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U.S. Fuel Economy Regs Versus Customer Behaviors

Interest in small cars, hybrids declining with higher fuel prices?

by on Feb.12, 2010

How quick we forget?

Even though the average fuel price has increased 80 cents per gallon to $2.69 from year ago, the effect on buyers’ choices appears to be perverse.

The latest survey shows that interest is decining in small cars and hybrid vehicles is when compared with a year ago when memories of $4 a squirt gasoline were still fresh in buyer’s minds.

This shift comes as pending federal regulations dictate a corporate average of 35.5 mpg (6.63 L/100 km) for new vehicles sold by 2016, and this will require that cars achieve 42 mpg on average.

(Click here for Administration Rolls Out New Fuel Economy Rules)

Fuel up, but small car consideration is dropping?

Whether the latest data reflect a short-term aberration among potential buyers, or the acceptance by buyers of higher fuel prices, the problem for automakers remains the same – the mix of vehicles they need to sell to comply with the law is discordant with what people are actually interested in buying.

Consider this from auto consultancy Auto Pacific: When asked what kind of vehicle would be selected to replace their primary vehicle last January,  24% of respondents said a Small Car. By June 2009, Small Car “consideration” had fallen by a third to 16%, and fell another third to 12% in January 2010.

Put another way, in one year, consideration for Small Cars has fallen by half, as the price of fuel went up.

The shift in hybrid “intenders” is even more dramatic — down from 25% a year ago, to 14% six months ago, to 11% in January 2010.


Now, there likely is some noise in this data given the well- publicized quality and safety problems at Toyota, the world’s leader in  hybrid technology and a big player in the small car market, but if this reflects an actual trend,  buyers are turning away from proven, and high fuel economy vehicles. (more…)

CO2 Blues as Makers Grapple with EU Regulations

In a declining and weakening market, stringent requirements dictate more downsizing and more cost increases.

by on Jan.19, 2010

CO2 reduction is no walk in the park for automakers or their unsuspecting consumers.

Increasingly severe CO2 standards in Europe requiring average fleet emissions of 130g/km by 2015 are forcing automaker to undertake a drastic downsizing of vehicles in a market already dominated by relatively small cars.

The regulations backed by tax incentives and special treatment of makers and classes of vehicles have global implications as Asia and the United States debate and institute their own future auto regulations.

The U.S. now is looking at CO2 limits of roughly twice that of the European Union, but all bets are off after 2015 as to what the next regulatory steps are.

What happens in a volatile political and regulatory environment will determine the types of vehicles you can buy – potentially eliminating the vehicle you are driving now– how small remaining vehicles will be, and how much more – and it will be more — you will pay for them.

At risk are the recovery and future profitability of heretofore wealth-creating automakers who in the depressed world economy will have a difficult time passing on the large costs incurred to make already small efficient cars cleaner still.

About 8-10 million cars are expected to be in the less than 130g/km CO2 emission band in Europe by 2015, according to automotive consultancy Frost & Sullivan. That’s about two-thirds of the market, which by definition will come to define the market.

This is resulting in a complex three-dimensional game of chess just underway behind the scenes, as mass marketers will by necessity try to squeak by with minimal investments.


Luxury makers, with their affluent and relatively well-educated customers, have the opposite problem – how much to spend on advanced technologies that the buyer can’t access or even see in terms of traditional luxury features so that they can continue to offer larger sizes, more engine power and more gadgets that define luxury without offending the greenish sensibilities of potential customers. Here, too, makers ultimately face a pricing problem. Too much in price might be too much even for the relatively affluent, or too little in social responsibility will not be enough.