-in cars could significantly increase as a result of new higher fuel-efficiency standards just established by the Obama Administration, and by higher gas prices—resulting from carbon taxes and jittery energy markets. According to the Energy Information Administration’s 2009 outlook report released today, oil prices will return to $110 per barrel in 2015 and could go up to $200 per barrel in 2030. Forecasting is a tricky business, but most analysts (and many consumers) are expecting to see a return of $4 gas prices well before 2015.

Measure Progress in Decades, Not Years

“If history is a guide, it would take roughly thirty years for hybridization/electrification to dominate road transportation.”

Saurin Shah
vice president, Neuberger Berman

But the new technologies—which could help consumers cope with these prices—are unlikely to arrive in large numbers in time for the next oil spike. According to the authors of “The Impact of Plug-in Hybrids on U.S. Oil Use and Greenhouse Gas Emissions,” a chapter in the new book Plug-in Electric Vehicles: What Role for Washington, published by the Brookings Institution, cars are durable goods that last well over a decade. “The transformation of the light-vehicle fleet to new internal combustion technologies or to hybrid and plug-in hybrid technologies will take decades from the time such vehicles are widely available at competitive prices,” according to the authors, Alan Madian, Lisa Walsh and Kim Simpkins, researchers at consulting firm LECG. They believe it could take another decade from now until the new technologies compete on a price basis, and begin the process of replacing current fleets.

In another chapter of the Brookings book, Saurin Shah, a vice-president at investment firm Neuberger Berman, traces the history of penetration rates of other auto technologies, such as air conditioning, airbags, front wheel drives, and disk brakes. These technologies, less expensive than hybrid and plug-in technologies, took an average 8 years to reach 20 percent of the market; 11 years to reach 50 percent; and almost 17 years to reach 80 percent of the market. Few analysts expect the same growth rate for hybrids.

Gradual Improvements

Government programs designed to scrap gas-guzzling vehicles on the road today, and replace them with more fuel-efficient new models, could accelerate the process. But current “Cash for Clunkers” proposals are targeting only slight improvements in fuel efficiency, and max out at 1 million vehicles. The downturn in the US auto market—in which new car sales have dropped from about 17 million vehicles two years ago to about 10 million this year—represent a more dramatic slowdown in turning over the vehicle fleet. At the current level of new vehicle sales, it will take approximately 25 years to turn over the fleet—and the current mix of vehicles is still weighted toward SUVs and large trucks.

The introduction of hybrids, and the coming roll out of plug-in hybrids, is cause for celebration. At the same time, Madian, Walsh and Simpkins warn that we will need to wage a broad battle to truly curtail our fossil fuel use and greenhouse gas emissions. “Plug-in hybrids can make a significant contribution, but it is important to realize that they can do so only gradually,” they write. “It is important that we do not assume a solution that cannot be achieved.”


  • Anonymous

    You raise a good point. Adding this math to Obama’s new CAFE standards, it will be somewhere around 2026 until we see the US fleet average looking “something like” the 2016 standards.

    But, let’s pause a moment to acknowledge the main thing. Change is in place, and change is coming. It’s unlikely we will be mainly driving huge SUVs for generations to come. We’re cutting the future of many guzzling vehicles from several decades to one decade or so (at least mass purchase of them).

    The question now becomes.. how critical is the transition, and how much do we want to give incentives (money, tax breaks, etc) to speed it up? That debate involves things like the difference to the greenhouse effect, national energy security, etc. Quantifying that is not included in this article. Also, are we better off to go after other things that affect greenhouse, energy security, etc.. like power generation and power consumption apart from cars and trucks? Do we want to invest in trains or boats as well, which are immensely more efficient than the proposed CAFE standards? Are resources better spent on getting people into fuel efficient cars and trucks quicker, or on these other energy producers/consumers?

    Let’s keep in mind the goal. Do we want to go after cars and trucks, or do we want to deal with the environment, energy security, etc?

  • Samie

    Interesting article, I suppose that government policy to curb CO2 and other greenhouse gasses will be key in how fast hybrids become mainstream. It is in the best interest for the oil companies to keep oil prices at reasonable prices, not like last years fast price spike. I doubt the oil companies want to annoy consumers even more and make alternative products become more mainstream. These types have better control over political figures and media types but not angry consumers and their wallets, which political types near election time have to respond to. Legislation is key in moving forward and global environmental problems will cost everyone more money. It all depends on the political mood of the country in the next 20 years and the need to try to reduce any burden that working class families will experience with higher energy prices.

  • fkramer@calcars.org

    This is all absolutely on target. The win is all about the speed of market penetration, and it will take a long time Even if we declare an end to “business as usual” and plug-ins arrive at a rate 10x faster than hybrids, they won’t have much impact in the next 10-15 years–and we need to start addressing energy security and greenhouse gas emissions now!

    There is another approach, so far mostly overlooked, but CalCars.org and our allies are starting to make waves about converting 20-30% of the vehicles of the US (and of the 900+million globally) to run 20-30% on electricity). This can make a big difference –especially if we focus on the large vehicles, the worst gas guzzlers, that happen to be the easiest ones to convert to plug in. We can also address many other goals, including green jobs, that the “cash for clunkers” bills are trying to address.

    For our eight-page white paper, which includes numbers showing all these issues of adoption speed, see “Research Analysis: Scrap Or Retrofit Clunkers” http://www.calcars.org/scrap-or-retrofit.html

    – Felix Kramer, Founder, CalCars.org

  • steved28

    RKRB, No one ever said a car was a good investment. It’s always been just the opposite, as soon as you drive it off the lot. So I think it’s unfair to assume that a hybrid is any different. But a hybrid is the only one that at least has a benefit or returning SOME of your money to your wallet via larger fuel savings.

    It never ceases to amaze me that suddenly you have to justify the higher cost of saving fuel, but you never had to justify the higher cost of using more. In other words, if someone gets the big V8 (at an additional cost) no one ever says “It will take 10 years to recover that cost”. Because you NEVER recover that cost. But it’s OK because you can go faster???

    I drive a hybrid, and I never considered a “return on my investment”. I simply would rather pay (Nissan, in my case) the extra 3 or 4K than the oil company.

  • Joe

    The Government was dumb giving stimulus money to car companies! They should have gave the consumer a stimulus to trade in old gas guzzlers for newer efficient vehicles they want! Also in order to get the stimulus towards a new car, it must have been built in U.S regardless of what company built it. Let the consumer decide what they want, not Government going in the GM car business to decide for you!

  • fred smilek

    I totally agree with Joe…the ones that needed the stimulus were the consumers so they can trade their old cars…

  • BMW Enthusiast

    I agree with RKRB about the disincentives for buying a new car.

    I would love a new car, but the cost of depreciation, taxes, insurance, registration, etc. is insane. My heart says “go get one” but my brain says it is pure foolishness. So I will probably continue to maintain and drive my 12 year old car as long as is reasonable. The difference in how much you would “save” on gasoline really pales in comparison to the other disincentives for buying a new car, all things considered.

  • JohnM

    In 2008, the average car on the road in the US was 9.4 years old. The number of years that half of all cars are not longer on the road is 14 years (from WSJ). This half-life number includes those lost from crashes and thefts. If you trade in a 10 year old vehicle for one with much better mileage, the old car is still around for another 8 years or so.

    If We (The People) buy old cars that run, we’re being taxed to raise the price of cars to poor people, destroying capital (and sending more out of the country). 25% of energy is used in vehicles; how many houses should we tear down to build more efficient ones.

  • tom

    It’s really pretty simple. If it is in our country’s interest to lower greenhouse gas emissions, pollutants, and improve energy independence, then it’s our government’s job to promote such vehicles with significant INCENTIVES. They can take various forms: tax credits, lower taxes/costs for fuel efficient vehicles, etc. With cheap gas and no incentives for fuel-efficient vehicles to speak of (the introductory ones for hybrids have essentially run out), of course the adoption will be slow. Higher gas prices and/or significant incentives could greatly speed up that rate. Our government needs to stop talking fuel efficiency, and start taking straightforward steps to encouraging it.

  • Max Reid

    Yes, now Worldwide, there are

    16 million Flex-fuel vehicles which can run on gasolene & ethanol

    10 million vehicles which can run on CNG

    11 million vehicles which can run on LPG

    Nearly 2 million Hybrid vehicles.

    Also the CVT transmission use is increasing.

    Whenever we buy our next vehicle, we should look for alternative fuel.

    Remember, a smaller hatch/wagon has more space than a bigger sedan. Lets buy vehicles that offer more mileage & space.

  • RKRB

    This may help explain the slow turnover for newest-tech cars: fuel savings would be a small proportion of vehicle costs, and the current system provides huge financial disincentives to purchasing a new car.

    Here are the hard figures for three years. Let’s say I now have a 10 year-old car that gets 20 mpg on average, and I want to jump on the bandwagon and trade it for a new one that gets 40. Let’s also say the car is driven about 12,000 miles per year. This means you save about $2700 for 3 years at $3/gallon for fuel. Not bad, but …

    Let’s say the new car costs about $20,000 (given a $4500 trade-in allowance and a generous $1500 in whatever incentives the taxpayers decide to pay, courtesy of the government). First, the buyer also takes an enormous haircut — say,$10,000 — in depreciation costs over the first three years. Next, my state charges around $2000 in sales tax right up front. Add at least $400/year in higher registration fees, and about $500/year in higher insurance fees (assuming zero collision coverage on the old car), for those 3 years. If properly maintained, most 10 year-old cars will run well these days, but throw in another $500/year in repair costs (double or triple that for a German car). So … to save about $4500 in fuel and repair costs over three years, one brings $20,000 in up-front fees, and then spends nearly $14,000 over those three years. Even the stock market does better than that.

    Other solutions? Increase registration/insurance/ownership relative costs for older cars (Germany and Japan have done this), gradually (but predictably) raise the gas tax, examine the European and Japanese experiences, and drastically lower new car sales taxes (at least, for carbon-efficient vehicles). This will take considerable intelligent tinkering, more than we can expect from our esteemed lawmakers, and will certainly require financial compassion and breaks for many people (including incentives for those lower-income drivers who choose more fuel-efficient older cars).

    Trading an older car for a new fuel-efficient one is no way to save money, in general. People (other than the bureaucrats) are smart enough to figure this out (hey, if I can figure it out…). If one needs a new car (and very few people NEED a new car), that’s a somewhat different story, but the article discusses why people hang onto their old cars for so long.
    Hope this helps explain why.

  • mikem6442002

    This is a reply to Joe and Fred Smilek. I think you both have a good point, yet, the stimulus money given to the car companies was not really stimulus money, as anybody who owns a business knows that it takes time between purchasing an item and selling it, during that time the business must continiue to pay bills, electric, employees, advertizing, buy raw materials(for future manufacturing) etc.etc.
    For that reason businesses maintain credit lines, just as the car manufacturers did. But because of the banking fiasko, banks either made credit lines immidiatelly due, or or simply stopped making operations loans, and they did so not only to small business but large companies too, some smaller companies went out of business right away (look at the number of lay offs), others like GM, CHRYSLER, lasted longer, at the same time the media went out of its way to paint a grimm picture and demonize the car co’s for asking the feds for operational loans, while starting their scary stories of bankrupsy, and eminent failures, and people standing on food lines because of the greedy car co’s. In the mean time the feds use this as a way to get rid of the car co’s CEOs and effectively turn over maximum % to the federal reserve. This was the begining of our new socialist government which now takes over private companies ” for the better good” OR for their own good. Yet a small question lurks—wasn’t it the federal reserve that caused the bank fiasko? Go figure. I sure hope americans wake up, sooner than later, and get those mutts out of office before we all work for the government.