Why Aren't Americans Buying More Green Vehicles?

Why Aren't Americans Buying More Green Vehicles?

Looming CAFE standards are propelling automakers to churn out hybrids and electric vehicles, but American consumers still love their trucks and big cars.

The auto industry "is on the eve of electrification," Steve Carlisle, GM's vice president of global product planning, told a group of automotive analysts on the eve of the 2011 North American International Auto Show in Detroit.

While that may be true -- GM's Chevrolet Volt was named the 2011 North American Car of the Year the very next day -- electric vehicles, hybrids and fuel-efficient subcompact cars have been slow to gain traction in the U.S. marketplace.

According to data from J.D. Power Automotive Forecasting, gasoline-powered vehicles accounted for 86% of total U.S. light-vehicle sales in 2010, with flex-fuel vehicles commanding the next-largest share of the market -- 8.7%. Diesel-powered vehicles accounted for 2.6% of U.S. light-vehicle sales, while hybrid vehicles garnered just 2.4% of the market.

J.D. Power's projections for the U.S. light-vehicle market suggest that gasoline will continue to dominate during the coming decade. In 2020, gasoline-powered vehicles will command 71.5% of the market, J.D. Power forecasts, followed by flex-fuel vehicles at 10% and hybrids at 9.5%.

In the United States, gasoline still is king.

GM's Chevrolet Volt electric vehicle recently was named the 2011 North American Car of the Year. J.D. Power, though, predicts that electric vehicles will capture just 1% of the U.S. market by 2020.
"When I go to Europe, they always want to know if we're going to stop buying big cars," said Rebecca Lindland, director of strategic review for IHS Automotive, during a presentation at the Society of Automotive Analysts' (SAA) 2011 Automotive Outlook Conference in Detroit. "And I always tell them no, because we can buy big cars, and we like our big cars. So we're not going to look like Europe anytime soon, as long as we have really cheap gasoline."

Cheap, of course, is a relative term in one of the wealthiest nations on the planet. But IHS Automotive has observed that it takes a dramatic spike in gas prices to get the American car buyer's attention.

"We studied the 1970s and we looked back at the last couple of oil crises, and we found that the [American] consumer will buy small, more fuel-efficient cars for literally three to four months," Lindland explained. "And then three or four months later, we go right back to buying big cars."

That's why when retail gas prices surged above $4 per gallon in mid 2008, Lindland noted, "you couldn't get your hands on a hybrid." By October 2008, when gas prices started to drop, "there were thousands of dollars of incentives on them."

"It's just a pattern," Lindland said.

Old Habits

Even though gas prices have been rising steadily since they dipped below $1.75 per gallon in early 2009, American consumers -- for better or worse -- have fallen back into their old habits. According to data from Ward's Automotive Group, light trucks outsold cars in 2010, posting an 18.4% increase over the previous year. Of the nearly 11.6 million light vehicles sold in the United States last year, according to Ward's, nearly 6 million were light trucks and 5.6 million were cars.

IHS Automotive's Rebecca Lindland, shown here at the SAA 2011 Automotive Outlook Conference: "As gas prices creep up ... there's actually no change in buying behavior" on the part of U.S. consumers.
Even with some analysts calling for crude-oil prices to reach $100 a barrel this year, IHS Automotive forecasts that the gap between truck and car sales will widen even more in 2011.

"What we've seen is that as gas prices creep up, as they slowly start to increase, there's actually no change in buying behavior," Lindland said.

Lindland likens the behavior pattern to gradual weight gain.

"You're gaining a pound here, a pound there, and all of a sudden your jeans don't fit," she said. "But you don't notice it if it's a gradual increase, and that's how Americans tend to behave with gas prices. It's still an incredibly cheap commodity, and water is still more expensive for us -- especially if you buy a premium brand of water.

"So we can continue to afford to buy less fuel-efficient vehicles than the rest of the world."

While U.S. streets and highways might not be teeming with hybrids and smart cars, Lindland pointed out that the trucks on the roads today "are not our trucks of the 70s and 80s."

"These are much more fuel-efficient vehicles," she said. "Most of them are car-based, but even the truck-based [models] get better fuel economy than ever before."

In the long run, cars will outsell trucks in the United States, Lindland noted. But with U.S. gas prices relatively reasonable compared with Europe -- where gas is heavily taxed in many countries -- she doesn't expect a dramatic shift in buying behavior anytime soon. She points to hybrid sales, which have been falling since 2007, as an example.

"It doesn't matter that there's over 30 new hybrid models on the market," Lindland asserted. "It doesn't matter. We're not buying them."

A Big 'Disconnect'

One of the reasons Lindland is so bearish in her near-term projections for hybrid and electric vehicles is that "we're almost one generation removed" from the first generation of car buyers who might be ready to embrace green vehicles. She calls this demographic of drivers, born in 1995 and after, "Generation Green."

"They're going to be the first generation to always have a hybrid or electric vehicle as one of their buying choices," she said. "They won't have to adapt their buying behavior. These are vehicles that they will have grown up with, and they will never have known a market without them."

Still, demographics aren't the only factor holding back sales of hybrid and electric vehicles.

During a Q&A at the SAA 2011 Automotive Outlook Conference, Jeff Schuster, executive director of J.D. Power Automotive Forecasting, asserted that "the price premium that these vehicles are commanding" is scaring away consumers, especially in difficult economic times.

"If [prices are] not offset by an incentive [offered] by the government, or even if they're partially offset, I think that's still going to be prohibit the huge growth that otherwise could be there if you give enough incentives," Schuster said.

Steve Carlisle, vice president of global product planning for GM: "The industry, as we stand here, is on the eve of electrification."
While J.D. Power's overall forecast for green-vehicle sales in the United States is conservative -- the marketing information firm expects annual hybrid sales to reach 1.4 million units by 2016, when automakers must meet CAFE requirements of 34.1 mpg -- the forecast suggests that adoption of electric vehicles will be particularly slow. By 2020, J.D. Power predicts, electric vehicles will command just under 1% of the U.S. light-vehicle market.

Among the barriers inhibiting electric-vehicle adoption, Schuster said "range anxiety is the No. 1 issue right now."

"You can read all the stories about how we don't typically drive more than 30 miles in one direction anyway, but the reality is that people want that security. They want to know they can go further with the vehicle," Schuster said.

The automakers are well-aware of this. GM has gone out of its way to inform consumers that the Chevy Volt boasts a gas-powered engine/generator that comes on when the Volt's battery runs low, extending the driving range by several hundred miles.

Schuster also pointed to the lack of infrastructure for charging electric vehicles.

"I think the rate that it does get there is going to determine how quickly we see growth in overall EVs if we look at that in isolation," he said.

On a related note, Lindland lamented that there's a "disconnect" between automakers and the demographics that they're targeting for electric vehicles.

"They're pushing these vehicles toward urban environments, but there are some people who don't have a garage and don't have a place to plug them in," she said. "Everyone gets all excited about having one in New York City, but most people don't have a garage in New York City. And maybe you do if you have a car because you're wealthy enough to have a car and a house in New York, but you have to depend on somebody to plug that in then because you probably don't have access to your garage. So there are all these disconnects between who we want to sell these vehicles to and their reality of not having a place to plug them in."

Betting on 'Generation Green'

Regardless, with CAFE standards set to become increasingly stringent over the next decade, automakers will continue to pump out hybrids, electric vehicles and subcompacts. J.D. Power predicts that by 2014, carmakers will flood the U.S. market with more than 100 hybrids and plug-in hybrids, while IHS Automotive anticipates subcompact-car production more than doubling over the next five years.

Carlos Tavares, Nissan's top operations executive for the Americas: "Let the American consumer decide."
That's a big concern to Lindland, who worries that we'll see a reprise of the 1970s, when tougher fuel-economy standards drove automakers to build "vehicles that nobody wanted."

Carlos Tavares, executive vice president and chairman of the management committee-Americas for Nissan, defended his company's commitment to subcompact and electric vehicles.

Tavares noted that several years ago, there was debate within Nissan as to whether the automaker should launch the subcompact Versa in the United States. Today, according to Tavares, the Versa commands more than 20% of the market in its segment.

"I think at the end of the day, the only thing to be said is let the American consumer decide," Tavares said. "We'll bring the products. We will continue to bring compact cars, and we will eventually reinforce our presence in compact cars, because today nobody can bet on the fact that oil is not going to go up."

Tavares, though, is betting on Generation Green.

"I know that our teenagers will start [their car-buying process] by making a list, a short list, of zero-emission vehicles," Tavares said, "and they'll select from that short list."

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