The August 31 Edition of "The Wall Street Journal" (page B1) includes an article describing a proposed new labeling for passenger vehicles sold in the United States. On the proposed new window stickers, every new vehicle would include a prominently-displayed letter grade reflecting its fuel economy, emissions and estimated annual fuel costs.
There is a general consensus across the industry and among consumers that the current window sticker is not as reader-friendly as it could be; a new sticker that is simpler and easier to understand would therefore seem to face little opposition. However, an argument can be made that the proposed letter-grade change is going too far. Even though the letter grade would apply only to fuel economy and emissions, in my opinion there is no question that the consumer would perceive the letter grade as an overall assessment of the vehicle. The contractor who needs a fullsize pickup, and cannot adequately do his job with anything else, will be forced to buy a vehicle graded "C" or below. Similarly, buyers of large SUVs or midsize vehicles will be purchasing vehicles with a B or C grade. In contrast, a Volt, Leaf or Prius customer would be buying a "superior" vehicle because his car got an "A." To me it's clear this is saying to all that want to listen (and the Volt buyer hopes everyone is listening) that the Volt is "better" than the F-Series. Should the government be in this business? For that matter, should anyone be saying, even though indirectly, that one vehicle is superior to another? Again, even though an EPA spokesman may respond that the grade applies only to fuel economy and emissions, over time it is virtually inevitable that the grade will come to reflect a broader assessment of the car or light truck.
It's fair to say that the proposed letter grades are intended at least partially to move the consumer towards fuel-efficient hybrid, diesel or all-electric vehicles. However, these vehicles - in total - account for just 5% (3% hybrid, 2% diesel) of all retail new vehicle sales June 2010 CYTD. Therefore consumers are being urged to buy vehicles they currently are not buying. A simpler way to move the buying public towards more fuel-efficient vehicles, requiring no legislation restricting production or sales of any vehicle category whatsoever, would be to let gas prices rise.
However, if higher gas prices are not politically realistic, there is another solution, mentioned in the same Wall Street Journal article. It makes sense to compare vehicles within the same category, since by definition these vehicles are similar to one another on several factors including size. This type of assessment would accomplish the goals of moving the consumer towards higher-rated, more fuel-efficient vehicles while still allowing him to purchase a vehicle in his desired category with the specifications and features he wants.
Lastly, politically the proposed letter-grade change to new vehicle stickers plays right into the hands of the Tea Party and the conservative wing of the Republican Party. These two groups could not have asked for a better example of government intrusion in the individual's life and decision-making. Given this political situation, it is hard to see how the proposed changes (with the letter grade) will see the light of day.
Posted by Tom Libby, PolkInsight Advisor, Polk (09.01.2010)
At the American Truck Dealers Conference (ATD) there is revelry, exhibiting and palm pushing in an exhaustive 4-day event that covers all things a truck dealer could possibly be concerned with. This offshoot of the National Automobile Dealers Association (NADA) event boasts 'make' meetings, industry workshops and transportation industry banter.
This year, we found ourselves in sunny Orlando where the weather was hot, and so was the competition for
truck of the year. All entrants were worthy contenders, creating a heated competition. All of the entries are great trucks, so picking a winner is kind of like choosing between strawberry and chocolate ice cream. I say just go with Neopolitan! But my diplomatic ways have no pull with the ATD judging committee.
The medium duty truck competition was stiff. Kenworth entered the T-370 Diesel-Electric Hybrid which can boost emissions and fuel economy by up to 50%. Hino entered their market share machine, the 268, with Selective Catalytic Reduction (SCR) engine choices new for 2011. Freightliner entered its first ever gas-powered vehicle, the M2 112. Finally, Peterbilt rounded out the competition with its flagship 337 model truck. Given the amount of attention being paid to fuel economy and 2010 emissions standards, I was surprised the Kenworth T-370 Diesel Hybrid wasn't declared the winner.
Instead, the Hino 268 won. The Heavy Duty competition was also fierce. Kenworth entered the T660 Extended day cab, which does well with regional hub-and-spoke haulers while extending the day cab market for Kenworth. Peterbilt put its 384 model in this category - it is a leader in clean platform technology. The last truck in this segment was the Freightliner Coronado, a beast of a truck with optional front axle ratings of up to 22K lbs and rear axles of up to 70K lbs.
The Heavy Duty choice was the Peterbilt 384. The technology from the LNG and CNG power platforms - designed by Wesport - were recognized as fuel efficient and friendly by the Environmental Protection Agency (EPA). The distinction is great but the technology only makes the truck 2007 emissions compliant. Although it can use biofuel and natural gas, it is not 2010 ready. I can't help but think that it would be nice to award the Freightliner Coronado which is 2010 emissions compliant.
All of the trucks are of the highest quality, but I personally would have liked to see the judging committee reward the most energy efficient models, given the current state of the vehicle climate and need for fostering innovation to keep costs down for carriers.
Those are my thoughts. What are yours?
Posted by Therran Oliphant, Account Representative, Commercial Vehicle Market, Polk (04.29.2010)
Is it just me, or was there one large, yet unofficial theme at the show this year? Whether you were visiting the show's famous pork sandwich stand or at one of the booths, a certain subject seemed to work itself into every conversation. Of course, there were the events we expect from the commercial vehicle market's leading trade show. The product unveilings were just as dramatic as ever with Kenworth's aerodynamic T700 taking center stage. The overwhelming breadth and depth of the exhibitors was there too, covering every aspect of the trucking life one would expect with some unexpected surprises brought to us from our friends in the wild west wing.
However; the underlying theme and most talked about topic seemed to be the 2010 EPA regulations. I heard the 2010 EPA topic amongst drivers asking one another, "Which way are you going?" There is a very public competition among technologies to meet the new regulations. On the show floor, the 2010 regulation theme was reflected in the new exhibitors related directly to the distribution and storage of additives related to the SCR solution. Then again, there was the curiously positioned Innovative Trucking Solutions booth located directly opposite
PACCAR's new line of 2010 compliant MX engines. The Innovative Trucking Solutions booth seemed to be the public relations center for the Advanced EGR option currently being developed by Navistar Corporation along with several part suppliers.
Opinions about the two technologies were not in short supply. In fact, while visiting the "camps" of each technology it was easy to believe in the positives of one and the negatives of the other. The SCR solution has a proven track record with operation in Europe for years; it will be employed by Cummins, Mack, Volvo, PACCAR, and Detroit Diesel. While the Advanced EGR solution is a newer and developing technology, which promises the chance at innovations and opportunities previously unimagined.
At this point, the line appears to be drawn, with the industry awaiting a clear winner. However, I believe the 2010 regulations are a great opportunity for the industry to compete at the highest levels to truly draw out the best and brightest technologies. In fact, the "winner" may very well end up being a combination of the two competing technologies. Whatever the outcome, 2010 MATs will be remembered as the event where everyone was still asking, "What way are you going?"
Please let me know what you think. Am I on my own with this one? Did you hear the 2010 EPA discussion as well?
Posted by Joseph Bond, Account Representative, Commercial Vehicle Solutions, Polk (04.01.2010)
After the EuroCar Seminar on 20 January 2010, we posted the
top ten questions asked by OEM and OES delegates in attendance. Today I will be answering questions pertaining to hybrids. If you missed Norm Marks answers to the Marketing questions, you can find them
here. Tanja Linken will be answering questions aboout Network Planning in the next blog entry.
With regard to CO2 emissions, hybrids and zero emission vehicles, do you have any insight into vehicle whole life costs?This question targets the cost of vehicle construction, battery cost including disposal and the vehicle running costs. The variety of calculations regarding life costs is still quite large. While it is not yet clear whether the retail prices for hybrid vehicles allow for a financial break-even to occur, in some premium models the hybrid drive is extremely expensive which can prevent a break-even from happening. The highest costs in car driving appear to be the loss in value on the one hand and the running costs (mainly fuel). So very much depends on the residual values for alternative cars and their general acceptance and the price relationship between the different fuel types in the future. The term "zero emission vehicles" is also a bit misleading as EVs (electric vehicles) do not emit while driving, but they still need energy for battery recharging. Dependent on the energy mix used in the production process, EVs might emit more CO2 than small diesel or petrol engines.
Is the development of fuel efficient vehicles dependent on the oil price going to $600 a barrel?There are different scenarios regarding the future oil price development. Polk expects a price of ~$130 towards 2020, others expect $300 or even $600 per barrel. During 2008, oil became quite expensive with almost $150/barrel by the middle of that year. The pressure to develop alternative drives for cars increased. New regulations (e.g., those related to fleet consumption and CO2 emissions) force the public to reduce the fuel consumption of their vehicles. We expect to see both an improvement in conventional combustion technology by engine downsizing, optimized engines, start-stop systems, etc., as well as an expanded model offer in advanced technologies like hybrid or EV. With higher oil prices, there will be higher pressure to develop new technologies as well as pressure to reach financial break-even points for alternative energies.
What is the difference between plug-in hybrids, pure full hybrids and mild hybrids?A plug-in hybrid vehicle is similar to a conventional full hybrid vehicle—both use a combustion engine as well as an electric motor. However, a plug-in hybrid uses larger battery packs that can be recharged by connecting to common household electricity. In full hybrid vehicles, the electric motor and the internal combustion engine are installed so that they can both individually or jointly power the vehicle. For shorter distances the vehicle can be propelled in its EV mode solely, which eliminates emissions. Mild hybrids use a generally compact electric motor to give extra output during the acceleration, and to generate on the deceleration phase. With mild hybrids, the vehicle cannot be powered by the electric motor exclusively.
Do you have any evidence that customers are driving shorter distances as a result of economic conditions?At the moment we don't have any evidence for this development. The tightening of economic conditions has affected all kinds of industries dealing with transportation. Nevertheless private mobility is of common interest. With the overall trend of rising costs of ownership, the private driving behaviour might change and result in decreasing mileage, but this depends on the development of the costs of alternative means of transportation.
Thank you for taking the time to read my blog entry. If I left anything out that you would like answered, please submit a comment and I will be happy to address it!
Posted by Thomas Mawick, Manager, Automotive Studies, Europe, Polk (02.08.10)
Why don't small diesel cars get bought or sold in the U.S.? The last time you were in Europe up to 40% of the cars driving next to you were diesels. They were getting up to 60 MPG and didn’t have complex recharging systems or heavy batteries. Could you tell? They weren’t smoking, they didn’t sound like an F350, they were probably going to last longer than the petrol version next to them and they are great mid and small sized cars. This industry trend seems almost absent in the U.S. consumer marketplace.
If you could buy the new Taurus as a Turbo Diesel and get 40 MPG, would you? If you could buy the same Saab, Audi or BMW that you buy here in the U.S. today and get double the mileage with none of the hybrid costs or future headaches of replacing batteries – would you? I know I would.
If you wouldn't buy one, why not? Most of these vehicles have been engineered to meet U.S. vehicle safety and crash standards. The diesel that you can buy here in the U.S. is now clean enough to put in their highly tuned engines without destroying them. What is stopping the OEMs from bringing them over by the boatload? VW is making a start – their TDIs appear to be selling well but this is a small manufacturer with few models. Is it really public opinion of diesels that is driving manufacturer behavior? Has there been no consumer research to gauge loyalty for this forgotten automotive engine segment? Or are the manufacturers overstating consumer concern and missing a huge opportunity to improve U.S. fuel consumption on new vehicles... and limiting consumer choices? I know that when I buy my next vehicle, it will be a diesel since I commute 86 miles to work each day.
Posted by Chris Royle, Director, Global Product Strategy, Polk (09.15.09)
Everyone is talking about the market turbulences caused by the governmental scrappage schemes in different European countries. Much has been made of the fact that many consumers have "pre-bought" in 2009, which will have a negative effect on the sales trend in 2010. But, nobody is really talking about how the scrappage schemes have changed the market structure. I decided to look at the effect of the scrappage schemes on diesel-powered cars to see what the effect on that important vehicle segment might have been.
I found that the scrappage schemes had a significant and negative effect on diesel car sales. During 2008, the long-term upward trend of increased European market share for diesel vehicles came to an end, peaking at about 51% of total new car registrations. In contrast, during the first seven months of 2009, the share of diesel cars in the European market share fell to 45%.
Diesel Share Europe
Why did the scrappage incentives cause diesel sales to fall? People bought a heavier level of mini and small cars during the scrappage incentive period, which took away from diesel sales. As consumers who purchase mini and small vehicles typically use them for urban driving, they don't find that spending the extra money for diesel cars is justified by the savings in fuel costs. Also, since there are fewer diesel models in small or lower vehicle segments, consumers bought more non-diesel models as a result of the incentive programs.
Here is an example of the shift from diesel sales: In the German market for the first seven months, the share of diesel vehicles fell by 14 percentage points to 30% this year. I have not seen this low level of diesel penetration since about 10 years ago.
Diesel Share Germany
While we have to assume a total sales volume reduction in markets that are currently heavily supported by scrappage programs when the programs end, we also expect a normalisation in the market structures. We would expect to see sales in the small vehicle segment go down next year, which will automatically cause the market share of diesel vehicles to increase because of the higher diesel penetration in larger vehicle segments.
The scrappage schemes have given auto analysts a hard time – it is essential for them to get quick and detailed data in order to analyze the sales trends and distinguish short-term market reactions from real industry trends. From my perspective, the reduction in diesel sales is one example of a short-term sales trend.
Posted by Thomas Mawick, Manager, Automotive Studies, Polk, Essen, Germany (09.02.2009)
The first vehicle from India will go on sale in the U.S. early next year, several months later than its original 2009 launch date. Mahindra & Mahindra will launch the yet-to-be named diesel powered pickup through distributor Global Vehicles U.S.A. Inc with a 50,000 annual sales target. This sales goal seemed aggressive for a compact pickup with no brand recognition, so I did some analysis to find out how realistic it would be for the Mahindra pickup to reach 50,000 units annually.
The Mahindra pickup will enter the U.S. pickup market at a turbulent time. The entire pickup market has been contracting since 2004 and the compact pickup market, which the Mahindra pickup will likely complete in, is dominated by the Toyota Tacoma. When I looked at sales trends from Polk's new vehicle registration data, I found that the Toyota Tacoma had a 53% share in the compact pickup market for the first five months of 2009. And, no other compact pickup besides the Tacoma had sales above 45,000 in 2008. The market size, competition and the fact that the Mahindra pickup is the only diesel fueled pickup in the compact pickup segment makes the 50,000 sales target a stretch goal for an established brand, let alone a new brand unknown to many Americans.
Jan-May 2009 Market Share by Model in Compact Pickup Truck Segment
Polk just released a Polk View titled "Is the U.S. Auto Market Ready for Indian Vehicles?" The Polk View discusses topics relating to Mahindra & Mahindra entering the U.S. market including recommendations for initial launch markets, a market entry analysis on the Mahindra Scorpio SUV that will launch in late 2010 or 2011, and likely reception of both of these vehicles in different U.S. markets.
I invite you to read the Polk View and let me know your thoughts about how the Mahindra pickup will fare in the U.S.
Posted by Margaret Zewatsky, Global Market Analyst, Polk (08.13.2009)
I can almost see the headlines on CNBC or Fox Business noting that occult store stock has surged, due to the preponderant purchase of soothsayer assistance items. Magic 8 balls will reach the spire of their economic demand since being paired with lava lamps, and businesses will start hiring mystics to work with their economists and business analysts. Maybe that is more than a little far-fetched, but to assure ourselves we never reach the point of crystal ball and lucky rabbit's foot dependence, the commercial vehicle industry must go through some realistic and sound self-assessment. More than ever, my customers are looking toward forecasting tools in the hopes of gleaning enough knowledge about their market and the business climate to make informed decisions that will mitigate the effects of the slumping economy on their businesses.
While the industry is extraordinarily complex and there are no one-size-fits-all solutions, there are some major points of emphasis that may act as a general indicator, applicable to most businesses looking for some direction. The three following issues can greatly impact the decision-making process of just about any business in the commercial vehicle market.
First, diesel engine emissions standards are becoming increasingly tough. This is especially true in the heavy duty segment, and it has already shown up in new vehicle registration volumes over the past 2-1/2 years. Meanwhile, at the other end of the spectrum, class 3-5 vehicles have increased their market share 3% - to 41.6% of the total truck market - in the same time frame. Look for this industry trend to continue as the projected Compound Annual Growth Rate (CAGR) of Class 8 vehicles looks very weak until 2013. 2009 new vehicle registration volumes will fall again, to 380,600 vehicles. This number is less than half of the new vehicle registrations of 2006. VIO is still expected to climb, which suggests there will also be much less scrappage than in years past. On the positive side, the combination of those two metrics should mean an increase in used vehicle volumes and parts and service activity. Third, we can safely say that the industry will start to recover by Q1 2010, with the overall business climate of the country and the world. Commercial vehicle registrations will rebound to above 2008 levels as early as next year. Survival is the key to reaping the benefits of the upcoming growth markets, but we know bear-like hibernation is not an option until then.
How do you plan to maximize profit before the impending demand spurs need?
Polk Solutions Consultant Dave Goebel speaks about these issues in much greater depth in this Polk View, "The Future of the Commercial Vehicle Market."
In a stormy business climate, navigating the troubled waters effectively can mean the difference between capsizing or making it safely back to harbor. Question is, are you using a compass or a talisman to get there?
Posted by Therran Oliphant, Account Representative, Commercial Vehicle Group, Polk (07.06.2009)
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