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The auto industry, environmental groups and the news media, in general, have truly educated the public so that “hybrids,” in terms of a vehicular mode of transportation, are very familiar with the U.S. population. However, becoming aware and taking action are two different issues. How the consumer thinks and how his/her practices affect what is purchased will ultimately make the difference. As James Cooper and Kathleen Madigan stated in a recent article in Business Week, “Perhaps the best measure of consumers’ attitude is how they spend their money.” (“Putting Their Money Where Their Mouths Aren’t,” Business Week, 08/08/05, p.25)

Pro: Under the new energy bill, tax deductions will be replaced with tax credits. Credits are based on the percentage of fuel efficiency compared to an equivalent standard car. For example, if the hybrid is determined to be 25% more fuel-efficient, it qualifies for a $400 tax credit. In addition, there is a credit targeted at providing a payback for an auto’s lifetime savings in fuel. This credit is between $250 to $1,000 per auto. The IRS will be issuing details later.

Con: The credits are limited to the first 60,000 vehicles sold by each automaker. For example, if a person wanted to buy a Prius in August 2006 and Toyota had already sold over 60,000 Prius autos by April 2006, the consumer may get diminished tax credits or perhaps none at all. If such were the case and the consumer was not going to get the credit, he/she might look to other auto manufacturers who may have not reached the 60,000 limit and buy another model (or be totally discouraged and not buy a hybrid at all).

Pros: Hybrids are promoted with their gas savings, but they also have a premium ‘sticker price’ of several thousand dollars in comparison to their ICE counterparts. (See photos and chart on four 2005 vehicles and their fuel economy.) Those consumers whose primary goal is initial price savings will not purchase these vehicles. However, there are those who have an intrinsic desire to work toward environmental cleanliness while conserving gasoline, and money is not the prime concern when purchasing a vehicle. Anthony Pratt, senior manager of global powertrain forecasting at J. D. Power - LMC Automotive Forecasting Services, states, “A larger group understands they’re not going to break even, but they’re willing to drive a (hybrid). They can drive their cars with a clean conscience.” (BD note: The question remains - Just how large is this group?)

The key word for consumer interest in purchasing a hybrid is “consider” - the polite possibility. When presented with the dollar cost of a hybrid, six out of ten were worried and 30 percent of those respondents did not feel that benefits would outweigh investing in such a vehicle. (The Polk Center for Automotive Studies, a division of R. L.Polk, conducted the study interviewing 307 participants, ages 21 and older. The study was released July 19th, 2005.) +

Cons: Since each hybrid initially costs an additional $2,000 to $6,000 in comparison to a comparable ICE vehicle in its class, it takes years for the improved fuel efficiency to be of benefit in terms of returned dollars. In a recent study by Edmonds.com, the analysts determined that gasoline would have to cost at least $5.60/gallon for hybrid drivers to break even if they were to drive 15,000 miles/year for five years. Specialty Equipment Market Association states that for hybrid owners to break even with their conventional ICE counterparts, gas prices must reach $5.00 to $10.00/gallon.

Even with a 13 MPG benefit in favor of the Honda Civic Hybrid over an upgrade Civic LX, it would take about “16 years of 15,000 miles of annual travel before the gasoline savings - estimated at $2.25 /gal. - would recoup the $4,300 extra (cost) ...of the Hybrid over the Civic LX.” (Ref: “Don’t Get Fueled: Gas vs. Diesel vs. Hybrid Power” by Ann Job, MSN Autos)

J. D. Power and Associates states that the U.S. marketshare for hybrids is expected to increase to 3.5 percent by 2012 from 0.5 percent in 2004. Although diesel vehicles are growing faster than hybrids, diesels will have a new challenge to meet the new EPA’s (Environmental Protection Agency’s) Tier 2 emissions standards of 0.07 grams of NOx per mile beginning in 2007-2008; this is a factor that does not affect hybrids.

The number of hybrid models will also increase from 10 choices in 2005 to 44 by 2012. There will be more choices in hybrids than in diesels.The bulk of the growth is expected to be in SUVs and mid-sized cars. (Ed. Note: Since there is no technological barrier to add batteries to a diesel engine, BD will hereafter include the diesel hybrid configuration in its terminology of transportation hybrids.) GM (General Motors) has noted that it will introduce a hybrid line of full-size SUVS and pickups in 2007, thus increasing fuel economy by approximately 25 percent.

Because the consumers are more familiar with diesel technology, vehicles with this powertrain may be easier to sell than hybrids. J. D. Power and Associates’ study notes that in 2004, diesels already held a 3 percent marketshare and by 2012, the figure is forecasted to be 7.5 percent.

Note that light trucks include SUVs, passenger minivans, pickup trucks and delivery vans.

Hybrids accounted for less than 0.5 percent of the U.S. market in 2004, according to J.D. Power and Associates.

Hybrid sales are less than 1 percent of the 17 million new vehicles sold in 2004. Registrations of new hybrids for 2004 totaled 83,153.

Data in chart is from the U.S. DOE (Department of Energy) - EIA (Energy Information Agency). +

New models for diesels will also double by 2012. With 14 selections in 2005, the number should grow to 26 by 2014. Diesels will probably be most popular in the pickup truck segment and in the luxury cars, but they will also be popular in SUVS.

If J.D. Power and Associates’ projection meets its forecasted figure, hybrids will represent 1.3 percent of the total market in 2005 and by 2012 could hold 3.5 percent market share.

In an interview with Gregg Sherrill, vice president of batteries - Johnson Controls, Inc., Mr. Sherrill told David Bailey of Rueters that hybrid gasoline-electric vehicles could grow to 3 million vehicles worldwide per year by 2012. (Ref: “Johnson Controls sees growth in hybrid batteries,” Rueters Know.Now., 07/13/05) +

Some technologies are used in a variety of vehicles, especially smaller cars and sedans, but there is little incentive for SUV improvements because the law exempts many “light trucks” from the more astringent fuel- efficiency rules, CAFE (Corporate Average Fuel Economy ) standards, that apply to passenger cars. In its report, “The Biggest Single Step The United States Can Take to Curb Global Warming and Save Oil is to Raise the Fuel Economy of our Cars and Light Trucks,” the Sierra Club states that the auto companies add weight to SUVs and other trucks like the Hummer, Dodge Ram 2500 and Excursion to exempt these vehicles from CAFE standards. However, the auto companies’ rebuttal notes that consumers are buying these (gas guzzling) vehicles with added power, weight and size; therefore, market direction is being set by those individuals who are purchasers of these vehicles.

However, there is some light at the end of the tunnel. CAFE standards for light trucks, SUVs and minivans are being raised from 20.7 MPG (Miles Per Gallon) in the current year to 22.2 MPG in 2007. That will be the largest increase in 20 years. Having hybrid models for sale in this category should help raise the standard. CAFE standards for sedans will continue to remain at 27.5 MPG.

The recent proposals (August 2005) by the Bush Administation would require all light trucks to improve fuel economuy by 6 percent by 2010. CAFE standards would be redirected and six categories of light trucks would be defined based on their footprint on the road. Although the smallest trucks would be required to average 28.4 MPG; vehicles weighing in excess of 8,500 pounds would still be exempt. (BD note: The 169 page proposal is open for comment and revisions so the final standard will most likely have changes. If “credit trading” were allowed, how might this affect the growth (or stagnation) of some classes of vehicles - i.e., hybrids?)

• Availability: There are no hybrid vehicles parked on the showroom floors and auto lots awaiting purchase by the consumer. Production has never outstripped demand. In fact, when a consumer purchases a new hybrid, he/she is usually placed on a waiting list.

One of the reasons relates to the shortage of batteries. In fact, Ford Motor would like to build more hybrid Escapes, in addition to the 20,000 that are being produced for 2005, but the Company has difficulty obtaining additional Nickel-metal hydride battery packs from its supplier, Sanyo, which is already maximizing its production. Because the packs are specifically designed for the Escape, and not an off-the shelf item, Ford cannot just call another supplier for batteries.

There are bottlenecks in the supply chain. The battery packs are still in a “specialty market” for hybrids. “There is a small universe of suppliers...and many have keiretsu relationships with Honda and Toyota,” said Lindsay Brook, auto analyst at CSM Worldwide, a firm which does forecasting.

In addition, manufacturing extra Nickel-metal hydride battery packs and having them just “sit” on the shelf might require extra time and work; if they are left on the shelf too long, degradation can occur in this chemistry, these batteries need to be charged every thee months.

The annual fuel cost was based on 45% highway driving, 15,000 annual miles and the purchase of gasoline at $1.91/gallon.

The greenhouse gas emissions are expressed in CO2 equivalents. Estimates include the full fuel cycle and exclude vehicle manufacturer. The “full fuel cycle estimates” include three major greenhouse gases emitted by motor vehicles: carbon dioxide, nitrous oxide and methane. Full fuel-cycle estimates consider all steps in the use of a fuel, from production and refining to distribution and final use. This gives a more complete picture of how using a particular fuel contributes to global warming. Estimates are taken from the U.S. Department of Energy’s GREET model, version 1.5 developed by Argonne National Laboratory.

Another popular hybrid, the Ford Escape, had city 36 MPG (Miles Per Gallon) in city driving and 31 miles MPG on the highway. The manufacturer’s suggested retail price was listed at $27,400. Although not as fuel efficient, it is the first hybrid SUV (Sports Utility Vehicle) with MPG certified by the EPA. For 2005, it was the most efficient SUV.

Information and chart are from The U.S. DOE and EPA found at www.fueleconomy.gov. +

• Few manufacturers: There are only two Japanese battery manufacturers who make the majority of HEV Nickel-metal hydride battery packs, the current state-of the-art technology for retail hybrid vehicles. They are Matsushita, which supplies Toyota, and Sanyo which is supplying Honda and Ford.

- Johnson Controls, Inc. (JCI) is just beginning to manufacturer Nickel-metal hydride batteries for HEV technology. Lou Senunas, Vice-president of advanced battery and hybrid technology for JCI, stated, “With our technological strengths, long-term experience, and manufacturing capacity, we are well-positioned to charge forward as a key supplier of battery technology and products to the emerging HEV segment.”

- Cobasys, a joint venture between Energy Conversion Devices (ECD) and Chevron Texaco Technology Ventures, LLC., designs and manufactures advanced Nickel-metal hydride battery system solutions for transportation markets, including HEVs. Although the company is not currently making battery packs for any of the big auto manufacturers, it is working on an application for a hybrid fleets in Denver and has been selected by ISE to supply its NiMHax battery packs for development of a new hybrid-electric powertrain for the U.S. Army’s Family of Medium Tactical Vehicles.

ECD is “patent rich” in Nickel-metal hydride chemistry. In July, Cobasys granted additional royalty-bearing license rights to Panasonic EV Energy (PEVE), a joint venture between Matsushita Electric Industrial Co., Ltd. and Toyota Motor Corporation. The expanded rights will permit PEVE to solicit and sell Nickel-metal hydride battery products for certain North American transportation applications. In return, Cobasys will receive royalties on PEVE North American sales of Nickel-metal hydride battery products through 2014.

Under the terms of the expanded agreement, Cobasys and PEVE will continue to cross license each other for current and future patents through 2014. Along with their technical cooperation in developing the next generation of high performance Nickel-metal hydride battery products for HEVs, the parties have also agreed to evaluate the feasibility of assembling PEVE battery packs at the Cobasys Springboro, Ohio manufacturing facility. (BD note: Could success in this endeavor provide for more hybrid battery packs in the U.S. and ultimately provide for more hybrid production.)

• Cost: Battery packs which initially cost in the $10,000 range four years ago in 2001, have drastically come down to about $3,000 to $4,000 (although some higher prices - $5,000 and $6,000 - have been quoted in various news reports). Automakers have given an exceptional warranty on the batteries for eight years (80,000 miles) and in California, the warrantee extends to ten years (100,000) miles. Although not a part of the warranty, Toyota has said that it has tested its Nickel-metal hydride battery packs up to 150,000 miles with no discernible degradation. (BD note: This could suggest the possibility that an initial owner may never have to replace the pack.)

• Raw materials: Prices of raw materials will also affect the cost of manufacturing and thus the price the consumer must ultimately pay. The price of nickel on the LME (London Metal Exchange) on August 19th was about $6.80/pound which is $.15 more than it was on July 1st; however, during that time period, nickel spiked for a short period to $7.10/pound. The anode of Nickel-metal hydride cells also contains complex alloys containing a variety of metals which can also cause some price escalation.

Environmental Defense notes that through 2003, carbon dioxide emissions -- a primary cause of global warning -- from U.S. car and light trucks have increased 25 percent above the 1990 level. Both the total CO2 emissions and the average emission per vehicle continue to rise. (Ref: “Automakers’ Corporate Carbon Business,” Environmental Defense, 08/05) “Emissions keep rising despite factors that many people think should lower them, including market forces from higher gasoline prices and advances in technology such as hybrid -electric vehicles,” said Dr. John DeCicco, author of the report. Dr. DeCicco feels the solution lies with the automakers, but the automakers claim they are only building what the American public wants to drive.

At the Yale School of Forestry and Environmental Studies, a Survey on American Attitudes on the Environment, completed in May 2005, reveals an overwhelming public desire for new direction in U.S. energy policy. However, this attitude by the consumer does not reflect a mindframe of social consciousness to change practices in relation to driving habits or style of vehicle driven; Americans think the federal government should solve the problems concerning oil dependence and escalating prices. In fact, 92 percent of the Americans said the dependence on imported oil was a serious problem. Only 48 percent had concern about global warming as a serious problem.

Perhaps the most interesting data resulted from a question on the purchase of a hybrid vehicle. Almost one-fourth (23%) of Americans said they would ‘never’ buy a hybrid car. And of that 25 percent, 31 percent were Americans with children at home and 16% with no children.