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IN THIS ISSUE:
A long line of hybrid critics have focused on the micro-economics of buying a hybrid—arguing that gas-electric cars don’t give a “payback” to individual consumers. But the more critical issue could be the broader macro-economic impact of the credit crisis and lower oil prices.
The Return of the Honda Insight
At the beginning of September, Honda revealed the name and the first official images of its new small hybrid vehicle. The car will be a four-door practical version of the first hybrid gas-electric car introduced in the United States: the Honda Insight.
New Studies Parse Green Car Realities
Kelley Blue Book says more shoppers are thinking green. J.D. Power says that some brands look greener than others—at least on the web. And the EPA says real-world fuel economy is slowly getting better.
Pickens Plan Promotes Compressed Natural Gas Vehicles
It’s hard not to notice that T. Boone Pickens wants to decrease America’s dependency on foreign oil. But did you know that he thinks we should drive cars powered by compressed natural gas?
Will Tax Credits Help Clean Diesel?
The first “clean diesel” vehicles are making their nationwide debut. Two new factors could boost sales of these vehicles: a recent drop in diesel fuel prices and new federal tax incentives for clean diesel vehicles.
Will Electric Cars Rule the Future?
According to one industry analyst, electric cars deserve a place in your driveway. His argument is backed by Chrysler’s recent big announcement that it will produce multiple electric car models in the next few years. Meanwhile, GM released production versions of the Chevy Volt.
Toyota’s Prius Brand, Including a Hybrid Pickup
After 10 years and countless billions of dollars, Toyota’s efforts to dominate the hybrid market continue to pay off. Will the company spin off a hybrid-only brand?
Greetings, Hybrid Car Enthusiasts,
The hybrid market is red hot—not so much with sales, but with announcements of future hybrids and alternative vehicles. Honda announced the revival of the Insight (in a more practical, four-door form). Chrysler unveiled an entire line of electric cars. GM showed production photos of the Volt. And Toyota is talking again about a wide range of vehicles, large and small, all branded as Prius. According to new market studies, consumers are thirsty for these alternatives. Now, to get the economy to cooperate. We try to connect those dots in this issue of our newsletter. Enjoy.
The current financial credit crisis—with or without the proposed $700 billion bailout—has already spread from Wall Street to commercial banks, and from the financial sector to other parts of the economy, including to the auto sector. Here’s how the credit crisis is impacting key players in the hybrid vehicle market:
Consumers Are Staying Home – While demand for hybrids remains strong, the overall vehicle market is shrinking. Many buyers can’t qualify for financing, or must pay more for their car loans; in addition, leasing has been discontinued for many domestic models. In this climate, hybrid sales could suffer if consumers continue staying home, or if they opt for cheaper, no-frills vehicles rather than cutting-edge technology.
Dealers Are Getting Squeezed – Dealerships use what is called “floorplanning” financing: they buy vehicles for their inventories using credit from banks or captive finance companies. Recently GMAC, Chrysler Financial, and others began raising floorplanning interest rates, a move that squeezes dealer profits and makes sellers think twice about stocking expensive vehicles. In the future, expect to see dealers use more caution in ordering new, unproven hybrid models.
Manufacturers Lack Investment Funds – While GM still has billions in the bank, the company burned through more than $7 billion in the first half of the year. And the spending isn’t scheduled to stop. Automakers such as GM are hoping that loans from the federal government will replace some of the financing that’s been lost from private sector banks. But if federal loans don’t come through in a timely manner, new vehicles requiring a lot of R & D spending could be in jeopardy.
Battery Manufacturers Lack Access to Credit – Batteries are a key component in hybrid and plug-in hybrid vehicles, but developing new battery technologies and manufacturing them on a large scale is capital-intensive. A single manufacturing facility can cost $150 to $300 million, and that’s after a company has spent millions to create a viable product. Like the automakers, battery companies now have less access to credit, which means it’s harder for them to invest in new facilities or to expand existing plants.
And don’t forget that oil prices have dropped more than $50 off the record high price of $147.27 a barrel on July 11. The Wall Street Journal’s Joseph White believes that “glitzy ads, media chatter and Internet buzz” about plug-in hybrids, electric cars, and hydrogen shouldn’t lull us into thinking “auto makers can quickly execute a revolutionary transition from oil to electricity.” He recently wrote, “the revolution will take years to pull off—and that’s assuming it isn’t derailed by a return to cheap oil.”
The looming question is which auto companies will best be able to weather the financial storm—and to emerge ready to deliver hybrids and other advanced fuel-efficient vehicles when consumers return to dealerships demanding high-mpg vehicles.
At the beginning of September, Honda revealed the name and the first official images of its new hybrid vehicle. The car will revive the name of the first hybrid gas-electric car introduced in the United States: the Honda Insight.
Two years ago, Honda stopped making the Honda Insight, a teardrop-shaped two-seater that was widely perceived as impractical. Despite real-world fuel economy approaching 70 miles per gallon, the company sold fewer than 2,000 Insights in 2005, and fewer than 1,000 units through September 2006.
The new Honda Insight, which goes on sale in the United States in April, is expected to sell in relatively high quantities. Honda is targeting annual global sales of 200,000 units per year, with approximately 100,000 in North America. Honda is aiming for affordability with the new Insight, which is expected to sell for approximately $19,000—several thousand dollars below the Honda Civic Hybrid and Toyota Prius. At the same time, the new hybrid should match or exceed the fuel economy of those vehicles.
The new Honda Insight will be more practical than the earlier Insight. It’s a five-door hatchback with ample room for five passengers. The aerodynamic design borrows elements from Honda’s FCX Clarity fuel cell vehicle, and resembles the Toyota Prius’s iconic hatchback profile. Along with Honda’s Civic Hybrid, the new vehicle will be produced at an expanded hybrid vehicle production line at the Suzuka factory in Japan.
New Studies Parse Green Car Realities
A new report from the United States Environmental Protection Agency cites an annual overall improvement in new car fuel efficiency from 20.6 miles per gallon in 2007 to a projected 20.8 miles per gallon for 2008—a jump of 0.2 miles per gallon. These figures reflect real-world driving results, which differ from Corporate Average Fuel Economy guidelines imposed upon car manufacturers.
The projected 2008 numbers for the top three foreign carmakers put Honda and Toyota in the lead, with 23.6 miles per gallon and 23.4 miles per gallon, respectively, while Hyundai came in third at 22.6 miles per gallon. Among Detroit’s Big Three, General Motors came in at 19.6 miles per gallon, with Ford averaging 19 miles per gallon, and Chrysler placing a close third with 18.9 miles per gallon. Automakers across the board are aiming to meet new CAFE standards of an average of 35 miles per gallon by 2020 for their cars and light trucks.
The EPA was looking at the influx of smaller, more efficient vehicles this year. J.D. Power, meanwhile, parsed the greenness of various automakers by studying another source: 40 million blog posts! The market research firm was hoping to better understand how car brands are perceived for their environmental sustainability. They rated brands on perpendicular axes: one for the number of posts, the other for the sentiment expressed in each posts. The best category, “Pacesetters,” contained the usual suspects, more or less. Toyota had the highest volume, followed by GM, and then Honda—though Toyota was actually viewed less positively than GM, which itself only took silver in the popularity contest to Honda’s gold.
The perception of a brand as green is becoming increasingly important, according to another new study, this one from Kelley Blue Book. Sixty-one percent of new-vehicle shoppers told EcoWatch—a new green car marketing report published by KBB—that it is important to them to purchase a vehicle from a brand that is environmentally friendly. Of those car shoppers, 58 percent say that they are considering fuel-efficient vehicles in response to environmental concerns. And those buyers said they would not revert back to their old preferences—even if the price of gas went back down to $1 per gallon.
Carmakers’ Greenness In Blogs
If you’ve watched any cable news or read the editorial pages of a major newspaper in the past few months, you’re likely to have come across advertisements for the Pickens Plan. Legendary energy baron T. Boone Pickens’s plan promises to decrease America’s foreign oil expenditure by more than 40 percent. One element of the plan is the promotion of a long existent but relatively unused automotive technology: engines powered by compressed natural gas.
While the CNG vehicle isn’t the linchpin of the Pickens Plan, it’s interesting that such an obscure technology would factor in at all, especially considering all of the excitement about the new wave of electric and hybrid-electric vehicles that are expected to hit the market in the coming years.
The answer may lie in fact that Pickens owns the largest provider of natural gas for transportation in the United States, Clean Energy Fuels. Or perhaps it’s the $160 million joint investment he and the Perseus investment group entered into earlier this year to develop a mass-market CNG powered car. Or maybe both of these investments arose out of a genuine interest in environmental responsibility and a reduction of America’s dependence on foreign oil?
The first “clean diesel” vehicles are making their nationwide debut in early October. The diesel vehicles from Volkswagen and Mercedes will arrive in dealerships in California and other states that had previously not allowed diesels because of strict emissions guidelines. Two new factors could boost sales of these vehicles: a recent drop in diesel fuel prices, and new federal tax incentives for clean diesel vehicles.
Mercedes-Benz recently won the first consumer tax credits for diesel vehicles when the Internal Revenue Service awarded purchasers of the Mercedes GL 320 Bluetec a $1,800 tax credit, and buyers of the Mercedes R320 Bluetec and ML 320 Bluetec Diesel SUVs tax credits of $1,550 and $900, respectively.
In addition, Volkswagen announced that buyers of the Jetta TDI sedan and SportWagen are eligible for a $1,300 federal income tax credit. The Qualified Alternative Motor Vehicle Credit, passed by Congress in 2005, was previously granted only to hybrid gas-electric, compressed natural gas, and propane-fueled vehicles.
Meanwhile, the drop in fuel prices in recent months has reduced the average gap between regular gasoline and diesel to less than 20 cents. As recently as mid-August, that gap was approximately 50 cents—which was virtually erasing the traditional fuel cost savings offered by diesels. (The larger gap between gas and diesel remains in some parts of the country.) The Jetta diesels offer combined city and highway fuel efficiency in the mid-30 mpg range, with the powerful luxury Mercedes vehicles providing mileage in the low- to mid-20s.
The most important economic factor—especially during the current recession—could be purchase price: the MSRP for the Mercedes GL 320 is $57,625, while the R320 and ML320 are both in the high $40,000 range. The Volkswagen Jetta TDI and SportWagen TDI are priced more modestly at $21,990 and $23,590, respectively.
Will Electric Cars Rule the Future?
What will your children drive 20 years from now? According to one analyst, many of them are likely to take the wheel of an electric car. The primary argument for electric vehicles is overall efficiency, said Philip Gott, director of automotive consulting for industry analyst Global Insight, at the firm’s annual Detroit conference. Why? Because electric cars simply consume less “wells to wheels” energy than do the alternatives.
The overall thermal efficiency of an EV is better, with 70 percent of a battery’s energy being converted to power—against just 25 percent of the energy in gasoline (heat and friction waste the rest). Coal-fired power plants aren’t hugely efficient (40 percent) but the electric grid will get progressively cleaner as federal and state mandates move toward restricting carbon and requiring a higher proportion of renewable sources. Fueling an EV with electricity generated entirely from renewable resources is best of all, of course.
At least two American auto companies appear to be fully invested in an electric drive future: General Motors and Chrysler. Late in September, GM unveiled the production design for the Chevrolet Volt—undoubtedly the most popular car in the world that doesn’t yet exist. Assuming the Volt goes on sale in November 2010—lately GM has spent much less time qualifying that goal with, “if the batteries are ready”—it will be the world’s first production series hybrid. GM calls it an extended-range electric vehicle, or E-REV. That means it will run up to 40 miles on electricity from a 400-pound, 16-kWh lithium ion battery pack that powers a 150-hp electric motor driving the front wheels.
One week later, top executives of the Chrysler took the wraps off a line of electric and hybrid vehicles, neatly upstaging the relentless drumbeat of Chevrolet Volt publicity. In a CNBC exclusive interview, the company both upended and validated the future arrival of electrically driven vehicles. Chrysler did GM one better by showing an electric-drive vehicle for each of its brands. They are an all-electric Dodge EV sports car, and both a Jeep Wrangler 4×4 and Chrysler Town & Country minivan with series hybrid powertrains, which give 40 miles of electric range and use a small motor for another 400 miles. The company also showed the Peapod, a new neighborhood electric vehicle that it said will later spawn a city car.
At least one of the three will go on sale by the end of 2010, said Chrysler CEO Bob Nardelli, and all are intended for production.
As new hybrids from Honda and GM vie for a future piece of the growing green car market, a long-standing rumor has resurfaced that Toyota may launch a family of Prius-branded automobiles. At a time when Toyota is getting beat in the publicity game by Honda and GM, questions are raised about the hybrid juggernaut’s plan to deal with the upcoming competition. An exclusive Prius brand could be the strategic response.
As a brand, Prius would become its own entity with its own dealer network—or at least its own dealer showroom—much like the Scion brand. Cars would be positioned at various price points. “You could have a series of derivatives under the Prius brand name that would allow you to market product at a much lower cost,” Jim Lentz, Toyota’s North American sales director, told Reuters. “To do that effectively, I think we need dedicated hybrids and I would prefer them under the Prius name.”
Hybridcars.com previously reported that the Prius brand name could feature a three-car lineup of vehicles. In this scenario, Prius A would be launched in 2009—coinciding with the estimated launch date of the new Prius; Prius B in 2010, and finally Prius C in 2011.
But based on new information, the Prius line might include a pickup truck. Toyota confirmed in late September that it asked suppliers to bid on parts needed to produce a vehicle based on the Toyota A-BAT concept hybrid truck. Featuring a short four-foot bed with some flexible configurations and 180 inches in overall length, the A-BAT concept is significantly shorter than Toyota’s current compact truck, the Tacoma. The car-based vehicle is similar in concept to Honda’s Ridgeline pickup, though even smaller.
Though Toyota is far from committing to the A-BAT, or Prius Pickup, to production, it shows the company is seriously looking into a new small-size super-efficient pickup. The game of one-upmanship has shifted from bigger to better (in terms of fuel economy).
Crazy times for the financial markets and the hybrid car market. It still feels like we are on the verge of a wonderful new era for automobiles—with more and more alternatives in terms of fuels, drivetrains, and models. But it will take a few years to bring these vehicles to the market. If all goes well—that seems like a big if right now—we’ll be coming out of this crisis right about the time that the best hybrid, plug-in hybrid, electric, and biofuel cars are rolling out to dealerships across the country. Until then,