Thirty years ago a "green car" would have more than likely been an asparagus-colored Ford Torino. Today, of course, the phrase has an entirely different meaning.
Hyper-efficient compacts and innovative gas-electric hybrids have been around for years, but the greening of the auto industry is still relatively young. Nearly every major automaker has extensive plans to broaden its clean, fuel-efficient offerings, yet many are only ramping up production now.
Though consumers and manufacturers appear ready to embrace vehicles that are friendlier to the environment, there's little consensus on how best to achieve optimum "greenness." The term hybrid itself has evolved to describe multiple technologies since the first gas-electric model rolled onto U.S. shores in 1999. A number of alternative fuels are vying for attention, from clean diesels to corn-based E85 ethanol.
Open to Alternatives
What's certain is that "green" cars are something in which consumers are increasingly interested. Attitudes toward efficient vehicles have changed. Last year's volatile gas prices—which peaked around $3 for a gallon of regular—didn't help much. In fact, according to polls taken by research firm Frost & Sullivan, fuel costs weighed heavily on the minds of 80% of car consumers during those rises.
But alternative technologies, not just high gas prices, have piqued consumer interest. Last summer, a survey conducted by J.D. Power & Associates found that 57% of respondents would consider a hybrid as their next purchase; 49% would consider a vehicle using E85 ethanol fuel.
Growing interest in "green" vehicles has cast a noticeable hue over recent auto shows. During January's North American International Auto Show in Detroit, General Motors (GM) made headlines with an all-new, ultra-efficient electric concept car, the Chevrolet Volt, capable of running a backup motor on gas, diesel, ethanol, or hydrogen. And in March in Geneva (see BusinessWeek.com, 3/5/07, "At Geneva Cars Go Green"), hybrid concepts and small, efficient subcompacts took center stage, not the overpowered, extravagant speed machines of years past.
Competition Up, Prices Down
The buzz around hybrids—which combine a conventional gas engine with sophisticated electrical components—hasn't subsided. In the next 20 months, at least 30 new hybrid models will hit the U.S. market. According to Boston-based research firm Global Insight, that would bring the total number to more than 40 models.
With so many new hybrid models rolling off assembly lines, competition is heating up. In February, manufacturers, including market leader Toyota (TM), began putting incentives on certain models. According to Edmunds.com, on average, hybrids that sold last December for $809 above the manufacturer suggested retail price went for $2,015 below MSRP in February.
Still, Toyota has said it expects to grow sales of its popular Prius by 50%, to at least 150,000 units, this year as it tries to nudge the vehicles' position closer to the mainstream. "The market is certainly going to continue growing," says Jesse Toprak, an Edmunds analyst. "But now manufacturers are going to have to go after the mass market."
Needs New Batteries
As hybrids begin attracting a second wave of first-time buyers, questions loom over the direction the technology will take. In February, Toyota Chief Executive Katsuaki Watanabe confirmed to BusinessWeek that the company would put high-capacity lithium-ion batteries in the third-generation Prius, due toward the end of 2008 or early 2009 (see BusinessWeek.com, 3/5/07, "Toyota's Bid for a Better Battery").
Still, many analysts are skeptical of how quickly manufacturers can make the advances in battery technology that would enable dramatic leaps in fuel economy. "I don't think we'll see a real turnaround in batteries before at least five years," says Lonnie Miller, director of industry analysis for R.L. Polk.
Both GM and Toyota are considering producing plug-in hybrids that can be partially charged at home and often double fuel efficiency. A small group of enthusiasts have paid as much as $10,000 to have their hybrids upgraded with plug-in systems. But the technology may not yet be ready for prime time. "Realistically, I don't think we'll see anything like that on the market until 2010," says Toprak.
Hybrids aside, alternative fuels have received a lot of air time in Congress and on the early Presidential campaign trail, but have yet to grab hold of consumers. Both foreign and domestic manufacturers are trying to educate consumers on diesel and ethanol E85 fuels, which can increase economy and reduce carbon emissions.
Diesel-sipping vehicles—some of which achieve fuel economy similar to certain hybrids—are popular in Europe, where fuel and environmental standards are more stringent. But diesels have yet to make an impact in the U.S. market. Whereas 50% of all vehicles sold in Europe are diesel-powered, in the U.S. a comparably paltry 1.5% of all vehicles sold annually are diesels.
The next big test for diesel in the U.S. will come in 2008 when a raft of new, clean-burning models is expected to be eligible for sale in all 50 states. Volkswagen, Mercedes-Benz, Ford Motor (F), and DaimlerChrysler's (DCX) Chrysler Group all have plans to sell clean diesels by then. "As an alternative fuel, diesel has real possibilities," says Toprak. "But there are really no cars at this point."
Where's My Ethanol?
Ethanol, or E85, fuel also grabbed headlines last year as Brazil achieved complete energy independence largely on the success of its ethanol fuel programs. But most consumers here don't know much about the fuel. In fact, many may be driving ethanol-capable vehicles and not even know it. There are about 3.5 million flex-fuel vehicles capable of running on E85 already on U.S. roads.
Lack of consumer awareness and filling stations stands in the way of popular acceptance. "With E85, you've got a basic infrastructure problem," says Miller. "The filling stations have to come first, and that's a hard fact of planning." Toprak adds, "Manufacturers need to do a better job of educating consumers."
Still, with competing technologies and a variety of alternative fuels waiting in the wings, "green" seems to be destined for ongoing redefinition. "It's true there's no clear-cut winner yet," says Toprak. Miller agrees: "As far as green is concerned, the jury is still out but the trial is not over."
Click here to see a roundup of today's greenest cars.