What is causing the Recent Vehicle Emission Reductions?

The SMMT (Society for Motor Manufactures and Traders) recently published their first half year figures relating to sustainability indicators. There has been a significant drop in the CO2 emissions figures of new vehicles registered in the last six months, decreasing by 4.5% to 145.2 gCO2/km. This is great news for those of us who want to see a move towards a more sustainable personal transport system. What we must find out now is what the reasons behind this decrease are so that we can ensure that they continue and prosper.

The background environment that motorists have found themselves in over the past few years has undergone some considerable changes. Firstly and perhaps most importantly the worldwide economic recession has put a brake on people’s finances encouraging them to consider large purchasing decisions in greater detail and look to save money wherever possible. The previous trend of the last decade of upsizing vehicles has been somewhat reversed with motorists now thinking about downsizing to enjoy greater levels of fuel efficiency.

New vehicle sales fell off rather dramatically during the start of the recession as households put off large purchases due to the increased uncertainty in the economy. The UK Government introduced a stimulus plan that encouraged households to part ways with old vehicles (over 10 years old since first registration) in exchange for a £2000 reduction in the costs of a new car. This incentive was widely subscribed to generating a substantial decrease in the average emissions level of the UK vehicle car fleet (under the principle that a new car will be significantly more efficient than a 10 year old vehicle). This incentive did not have any vehicle requirements attached allowing households to trade in their old cars for any new vehicle they desired. It was observed that households subscribing to this incentive generally tended to purchase new vehicles that were below the average new vehicle emissions vehicle. This was a unplanned for additional benefit of the UK Car Scrappage Scheme which not only helped prop up the UK’s large automotive manufacturing sector but also moved the new vehicle market in the right direction of lowering CO2 emissions.

Is Peak Oil the End of Liquid Fuels?

Across the world around 90 million barrels of oil are consumed in any one day. The vast majority of this consumption is in the transportation sector powering our planes, trains and cars. World oil reserves have stayed somewhat steady over the last decade however relatively few new “mega fields” have been discovered. The official statistics concerning these reserves are hotly debated with many analysts arguing the figure is actually much lower than what is officially stated. Petroleum politics between OPEC, other major oil producing countries and the world’s largest oil consumers make the picture of current world oil a murky one with a large degree of subterfuge and asymmetrical information.

Peak Oil is a phrase that has recently come into fashion to discuss the situation where oil extraction reaches its absolute limits and potentially starts to decline. What was initially a taboo subject in oil circles has become one of serious debate and concern. The oil industry has progressed from arguing against the entire principle of Peak Oil to stating that it is likely not going to occur for the foreseeable future. Other commentators disagree believing Peak Oil will be upon us imminently. Whatever the case may be, it is important to look into the likely effects of this situation for the automotive industry and discuss likely implications and possible strategies to minimise disruption and exposure.

Low Emissions Vehicles – The Role of Uncertainty

Large multinational corporations spend tens of millions of pounds every year to fund their finance, accounting and auditing departments. The rationale behind this is that by conducting these activities it will put the company into a highly competitive position making it more efficient and informed. Employees in these companies undergo years of training both pre and post University to be able to conduct the complex and difficult activities this profession needs. Automotive manufacturers are no different, employing thousands of accountants and financial analysts.

If there is one thing that these individuals dislike the most it is uncertainty. They work best where cash-flows and interest rates are clearly known or can be determined with a high probability. Uncertainly adds both an element of frustration to these financial statisticians and also a level of risk to the company. Undoubtedly financial services have become better at taking account of uncertainty and working it into their analysis but this can only occur when the variable that is uncertain can be identified, investigated and quantified. In some situations it is not the known unknowns that we have to worry about, it’s the unknown unknowns.

Where are the Best Locations for Charge Points?

What comes first, the chicken or the egg? This is a question often posed to young children to get them thinking about the sequencing of events and the concept of life in general. A similar question currently doing the rounds in the automotive and transport world is do we need recharge infrastructure before individuals will consider a Plug-In Vehicle from their next car choice? Certainly this dilemma has already come up in the past such as do we need roads before people will buy cars? Clearly this situation is not as black and white as it seems at first glance, we had roads, of a sort, before cars were invented. These roads simply had to be improved and expanded in order to meet the growing mobility requirements of an affluent car owning society. Similarly, we already have a well developed refuelling infrastructure for conventional cars, surely we could just modify these refuel stations to allow for Plug-In vehicles to be recharged there? This is definitely an avenue that is being investigated however one of the selling points of Plug-In vehicles is the opportunity to get away from the undesirable (in some individual’s views) refuelling stations so other possibilities must be considered.

The Technology Strategy Board has allocated a significant amount of funding to its Plugged-In-Places scheme. This scheme aims to roll out electric vehicle charging points in urban areas to facilitate the transition to Plug-In vehicles. Thousands of points have already been installed and many more are earmarked for fitting. This scheme is both important from a financial and also policy angle. With the fragile recovery still not fully embedded in the UK economy, the Government cannot afford to be seen wasting tax payer’s money. The Government has also committed itself to pursuing a low carbon pathway in future economic growth and is keen to realign the economy with green business opportunities. The success of this scheme will be critical to the destiny of Plug-In vehicles in the UK and could herald the expansion from niche market application to mainstream consumer product.

The Unusual Suspects

When a new product enters the market it is likely to follow the well establish diffusion curve whereby initial demand is low but increases quickly till the market reaches maturity and eventually decline. The role that early adopters have in the fortunes of any new product introduction cannot be underestimated. These trend setters and opinion leaders are the ones to get the first practical experience with a product and the results of these experiences will be related to friends, family, colleagues and the wider public by both word of mouth and other forms of mass media. With the development of the internet early adopters can now spread their reviews across the entire world with blogs and video reviews becoming ever more common.

With these points in mind, making sure early adopters are well looked after is a key role for any firm introducing a new product. Actively trying to identify early adopters will be a critical component of pre introduction market research. This situation is no different in the case of LEVs and automotive manufactures should already be sourcing information on this important market segment. One of the crucial questions that should form the basis of this market research is what do we expect these early adopters to “look like”? In the following article we set out our views on the socioeconomic characteristics and demographics of potential early adopters in this market.

Scenarios for Consumer Rejection of LEVs

Whenever a new technology or product innovation enters the market the level of consumer acceptability will be a crucial factor in determining how successful it will be. It is quiet common to hear stories of success by budding entrepreneurs who entered the market with nothing but a good idea and a lot of determination and ended up making it big. Stories on product and technology failure are much less common with people and firms less keen to comment on their inability to succeed in making their new product or technology triumphant. This part of the product lifecycle is often overlooked and companies and individuals do not investigating these aspects to a high degree. Indeed it can be this lack of assessment that leads to a new product or technology not being widely accepted by consumers.

In relation to the introduction of LEVs into the automotive market it is important for manufacturers to investigate what are the likely hindrances to consumer acceptance. These rejection scenarios happen when consumers appraise a new vehicle for its suitability according to a set performance criteria and deem the product unsatisfactory. These scenarios will happen throughout the purchasing process and will entail both absolute appraisals where vehicles are required to pass specific levels of acceptability and also relative appraisals where multiple vehicles are compared simultaneously against a set criterion.

What Tricks do we have up our Sleeves?

It has been reported earlier on this blog that the UK government is considering cutting to proposed £5000 incentive grant for BEV/PHEVs in its budget austerity measures. Direct financial incentives can be exceptionally effective at influencing consumer behaviour towards a product but they are not the only option that is available. Indeed, it is often a combination of different incentives that proves to be the most effective. Below we will look into other common forms of consumer incentive that can be considered both by the UK government and car manufacturers to help boost demand for LEVs.