Industry Trends

Look out E85 owners – you may have a vintage model in your driveway. At the 2009 SAA Strategic Planning Summit last week, two presenters spoke about regulatory issues that are being addressed by decision-makers in D.C. right now that will affect upcoming industry trends. The California Air Resource Board (CARB) approved the Low Carbon Fuel Standard earlier this year which forces fuel producers to lower their product's "carbon intensity" by 10 percent by 2020. This approval comes after a University of Minnesota ethanol research study that suggested corn-based ethanol, which much of the U.S. ethanol production is dependent upon, may be more harmful to the environment than gasoline. CARB is encouraging cleaner energy options such as cellulosic ethanol, electricity and hydrogen. This attention is at a national level and I think it is going to impact automakers and their decisions to produce certain types of alternatively fueled models.

In 1998 Congress passed the Alternative Motor Fuels Act providing OEMs with credits toward the Corporate Average Fuel Economy (CAFE) standards. This essentially kept automaker's fleet fuel economy within federal standards while still producing the big gas-guzzlers America loved. How big is this market segment? Flex fuel vehicles represent 7% of retail sales between January and July of this year. This is a 2% increase from 2008. GM has made the commitment to have one-half of its annual U.S. vehicle production be E85 or biodiesel capable by 2012. GM leads the pack with 18 flex fuel vehicles along with seven other OEMs currently offering flex fuel models. Despite all of this OEM activity around flex fuel offerings, there are still less than 2000 fueling stations across the U.S. That's a problem if an OEM wants to build natural (or "national") demand for these types of vehicles.

If corn-based ethanol as we know it today will not be supported, where does this leave the E85 investment the OEMs and fueling stations have made to date? Is E85 being scrapped for greener energy sources like electric vehicles? (For more on electric vehicles, see our latest Polk View, "Who Will Buy Tomorrow’s Electric Vehicles?") If you are an E85 owner today, where does that leave you and how will you be able to reap the rewards of having this type of flex fuel vehicle?

Posted by Margaret Zewatsky, Global Market Analyst, Polk (09.11.09)