Alternative Fuel Vehicles Feasibility Study Essay

As a leader in the rental vehicle industry for the past 30 years, ABC Rental Cars has continually remained a step ahead of its competition. To continue to set the pace for other rental agencies to follow, and to ensure ABC Rental Cars’ dominant position in the marketplace, alternative fuel vehicles (AFV), or more specifically, hybrid vehicles, should be evaluated as to the feasibility and consumer interest of introducing these types of vehicles into our fleet. Currently, gasoline prices are at an all-time high. The United States’ dependency on foreign oil is also at an extremely high level, and with the ever-shifting Middle Eastern political climate teetering at volatile levels, hybrid vehicles are an important avenue to be considered. While hybrid car sales currently lag behind sales of conventional vehicles, J. D. Power & Associates, a market research firm, estimates that hybrid vehicle sales will increase to half a million by the year 2006. In addition, nearly 20 new models of hybrid cars, SUV’s, and trucks will be rolled out to consumers in the next few years (Mossy Automotive Group, 2004). ABC Rentals can reap the rewards of providing these vehicles to its consumers, provided the cost associated with this program is mutually beneficial to both parties. Initially, the types of fuels that are available need to be researched to determine the viability of introducing hybrid vehicles into our fleet. While there are several options of alternative fuels available, most are not practical. The fuels analyzed included natural gas, biodiesel, electricity, ethanol, Fischer Tropsch, liquefied natural gas, methanol, and propane. Ultimately, the research concluded that the only practical, economical, and accessible fuel currently available is electricity, when used in the hybrid concept. There are many vehicles that use electricity. The most popular concept is used in hybrid vehicles. These vehicles have an electric motor, with a separate gasoline motor. One of the benefits is fuel economy. According to an EPA report, hybrids â€Å"can more than double the gas mileage of conventional gasoline or diesel-powered cars. † Also, this use of energy reduces emissions because gasoline consumption is reduced. Next, the gasoline motor charges the battery as the car is running, nullifying the need for recharging stations. Ultimately, the most practical fuel that can be considered at this time is electricity combined with gasoline, which is used in hybrid vehicles. (EPA, 2003) As a means to gauge consumer interest in these types of vehicles, we also needed to research our competitors to distinguish if hybrid vehicles would be a practical addition to our fleet. Currently, EV Rental Cars is the only company in the United States to rent hybrid cars to the public. At this time, there are a total of eight locations with hybrid vehicles: four locations in California: Los Angeles, Burbank, Ontario and San Diego, one location in Phoenix, Arizona, two locations in Virginia: Dulles and Arlington, and one in Washington D. C. With all of the locations above in mind, EV Rental Cars has grown in fleet size to more than 400 cars throughout the eight different locations (www. evrental. com, 2001). One of the vehicles available to rent at EV Rentals is the Toyota Prius, which is a full size family sedan. This vehicle rents for $49. 99 per day, or $299. 94 per week, and EV Rentals offers 150 free miles per day and . 25/mile thereafter (www. evrental. com, 2001). The Prius achieves 60 mpg in the city and 51 mpg on the highway (autos. yahoo. com, 2004). Comparatively, Honda has introduced the Honda Insight, which in the rental vehicle industry is considered to be a standard size car, and the Honda Civic hybrid, which is considered to be a compact car. These two cars are offered by EV Rentals at a similar price to the Toyota Prius (www. evrental.com, 2001). The Honda Insight achieves an EPA highway mileage of 66 mpg and 60 mpg in the city, while the Honda Civic hybrid can travel 650 miles with a full tank of gas (www. honda. com, 2004). As indicated above, these three cars are not only great when it comes to mileage, but another advantage they enjoy is that they are also environmentally friendly. For example, the Prius produces 90 percent less harmful emissions than a traditional car (www. ineed2know. org, 2004), which is important to those individuals that are concerned about the environment. Even President Bush seemed to agree that alternative fuel vehicles needed to be further investigated when he endorsed the concept of alternative fuel vehicles and allocated more than a billion dollars toward the transition to hydrogen fuels (www. evrental. com, 2001). On the other hand, these types of cars are not a practical investment if cost and availability are issues. Not only is the price higher, but due to limited interest in hybrids by consumers at this time, there is only a small geographic area where hybrids are being rented. Most locations are situated in California, Arizona, and Washington; therefore, if ABC Rental Cars is looking for a new rental opportunity that could expand quickly, hybrid vehicles may not be the ideal choice. Initial startup costs and maintenance costs are also important factors to consider. The price of a hybrid automobile is higher than that of a comparable gasoline engine powered automobile. According to the Website ineed2know. org, a consumer can expect to pay from $3,500 to $6,000 more for a hybrid vehicle. The money a consumer saves in purchasing a hybrid depends greatly on the cost of gasoline. For example, if gas is priced at $1. 80 per gallon, it might take the average driver between 10 and 15 years to make up a $3,500 increase in the initial price. The higher the gas prices go, the less time it will take to recoup the higher price of purchasing a hybrid (ineed2know. org, 2004). However, statistics detailing the amount of time needed to recoup initial investment costs for businesses were not available at this time. Batteries for hybrid vehicles cost considerably more than conventional car batteries. Hybrid batteries sport a price tag of $1,000 – $2,000, more than 10 ? 20 times that of a gasoline powered vehicle (ineed2know.org, 2004). While most hybrid batteries are covered under the vehicle warranty, once the warranty expires it will be the owner’s responsibility to cover the cost of a new battery. Below are some specific pricing examples of hybrids that are currently on the market: The Toyota Prius has a suggested retail price of $21, 708, which is comparable to the Corolla that retails at $15, 580. The hybrid Honda Civic cost $20, 650. That’s about $2,300 more than the Honda Civic with a gasoline powered engine. (Phelan, 2004) Eartheasy. com lists the Honda Insight with a base retail price of $19,080 to $21,280. (2004) The Pontiac Website (2004) lists the comparable Vibe at $17, 165. The Ford Website (2004) boasts the hybrid 2005 Ford Escape, available in August 2004, which will have a retail price of $26,970 for the front-wheel drive SUV. The four-wheel drive hybrid SUV will retail at $28,595. Comparable Ford Escapes with gasoline powered engines retail for $19,995 and $21, 605 respectively. Renewable energy has become the focus of many markets in today’s society. From solar panels to hybrid vehicles, Americans are interested in purchasing these types of technologies, but need financial help from the government in the form of tax credits and rebates. Hybrid vehicles are costly to manufacture, and automakers pass on this higher cost to consumers in the form of higher retail prices of the vehicle. To help offset these higher prices, automakers are encouraging the federal government to provide tax credits to those consumers who purchase hybrid vehicles. The reason for this push is there is currently no alternative technology planned for the future. In a speech given to the Automotive News World Congress, Ford Motor Company’s CEO William Ford stated: â€Å"Hybrid vehicles are a very good bridge between today’s technology and fuel cells. Fuel cells ? as promising as they are ? come with a tremendous infrastructure challenge. We do not have hydrogen on every corner like we do gasoline, and we also have storage issues. With hybrids, we do not have to invent anything ? we know they work. † (Kiley, 2004) To date, there are two types of tax credits available to those who purchase alternative fuel vehicles: ? If you purchase a certain type of electric vehicle, you may be entitled to a tax credit. ?If a vehicle qualifies as a â€Å"clean-fuel† vehicle, you may be entitled to a deduction from gross income. Currently, any clean-fuel vehicles that are manufactured after June 30, 1993 and before January 1, 2007, qualifies the owner for a deduction off of their gross income for a portion of the cost of the vehicle. Examples of these vehicles are natural gas, hydrogen and any fuel that is composed of at least 85% ethanol, alcohol or ether. Electric vehicles receive a 10% tax credit, based on the purchase price. The maximum dollar amount cannot exceed $4,000. These credits will be phased out gradually ? 25, 50 and 75 percent in 2004, 2005, and 2006 respectively, until it is phased out completely in 2007 (www. taxguide. completeax. com, 2004). These tax credits are targeted to the individual consumer, and not for rental vehicles. With the price of gasoline currently hovering around $2. 20 per gallon, the hybrid vehicle appears to be an attractive alternative. However, without a tax credit geared towards the business market, it is not a feasible option. Unfortunately, even with a tax credit, it would take years for the population to change their driving habits. To summarize, marketing alternative fuel vehicles to the consumer can be challenging, and most consumers are not aware of the types or manufacturers of these vehicles. If people are knowledgeable at all about alternative fuel environmental friendly vehicles, they may not be certain of where they can purchase or rent one of them. Purchasing an environmentally friendly vehicle is getting easier to do, with more car manufacturers jumping on the bandwagon. Honda and Toyota have led the way with hybrid vehicles, and Ford has also been in the market with its Ford Crown Victoria natural gas vehicles, with upcoming plans to debut their 2005 Ford Escape hybrid in August 2004. Pontiac is also throwing their hat into the ring with their new hybrid vehicle, the Vibe. Most consumers that are in the market for alternative fuel vehicles are looking at the new hybrids, which use both a combination of electricity and gasoline and can achieve 50 to 60 miles per gallon. The batteries on these vehicles automatically recharge themselves; consequently the vehicles never are required to be plugged in. Renting an alternative fuel vehicle can be more challenging than purchasing one, since at this time there is only one viable rental agency; EV Rental Cars, who has partnered with Budget Rent a Car, a major player in the rental car industry. If a person lives in, or is visiting California, Arizona or Washington D. C. , they can rent one of these vehicles at one of the major airports. The cost is $10 to $20 dollars more per day than renting regular gasoline powered vehicles. Most can be rented or reserved on the Internet, but some alternative fuel vehicles cannot. Consumers must request these in person at rental locations. There are a small amount of benefits for the consumer. For example, drivers can travel in the carpool lane even if they are driving alone in California, Arizona, Virginia and Georgia, thereby saving time. Additionally, when returning traditional rental vehicles, a renter is usually required to return the vehicle with the same amount of gas as was in the vehicle when first rented. Conversely, alternative fuel vehicles can be returned empty, incurring no extra surcharge. As far as refueling these vehicles, charging electric vehicles is free at the rental car recharging stations. Also, hybrid vehicles are more economical because they get more than 60 miles per gallon. Looking at the limited benefits, the overall cost and lack of convenience of purchasing or renting one of these alternative fuel vehicles, and the fact that there is limited availability, does not make it very appealing to the consumer. To investigate a hybrid vehicle consumer’s point of view concerning these types of vehicles, we conducted an interview with Dr. Mark Looper, a hybrid car enthusiast who operates the website altfuels. org. Dr. Looper holds an MS and PhD in physics from the California Institute of Technology, and an AB in physics from Princeton University. He has owned alternative fuel vehicles since 1993, and rents hybrid vehicles from the local EV Rental agency in his area. His website offers reviews of these rental vehicles, as well as real-life experiences of Dr. Looper’s travels utilizing alternative fuel vehicles. Dr. Looper’s primary reason for renting AFV’s is to provide information about alternative vehicles to the general public in the form of his reviews, as well as to promote and gain support for these vehicles with his friends, colleagues, and anyone interested enough to learn about alternatives to gasoline powered vehicles. While Dr. Looper’s rental charges exceeded the cost of gasoline powered vehicles, he stressed that cost was not much of a factor in his decision. Instead, Dr. Looper was far more interested in providing useful information to the visitors of his website. One of the questions asked of Dr. Looper was his comfort level while renting AFV’s. Specifically, did he feel nervous that alternative fuel may not be available, or that the vehicle would not handle as well as a traditional vehicle, two concerns of traditional vehicle owners. His reply was that while he was initially nervous when he decided to drive the vehicle across the country, he has never felt nervous while driving in his area. Fuel was always available, as were charging sources. Dr. Looper has stated that he would continue to rent alternative fuel vehicles, to not only â€Å"promote AFV’s by enhancing market demand and visibility,† but to also provide important feedback to consumers considering purchasing or renting these vehicles. Dr. Looper also feels very strongly about environmental issues, and considers this when making a decision of which vehicle to rent. If an alternative fuel vehicle is available, he will always choose this path, as opposed to the traditional vehicle. In conclusion, our research reveals that ABC Rental Cars should not consider introducing alternative fuel vehicles into its fleet at this time. The initial investment costs are much higher than those of traditional gasoline powered vehicles, and costs associated with the upkeep of these vehicles are also prohibitive. In addition, while tax breaks are available to consumers purchasing hybrid vehicles, our studies failed to reveal any tax savings for businesses purchasing, or renting hybrid vehicles. Furthermore, Dr. Looper’s enthusiasm and knowledge notwithstanding, the demand for hybrid vehicles is not currently at a level that would justify the amount of capital necessary to launch this program. However, ABC Rental Cars should continue to monitor developments in the hybrid vehicle industry, as well as gauge consumer interest in these vehicles, and be prepared to move forward with this program should it become economically feasible in the future. References Eartheasy. com (2000 – 2004) The new hybrid cars. Retrieved June 19, 2004 from http://www.eartheasy. com/live_hybrid_cars Environmental Protection Agency, (March 2003). Clean Alternative Fuels: Electric Vehicles. Retrieved, June 18, 2004 from http://www. epa. gov/otaq/consumer/fuels/altfuels/altfuels. htm#fact EV Rental Cars (2002) Website. Retrieved June 19, 2004 from http://www. evrental. com/index. html Fordvehicles. com (2004) Escape Hybrid. Retrieved June 19, 2004 from http://www. fordvehicles. com/escapehybrid/home/index. asp? bhcp=1 Ineed2know. org (2003 – 2004) We Know: 5 important facts about hybrid cars. Retrieved June 20, 2004 from http://www. ineed2know. org/hybrid_cars. htm Kiley, D. (April 8, 2004) Top auto execs turn to tax code to boost fuel efficient vehicles. USA Today Looper, M. , (2004) Owner and Webmaster of www. altfuels. org Interviewed June, 2004 Mossy Automotive Group, (January 22, 2004). Alternative fuel vehicles would add powerful new dimensions to any auto fleet. Mossy Automotive Group Online. Retrieved June 24, 2004 from http://www. mossy. com/news_show. html? item_num=10 Phelan, M. (June 3, 2004). Cutting the hybrid hype. The Detroit Free Press. Retrieved June 20, 2004 from http://www. freep. com/money/autoreviews/hybrid3e_20040603. htm Pontiac. com (2004) Pontiac Vibe. Retrieved June 19, 2004 from http://www. pontiac. com/vibe/index. jsp? brand=home&pagename=home Taxguide. com (2004) Website. Retrieved June 18, 2004 from http://www. taxguide. completetax. com Yahoo! Autos (2004) 2004 Toyota Prius. Retrieved June 22, 2004 from http://autos. yahoo. com/newcars/toyota_prius_2004/3809/model_overview. html.