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4 Consumer Attitudes and Barriers The preceding chapters demonstrate that there is great of innovations guides the remaining consumer groups. They potential for new generations of advanced-technology vehi- set the stage by removing uncertainty about new products, cles, fuels, and fueling infrastructure to advance the nation policies, or technologies and by establishing a level of peer toward the twin goals of significantly reducing greenhouse acceptability that makes more risk-adverse consumers com- gas (GHG) emissions and petroleum use from the light-duty fortable with accepting them as well. vehicle (LDV) fleet by 2050. But technological advances The initial group, the innovators, is the smallest, estimated alone are insufficient to promote success. Consumers must by Rogers at just 2.5 percent of the consumer base. Their role embrace the new designs and new fueling systems discussed is to launch new ideas, products, and technologies. They typi- in Chapters 2 and 3, or LDVs and fuels will never achieve the cally are younger and more financially sound than the general market penetration rates necessary for successful achieve- population and are characterized by a desire to be first to pos- ment of the petroleum and GHG reduction goals of this study. sess or use something new and different in the market. They While highly efficient internal combustion engine vehicles are willing to take risks and can use their financial well-being (ICEVs) and “drop-in” biofuels would differ little in most to soften the impact of the occasional failed venture. Early characteristics that consumers consider (other than cost), adopters are the next group to adopt an innovation. They alternative-fuel vehicles (AFVs) operating on electricity or constitute approximately 13.5 percent of the consumer base. hydrogen will appear very different to consumers. Given that The group includes a high percentage of opinion leaders, but most of these vehicles will come with a so-called technol- ogy premium that, initially at least, will make them more expensive than the vehicles they will seek to replace, winning consumer acceptance will be challenging, likely requiring BOX 4.1 substantial policy intervention. Attributes that Could Affect Car-Purchasing Consumer purchasing patterns have been studied for Decisions decades. Although many vehicle attributes influence car- purchasing decisions (Box 4.1), the common conclusion CO2 emissions is that buyers’ economic concerns are one of the primary Comfort drivers of almost all transactions (Caulfield et al., 2010; Ease of fueling Egbue and Long, 2012): money talks; most of the rest is Fuel consumption window dressing. Thus, when dealing with the task of selling Initial and operating costs vehicles whose primary purpose is to help reduce petroleum Performance or power consumption and the related environmental impacts, appeals Reliability to consumers’ environmental and social sensibilities are not Safety likely to move much metal after the thirst of the relatively Size of car or internal and cargo space small groups of innovators and early adopters is satiated. Style or appearance or image Attracting members of these two groups, part of a hierar- Travel range chy established by Everett Rogers in his seminal Diffusions of Innovations (Rogers, 1962), is critical, however. Rogers NOTE: The attributes are listed in alphabetical order. (2003) estimated that they collectively make up just 16 per- cent of the consumer base, but their acceptance or rejection 77

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78 TRANSITIONS TO ALTERNATIVE VEHICLES AND FUELS its members are less risk-averse than the general popula- With an engine that demanded combustible fuel, the auto tion and more selective than innovators in their enthusiasm also gave the oil industry a whole new market for its product. for innovations to adopt. Like innovators, they tend to be If policy makers determine that AFVs are essential to younger and have higher income levels and social status than meeting the nation’s oil and GHG reduction goals, then con- other consumers. Early adopters tend to be opinion leaders sumers will have to be asked to consider adopting another in their communities and are in the group most looked-to by significant change in personal transportation, but it is one other consumers for validation of or information about new that—at least in the formative stages—means sacrifice, not things. In the automotive arena, Deloitte Development LLC improvement. The contemplated change is not replacing (2010) characterized early adopters for one combination of the horse-drawn buggy with a motorized carriage that can alternative vehicle and fuel technologies—the battery elec- carry its own fuel for hundreds of miles and be refueled in tric vehicle—as young individuals with annual household minutes. Rather, it is the swapping of a sizeable portion of incomes of $200,000 or more who consider themselves to be conventional, internal-combustion LDVs that run on liquid environmentally sensitive and politically involved. hydrocarbon fuels and the accompanying nationwide system Not all innovators and early adopters will embrace the of fueling stations for a variety of new vehicles and fuels same products, ideas, or technologies, so technology and that will require development of massive new production, policy developers cannot count on the groups as a monolithic distribution and retailing systems. In addition, many of these 16 percent of the market. Still policy makers and the private new AFVs use powertrains—such as plug-in hybrid electric auto and fuel industry companies must work together in (PHEV) systems—that typically cost more and offer no pursuit of the nation’s GHG and petroleum-use reduction improvements other than increased fuel efficiency, reduced goals. They must be able to attract the interest of a significant emissions, and, in the case of plug-in vehicles, cheaper fuel portion of these two groups to make inroads with the general costs for the electricity used to charge the batteries. Battery consumer base, which Rogers further divided into the early electric vehicles (BEVs) offer less range, and along with and late majority adopters, each constituting an estimated PHEVs would require large GHG emissions reductions in 34 percent of the consumer base, and the laggards, or last to the electricity production system to deliver meaningful net adopt, constituting the remaining 16 percent of consumers. GHG reductions for the LDV sector. Some options, however, Rogers determined that innovations achieve peak market such as the drop-in biofuels described in Chapter 3, entail penetration with the early majority adopters. few if any customer acceptance challenges for the vehicles, Each of the various groups can be further subdivided into which can still use internal combustion engines. In this case, smaller market categories defined by factors such as age, the technology challenges are upstream in the fuel supply gender, geography, income, social status, and political lean- sector, with implications for the fuel costs experienced by ings. Thus, the automotive innovator group might include LDV consumers. dedicated environmentalists, older empty-nesters, and “first This chapter examines demonstrated results and stated on the block” ego gratification seekers. The environmental- preference surveys, with stated preference surveys in the ists would be willing to pay a premium and accept reduced forefront because, as many of the vehicle and fuel types travel range, cargo and passenger capacity, and limited refu- under consideration are not yet in the market, there has eling opportunities to acquire vehicles and/or use fuels that been little opportunity for researchers to conduct studies of they believe would help reduce GHG emissions; the empty demonstrated preferences. The preference surveys, particu- nesters might simply wish to free themselves of the expense larly in environmental matters, have a certain level of bias of purchasing petroleum-based gasoline (and recognize that engendered by respondents’ wish to appear environmentally they no longer need a vehicle that can travel long distances); responsible even if economic conditions rather than environ- and the first-on-the-block innovators may simply be those mental beliefs ultimately determine their actions (Kotchen whose egos are gratified by being seen as out in front of the and Reiling, 2000), but the impact of such biases—which pack in their vehicle choices and whose incomes can sup- remains unquantifiable (Hensher, 2010)—does not materi- port their desires. The success of a new automotive and/or ally affect their value in illustrating general trends over time. fuel technology or idea will require that the needs of such disparate subgroups be met. 4.1  LDV PURCHASE DRIVERS Meeting the needs of all subgroups or selling these new automotive ideas to the early majority will not be easy. There is no big mystery at work in the LDV-buying deci- Increased utility and convenience cannot be counted on as sion process. Consumers typically acquire things for a range selling points. The automobile became a successful new of reasons. In the case of LDVs, research has shown that the technology in the early 20th century because it demonstrated bulk of purchases revolve around perceived need—to replace superiority to the horse- and ox-drawn vehicles it would an aging vehicle, for instance. “Desires,” whether for a dif- replace. It offered greater speed, greater range, and greater ferent color or body style, improved “infotainment” content, utility than animal-drawn vehicles and promised the indi- a more prestigious nameplate, or simply a newer model, still vidual a new level of freedom of movement (Morris, 2007). account for a significant minority of purchase decisions,

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CONSUMER ATTITUDES AND BARRIERS 79 TABLE 4.1  Car-Buying Motivations, 2005 and 2011 trends among retail consumers. Yet the fleet segment is one April August in which a substantial number of AFVs will be sold in the 2005 2011 future per private and governmental policies encouraging Motivation to Consider Buying New Car (%) (%) greater use of highly fuel-efficient vehicles. It is too early to Old car had high mileage 34.3 25.7 tell how those sales might affect the overall success of any Old car needed frequent repairs 17.3 14.3 particular AFV or alternative fuel. Needed additional vehicle for family 18.0 11.9 As these surveys show, replacing a vehicle for reasons Needed vehicle with more room 12.0 12.3 including high mileage (age), the frequency of repairs, Lease expired 9.7 9.5 Wanted new vehicle 6.5 8.0 expired leases, and/or the perceived need for a vehicle of a Wanted better fuel economy 21.9 16.7 different size account for more than half the stated reasons for Not sure/other 18.3 22.4 buying a new vehicle. Reasons stated as “wants” or desires Liked styling of new models 16.3 12.3 rather than needs ran a close second. The need to acquire a Wanted vehicle with better safety features 14.6 11.5 new vehicle because the old one was wearing out remains a Financing deals/incentives too good to pass up 13.8 11.7 Significant other wanted new car 17.6 16.1 strong motivation but has diminished in importance among Wanted car with new infotainment equipment 11.8 7.9 those who purchase their vehicles as vehicle reliability and (navigation, DVD player, etc.) quality have improved—providing for longer-lived cars and trucks in our garages. Lessees, of course, replace their NOTE: Sum of totals exceeds 100 percent because respondents could pro- vehicles more frequently, and typically for reasons other than vide multiple responses. SOURCE: BIG Research, Consumer Intentions and Reactions, April age-related wear. But leasing accounts for just 20 percent of 2005, August 2011, proprietary information prepared for the committee the new-vehicle market (Automotive News, 2012). The need by request. or desire for a vehicle with better fuel economy, however, has concurrently increased in importance over the past few decades as primary motivation for new-car purchase. (Note: however. Table 4.1 shows surveys of retail consumers taken The decline in stated importance of fuel economy between in two periods—2005 and 2011—representing different 2005 and 2011 as shown in Table 4.1, is a result of the unusu- economic conditions. ally high level of importance attached to fuel economy that A large number of LDVs are purchased each year for com- was shown in the April 2005 BIG Research survey and was mercial and government fleets, and those purchases are not spurred by gasoline price increases at the time.) The trend reflected in Table 4.1 or in Figure 4.1, both of which examine of fuel efficiency rising in importance along with fuel prices $4.00 35.0% Fuel Cost $3.50 30.0% Small Vehicle Market Share $3.00 25.0% $2.50 20.0% $2.00 15.0% $1.50 10.0% $1.00 5.0% $0.50 $- 0.0% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 FIGURE 4.1  Small vehicle market share (retail sales only) and fuel cost (in 2011 dollars). NOTE: Recession-driven sales of less-expensive models helped keep small-vehicle market share high despite fuel price declines in 2009 and 2010. 4.1 Alt Vehicles.eps SOURCE: Data provided by Edmunds.com’s AutoObserver.com Data Center; chart prepared for committee by Edmunds.com. Small Vehicle Market Share & Fuel Cost

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80 TRANSITIONS TO ALTERNATIVE VEHICLES AND FUELS continues: Consumer Reports magazine reported recently II. As recently as April 2011, in an editorial in the influen- that in an April 2012 telephone survey of 1,702 adult con- tial trade journal Automotive News, publisher Keith Crain sumers who were asked to state what they believed would be bluntly stated that while the auto industry has responded the most important factors in their next new-car purchase, 37 to rising gasoline prices and increased regulatory demand percent cited fuel economy as their top consideration (Con- for better fuel economy with a number of cars that achieve sumer Reports, 2012). While altruistic reasons for purchas- an EPA highway-cycle rating of 40 mpg, “the trouble is, no ing a new vehicle—to help improve air quality, reduce oil one wants to buy them” (Crain, 2011). Gloria Bergquist, the use, cut GHG emissions, improve the environment—score Alliance for Automobile Manufacturers’ vice president for highly in some special-interest group surveys (Consumer communications, repeatedly has pointed out that in 2010 a Reports, 2011b), in broader whole-market surveys that allow single pickup model—the Ford F150—outsold all 30 gas- respondents to list their own reasons for purchase, they electric hybrid cars and sport utility vehicles (SUV)s offered appear, at worst, to be not considered at all or, under the for sale in the United States by mainstream auto manufac- best of interpretations, to be secondary, hidden constituents turers (Harder, 2011). Those statements reflect consumer of the more selfish, economics-driven stated reasons such as choices influenced at least in part by continued low pricing “wanted better fuel economy” or “wanted new vehicle.” A of gasoline. In the past year, however, sales of smaller cars motivator not mentioned in the surveys cited but known to be with high fuel efficiency have increased as a percentage a purchase driver of certain AFVs in the state of California of the market, as have sales of larger cars, crossovers, and is single-occupant access to high-occupancy vehicle (HOV) light-duty trucks that use smaller, more efficient engines to lanes, also called carpool lanes. Although most states that replace “gas guzzler” V6s and V8s (Drury, 2011). History, provide such lanes limit access to vehicles carrying at least however, has shown that the march toward efficiency stops two people, California currently permits drivers of most when fuel prices have stabilized or dropped after a run-up battery electric vehicles, some plug-in hybrids, and all fuel- (see Figure 4.1). cell electric vehicles to use the lanes even if there are no Still, such attitudes may be generational. Most Americans passengers in the vehicles when an authorized, state-issued under 40 have now been exposed to smaller vehicles, mainly access sticker is displayed. Access to HOV lanes in a state from the import brands, and, as sales trends show, accep- noted for its crowded rush-hour freeway traffic is believed tance of compact cars in the U.S. market is growing. The to be an important selling point for those vehicles. Indeed, recession of 2008-2009 and the continued economic slump General Motors has released a television advertisement for that has followed certainly have influenced that growth, as its 2013 Volt PHEV that highlights the fact that a specially have increasing fuel prices in recent years. However, there tuned version of the vehicle qualifies for HOV lane access is evidence indicating that potential savings from fuel effi- in California. ciency improvements is not a significant factor in consum- Achieving a considerable reduction in LDV fleet GHG ers’ vehicle purchase choices, indicating that consumers emissions and petroleum use through adoption of alternative are becoming inured to gasoline price increases because fuels and powertrains is not likely to be accomplished by they inevitably have been followed by price decreases. (See appealing to altruism. Once early adopters have made their details in Section 4.6 below.) choices, the remaining 84 percent of consumers are going to have to be persuaded either that the alternative fuels and 4.3  FACTORS IN CONSUMERS’ CHOICES vehicles offer them an improvement over their present prefer- ences, or that there is a pretty immediate economic benefit to Numerous studies have attempted to quantify the needs be had in making the switch. Environmental benefits simply and desires that drive LDV-purchase decision making. Their do not appear to be a determinant for consumers in large findings are fairly consistent and are exemplified by a recent purchases, such as motor vehicles. “Economic concerns are stated-preference study by Capgemini (2010) that ranked the consumers’ priority,” researchers at the Mineta Transporta- most important factors gathered from 2,600 online respon- tion Institute have found (Nixon and Saphores, 2011, pp. dents in the United States, Europe, and Asia and found reli- 10-11). ability, safety, vehicle price, fuel economy, and the variety and cost of options all in the top 10. Consumers who identi- fied themselves as planning to purchase a new vehicle within 4.2  WHAT DO CONSUMERS WANT? the next 15 months were asked to rank the most important Conventional wisdom holds that American consumers factors they would apply to their car-purchase decision mak- want big cars and trucks with large and powerful engines ing (see Table 4.2). and that fuel economy just is not that important because In addition,, respondents were asked about their interest gasoline and diesel prices in the United States are so much in so-called green vehicles, and 72 percent of U.S. respon- lower than in much of the rest of the world. Those attitudes dents (versus 57 percent overall) cited fuel economy as the certainly have shaped U.S. automakers’ marketing and prod- number-one reason they would consider a fuel-efficient uct planning agendas for most of the time since World War petroleum or alternative fuel car or truck. Only 13 percent

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CONSUMER ATTITUDES AND BARRIERS 81 TABLE 4.2  Importance of Factors in Consumers’ Choice sticker price. When applied to the amount being financed, of Vehicle such direct subsidies lower the monthly payment and can Percent Respondents help a greater number of consumers qualify for loans to Saying Important/ purchase new AFVs. Tax credits, in contrast, do not affect Very Important the qualifying terms or monthly payments for purchasers Mature Developing (although they may be used to lower monthly lease costs, Factors in Consumer Choice Markets Markets as has been the case with the Chevrolet Volt PHEV and Brand reliability 89 90 Nissan Leaf BEVs). One argument against tax credits such Safety 89 91 as the present “up to $7,500” federal credit on BEVS and Price 86 85 some PHEVS (depending on battery size) is that they tend Fuel economy 82 85 to reward higher-income consumers—who arguably are least Quality of exterior styling 77 84 Quality of interior styling 77 85 needful of subsidies—and do not provide the full potential After-sales service 71 83 reward for consumers with lower incomes and thus lower Vehicle availability (take it home versus wait 71 82 tax liabilities. for special order) Extra options at no cost 70 74 Features and options 66 79 4.5 ICEVs STILL TOPS Low emissions 64 75 Financing at 0% or low % 62 73 Even in the aftermath of publicity about the possibility Brand name 55 80 of future oil shortages and the need for increased national Cash-back incentive 46 69 energy security, gasoline as a fuel is not seen by most car- Hybrid or other alternative fuel system 36 66 buying consumers as a negative. Indeed, there is a consensus SOURCE: Capgemini (2010). in consumer preference surveys that unless there is inter- vention through government policy, internal combustion engines powered by petroleum or a competitively priced of U.S. respondents (versus 23 percent overall) cited making drop-in biofuel (if such a fuel is commercialized) are likely a positive impact on the environment as a significant reason to remain the predominant powertrain in LDVs in the United for acquiring an AFV, while just 1 percent (versus. 3 percent States for decades to come. A sampling of recent studies overall) said tax credits would be an important factor in their bears this out. purchase decision (Capgemini, 2010). That contrasts rather In its June 2011 report on AFV preferences, the Mineta sharply with the 46 percent (69 percent overall) who said Institute found that “in general, gasoline-fueled vehicles are they would prefer a cash-back incentive. The preference for still preferred over AFVs,” with 36 percent of the study’s cash-in-hand at time of purchase versus an end-of-year tax respondents ranking conventional ICEVs as their first choice credit has important implications when considering incen- (Nixon and Saphores, 2011, p. 1). Hybrid-electric vehicles tive policies. (HEVs) were second in popularity, with 26 percent of respon- dents identifying them as their first choice, followed by com- pressed natural gas vehicles (CNGs) at 13 percent, hydrogen 4.4 SUBSIDIES fuel cell electric vehicles (FCEVs) at 18 percent, and BEVs Capgemini is not the only one finding that income tax at just 9 percent. The responses exceed 100 percent because credits, although currently the preferred federal policy for each is the average of respondents’ choices in a variety of incentivizing AFV purchases via subsidies, may not be scenarios. A stated-preference survey of 3,000 consumers the best route to take. A number of studies prepared since in the United States, Germany, and China, conducted in the hybrid-electric vehicles achieved sufficient market penetra- first quarter of 2011 by Gartner, Inc. (Koslowski, 2011), tion to figure as a potentially valuable tool in the effort to presents similar findings, with 78 percent of respondents reduce the nation’s GHG emissions and petroleum use have ranking gasoline-fueled vehicles as the type they “definitely” found that while subsidies work, those that directly place would consider for their next new-vehicle purchase, followed cash in the hands of the consumer are more effective than by HEVs, 40 percent; CNGVs, 22 percent; and BEVs, 21 those—like income tax rebates—that require the consumer percent. Respondents in the Gartner study were permit- to pay the full price up front and wait until tax time for the ted to make more than one selection and FCEVs were not subsidy payment (Gallagher et al., 2008; Diamond, 2008; included in the choices. Although such surveys have value in Beresteanu et al., 2011). indicating trends, they do not reflect present realities. Hybrid In addition to providing immediate gratification, direct vehicles, for instance, still account for less than 3 percent rebates, sales-tax credits, or other types of cash subsidies, of annual U.S. new-car sales more than 12 years after their including subsidies enabling the manufacturer to lower the introduction in the market. J.D. Power and Associates found retail price of the vehicle, would enable consumers to ratio- in its most recent “green” vehicles study that its research nalize that the cost of the vehicle is less than its so-called into consumer attitudes over the years shows that “while

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82 TRANSITIONS TO ALTERNATIVE VEHICLES AND FUELS most consumers say they want to create a smaller personal vehicle use, lifetime, and other factors. Given the uncertainty carbon footprint . . . this consideration carries relatively low in future fuel savings it is reasonable for a consumer to be weight in the vehicle-purchase decision” (Humphries et al., reluctant to pay more for higher fuel economy. One of the 2010, p. 10). most well established findings of behavioral economics is Reasons for the strong preference for continued use of that when faced with a risky bet, typical consumers count gasoline-powered vehicles appear to be based strongly on potential losses approximately twice as much as potential up-front cost—they are demonstrably less costly to purchase gains and exaggerate the probability of loss. This approach than alternatively fueled vehicles. The cost efficiencies real- can result in an undervaluing of future fuel savings by half or ized by the tens of millions of internal combustion engines more relative to what would otherwise be expected (Greene, produced each year make petroleum-fueled cars and trucks 2010a). Other possible explanations have been proposed, far less expensive to purchase than any of the new crop of including shortsightedness and the lack of information or alternatively fueled/powered LDVs. the necessary skills to estimate future energy savings. There Convenience, especially the ready availability of fuel, is not an established consensus on this subject, however, is the second most-stated reason for preferring petroleum. and the published literature contains evidence to support The United States has a widespread gasoline service station both views—that consumers accurately value and that they network that serves even the smallest communities, and undervalue future fuel savings (Greene, 2010b). Anderson gasoline prices in the United States remain among the lowest et al. (2011) found that consumers typically take no posi- in the world. Both factors make it incredibly convenient for tion and merely consider future fuel prices to be the same consumers to continue purchasing and using gasoline-fueled as today’s because they cannot accurately predict. Because vehicles. Perceived reliability of ICEVs versus alternative the evidence for undervaluing appears to be stronger, the vehicles is another key factor, with some researchers finding analyses and modeling in Chapter 5 assume that consumers that consumers believe conventional ICEVs are far more reli- behave as though they required a simple 3-year payback for able than alternative vehicles (Synovate, 2011). an expenditure on higher fuel economy. Overall, there is little doubt that a significant portion of consumers are interested in fuel efficiency. A variety of 4.6  HOW CONSUMERS VALUE FUEL ECONOMY recent studies and surveys have shown that fuel economy is Many consumers responding to attitudinal surveys say a top concern of 60 to 80 percent of prospective auto buyers that they place fuel economy at or near the top of the list of (Consumer Reports, 2011a). Just how important, however, factors they will consider when buying their next vehicle. seems to depend on what it will cost the consumer to achieve But when it comes to applying potential fuel economy sav- a higher degree of efficiency. J.D. Power and Associates ings to the purchase decision, most research has shown that consumer research over the years has shown that “many consumers just do not do it. So even though a case can be may consider it, but when the time comes to put their money made for long-term fuel and maintenance savings making where their mouth is, very few follow up,” the research firm’s some AFVs less costly to own than gasoline vehicles over a senior manager of global powertrain forecasting, Michael period of years, a tendency by consumers to ignore such sav- Omatoso, said in an interview (personal communication, M. ings potential would make it more difficult for manufacturers Omatoso, Troy, Michigan, September30 2011). There have and policy makers to persuade consumers to consider alterna- been a number of studies that include attempts to discern tive fuels and vehicles with higher prices than conventional the premium consumers are willing to pay for AFVs, and ICEVs. Researchers at the University of California, Davis, they find it most typically is in the range of $1,600 to $2,000 Institute for Transportation Studies, for instance, have found (Boston Consulting Group, 2011; Deloitte Touche Tohmatsu that consideration of a payback period for higher-priced Ltd. Global Manufacturing Industry Group, 2011). But as AFVs “is not part of the vehicle purchase decision-making more AFVs come into the marketplace, the issue seems to even in the most financially skilled households” (Turrentine remain a fertile field for future research. and Kurani, 2007, p. 1220). This tendency of consumers to fail to modify the up-front 4.7  INTEREST IN AFVs LIMITED acquisition cost of AFVs by the long-term value of reduced fuel and other ownership costs (maintenance, repairs, and There is interest in AFVs, but it is limited by a number of insurance chief among them) can be explained by applying factors including a general unwillingness to abandon a fuel behavioral economics’ principle of loss or risk aversion. and powertrain combination that has shown itself to be quite In general, increasing a vehicle’s fuel economy through effective in providing for consumers’ transportation needs improved technology requires paying a higher initial cost. over the decades, even if that effectiveness is not accompa- Future fuel savings, however, are uncertain due to the nied by the levels of environmental cleanliness necessary unpredictability of future fuel prices, the fact that the fuel to achieve the nation’s present goals. In a 2010 survey of economy consumers will achieve in actual use will differ consumer adoption literature, researchers at the University from the government’s ratings, and potential variations in of Wisconsin found broad agreement that there is consider-

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CONSUMER ATTITUDES AND BARRIERS 83 able interest in AFVs if performance characteristics remain convenience and will cost consumers more to purchase than comparable to those of ICEVs (Guo et al., 2010). Now that conventional ICEVs with advanced-technology gasoline there are some of these vehicles in the marketplace (most powertrains that will not have the higher initial costs. notably conventional hybrids, although at this writing there In its recent “Drive Green” study (Humphries et al., is one compressed natural gas passenger car, two BEVs, and 2010), J.D. Power and Associates set out to determine the one PHEV in the market, pricing for several more BEVs perceived drawbacks to specific types of AFVs. Research- and PHEVs has been announced, and there are several test ers found that while there are differences in degree and in programs utilizing fuel-cell electric vehicles), it has become rankings, the top reasons in all cases (HEVs, clean diesel, clear that initially these vehicles will cost more and in most PHEVs, and BEVs [fuel-cell electric vehicles were not asked cases provide a reduced user experience—based on range about]) were the so-called initial cost premium consumers and fueling convenience issues—than conventional ICEVs. attached to most AFVs and the perceived long-term cost of As a result, more recent studies have predicted relatively ownership (exclusive of the purchase price premium), which slow and low adoption rates for AFVs, typically—in the some respondents believed to be higher for an AFV than for aggregate—below 20 percent of the U.S. market by 2025 a conventional ICEV. (Humphries et al., 2010). In the case of BEVs and PHEVs, concerns about driving range on a single battery charge also ranked high. This should not be an issue with PHEVs because they can be driven using 4.8 BARRIERS their gasoline engines or engine-generators and are not solely Although cost and convenience are the most-often cited dependent on batteries, showing continuing consumer confu- reasons for anticipated low adoption rates, they are but are sion about the differences among the advanced powertrain two of several significant barriers to AFV adoption cited technologies. when consumers are asked to list, or to pick from a prepared Range also could be an issue with AFVs using com- list, those things that most concern them about alternatively pressed natural gas. The only factory-built model currently fueled vehicles (Table 4.3). All of these concerns must be in the market is the Honda Civic Natural Gas. Its design addressed via public policy and/or manufacturers’ marketing retrofits the CNG fuel storage and delivery system into a efforts if the best fleet mixes necessary to meet the goals set vehicle designed for petroleum-based gasoline. The pressur- out in the committee’s statement of task are determined—as ized tanks needed for the CNG occupy much of the vehicle’s indicated by the modeling results in Chapter 5—to be those trunk area and even then hold only the usable equivalent of requiring large numbers of AFVs. Such efforts will be needed 7.5 gasoline gallons. While the CNG Civic attains almost to help overcome objections to vehicles that at least initially the same EPA combined city-highway fuel economy rating could offer less performance, range, utility, and fueling as the gasoline model (32 mpg vs. 33 mpg), its smaller- capacity fuel tank limits its range to about 240 miles versus the gasoline Civic’s estimated range of 430 miles. However TABLE 4.3  Principal Barriers to Adoption of AFVs future CNGV are likely to be designed from the ground up Percent Respondents in Each Study and could better house larger fuel tanks, thus enabling them Reason That Could to deliver improved range. Citing Reason as a Concern Influence Purchase Decision of an Alternative- Auto Gauging Green The move to more efficient, lower-emission LDVs almost fuel Vehicle Techcast Interesta Autob Minetac certainly means that cars and trucks, regardless of the fuel source or powertrains, will have to be lighter than they are Cost vs. comparable NA 74 35 53 conventional vehicle today. Present and proposed federal Corporate Average Fuel availability NA 75 32 55c Fuel Economy (CAFE) policy is devised to enable larger Fuel cost 30 NA 17 46 vehicles to continue to meet the standards and does not Payback period 46 49 18 NA necessarily lead to downsizing of the fleet to go along with Performance 49 16 the lightweighting. But downsizing has occurred, principally Range (BEVs) 43 75 12 49 Refueling/Recharging 38 NA NA 55c for economic reasons stemming from the recession of 2008- time/convenience 2010 and subsequent slow economic recovery and prolonged Reliability 26 57 17 NAd period of high unemployment. While that raises concern Size/Seating capacity 17 33 NA NA among those who find that consumers today do not want to aGauging Interest responses are from U.S. participants only. give up size for efficiency, it might not be as big an issue in bGreen Auto responses are only from consumers who said they would the future. Sales of larger vehicles could begin climbing as not purchase an AFV. the economy improves in the future. But as younger consum- cMineta survey, by Nixon and Saphores, combines fuel availability and ers who today are in the used-car market or still are too young refueling time. dNA = Not asked. to be car purchasers begin replacing Baby Boomers and Gen- SOURCE: Data from Harris (2011); Ernst & Young (2010); J.D. Power Xers in the new-car market, there may be a generational shift (2011); Nixon and Saphores (2011). toward a preference for smaller cars.

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84 TRANSITIONS TO ALTERNATIVE VEHICLES AND FUELS In the past decade, according to sales data from online Both Edmunds.com and auto industry consulting firm automotive information provider Edmunds.com (see Fig- AutoPacific, Inc. track consumer consideration of compact ure 4.1), the U.S. market share for small cars—a category and subcompact vehicles. (Edmunds derives shopper consid- including compact and subcompact cars, vans, SUVs, and eration rates from details gleaned from consumer searches compact pickup trucks—has increased by 53 percent from on its website—repeated, lengthy, and detailed research into 20.3 percent in 2002 to 31.1 percent in 2011 (Edmunds.com, a specific model equates to “consideration” of that specific 2011); at the same time, the average price of a gallon of vehicle type versus casual browsing; AutoPacific uses a regular-grade unleaded gasoline has increased by 88 percent bimonthly internal online consumer intent survey that asks when adjusted for inflation. approximately 1,000 respondents what types of LDVs they For decades, sales activity for small cars and trucks are considering for their next purchase.) Each recently com- seemed to correspond closely to fluctuations in retail gaso- pared small-car consideration rates to fluctuations in gasoline line prices. But as Hughes et al. (2008) found in their study prices. Both indicate that while consideration rose sharply of gasoline price inelasticity, driver behavior triggered by and in lockstep with price run-ups in the first half of 2007 increases in gasoline prices has changed considerably in the and the last half of 2008, consumers may not be increasing past decade. Price run-ups may no longer lead as rapidly as in their consideration of small cars at the same pace in the the past to the behavior changes once commonly associated most recent series of gasoline price hikes, which began in with periods of unusually high gas prices—driving less and September 2010 (Figure 4.2). That data and the previously buying smaller and more efficient vehicles are two examples. mentioned small-vehicle sales versus fuel price data (see Fig- In addition, fleet fuel efficiency has increased in recent years, ure 4.1) appear to further validate the results of Hughes et al. dampening the impact of rising gasoline prices. Small vehi- (2008), but also could mean that while fuel price still matters, cles’ share of the LDV market keeps gradually increasing, but price increases have to be very large in order to elicit signifi- this could be a sign of increased general market acceptance cant movement toward smaller, more efficient vehicles. This as well as a reaction to several years of a weak national would mean that policies based on only modest increases in economy. It also could be related to the downsizing of aging fuel taxes or other fuel-efficiency related fees would be less Baby Boomers’ households and transportation needs. likely to succeed than policies such as CAFE standards, or Fuel Cost Compact Car Consideration $4.50 18.0% $4.00 16.0% $3.50 14.0% $3.00 12.0% $2.50 10.0% $2.00 8.0% $1.50 6.0% $1.00 4.0% $0.50 2.0% $- 0.0% Jul-07 Oct-07 Jul-08 Oct-08 Jul-09 Oct-09 Jul-10 Oct-10 Jan-11 Jan-07 Jan-08 Jan-09 Jan-10 Jul-11 Oct-11 Jan-12 Apr-11 Apr-07 Apr-08 Apr-09 Apr-10 FIGURE 4.2  Compact car consideration and fuel cost. 4.2.eps NOTE: “Normal” consideration level is in the range of 10 to 12 percent. Consideration spike in the period of February to September in 2009 corresponds to the U.S. “Cash for Clunkers” economic stimulus program in & Fuel Cost Compact Car Considerationwhich consumers received funds to apply to the purchase of new, more efficient vehicles in return for junking older, less-efficient models. SOURCE: Data provied by Edmunds.com Data Center; chart prepared for this report by Edmunds.com.

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CONSUMER ATTITUDES AND BARRIERS 85 fee systems aimed at making the use of inefficient and/or ing group of AFV purchasers, the so-called early adopters high-emissions vehicles prohibitively expensive. whose interest in and desire to possess advanced technolo- “People remember the gas (price) spike in 2008 and how a gies invariably make them prone to acceptance. Engineers lot of people panicked and downsized their vehicles, only to at Nissan Motor Company, for example, told the committee see (gas) prices drop. So now they are taking a wait-and-see that early Nissan Leaf owners were adapting to the Leaf’s approach,” said market researcher George Peterson, presi- characteristics in ways that mainstream buyers might not. dent of AutoPacific (personal communication with G. Peter- For example, the heating system on a BEV is a significant son, Troy, Michigan, August 25, 2011). He said the so-called drain on the battery charge, reducing range when in use. As tipping point at which consumers say they would change a result, many early Leaf owners have developed the tech- their new-vehicle buying goals and shop for more efficient nique of using the car’s seat heaters—which draw much less vehicles has steadily increased and now is about $5.50 a charge from the battery—rather than the cabin heater. It is gallon, up from $3 a gallon just a decade ago. Undoubtedly, uncertain whether a potential mainstream buyer would see the tipping point will continue to increase with economic that as a plus or a minus. recovery and improving fuel efficiency for ICEVs. 4.10  INFRASTRUCTURE AVAILABILITY 4.9  PEER INFLUENCE CRITICAL The availability of fuel, including battery-charging facili- Advanced alternative fuels and powertrains are still rare ties for BEVs, is also a major issue affecting consumer will- and consumers have had very little real-world experience ingness to acquire AFVs. There are so few of the vehicles with them. Thus there’s little solid information available to and so little infrastructure available at present that it is not help determine what consumers will accept in the way of possible to determine the necessary balance. One exception alternatives to gasoline- and diesel-fueled vehicles. is E85 fuel (which is a blend of 85 percent ethanol and 15 In fact, there is some concern that this lack of knowledge percent gasoline) and the “flex-fuel” vehicles built to use has led to confusion in the marketplace about the char- either gasoline or E85. There often is no financial incentive acteristics, values, and drawbacks of the various types of for the owner of a flex-fuel vehicle to purchase E85. While AFVs and has caused some degree of consumer paralysis a gallon of E85 may cost less than a gallon of gasoline, it (Synovate, 2011). Researchers on both sides of the country, delivers significantly fewer miles. however, have found that word of mouth can be a power- Earlier studies of consumer adoption in Canada and New fully influential tool, pointing to the potential value both Zealand of flex-fuel, or dual-fuel, vehicles using CNG as of public demonstration and deployment programs and of the alternate fuel found that the presence of refueling infra- public information campaigns. Axsen and Kurani argue structure was a significant factor in consumers’ decisions that the mere presence of greater numbers of AFVs on the to acquire such vehicles. Greene (1990) concluded after nation’s roads will increase both public awareness and public reviewing a Canadian government survey of consumers in acceptance as the real-world experiences of many drivers are the provinces of Quebec, Ontario, and British Columbia that communicated to friends, neighbors, family members, and a “substantial refueling network is a pre-condition for the co-workers (Axsen, 2010; Axsen and Kurani, 2011). Zhang markets accepting alternative fuel vehicles and . . . essential et al. (2011) found that positive word of mouth increases the if dual- or flexible-fuel vehicles are to use the new fuel a perceived value of AFVs and leads to a higher willingness significant fraction of the time.” In their study of buyers by consumers to pay a premium for them. Such studies show of CNG vehicle conversions in New Zealand in the 1980s, that getting AFVs into the market, even in small numbers, Kurani and Sperling (1993) found that successful achieve- would generate word-of-mouth reports that could help put to ment of the government’s goal of pushing 150,000 converted rest (although there is also the possibility that some will rein- vehicles into the market between 1979 and 1986 (that goal force) the negative concerns about barriers that appear to be was not met; the total number of conversions by 1986 was limiting AFV acceptance at this point. Price disparity, how- 110,000) depended in large part on two types of govern- ever, still can be a strong disincentive, as has been shown by ment subsidies: those that helped consumers defray or earn the slow market penetration of conventional hybrid vehicles, back the cost of acquiring the converted vehicles, and those which still account for less than 3 percent of the U.S. LDV that helped underwrite new CNG fueling stations so that market more than a decade after introduction. Consumers do consumers would perceive that a fueling infrastructure was not have many negative attitudes about hybrids any longer. being installed and that they would have access to the fuel. But because most HEVs still have a price premium when The CNG conversion program ended—dropping from 2,400 compared to comparably sized and equipped ICEVs, sales a month in 1984 to 150 a month in 1987—following a 1985 have risen and fallen with gasoline prices in recent years change of administrations that saw significant curtailment of but overall have leveled off in the range of 2.5 to 3 percent. government subsidies for the program. It should be pointed out again that these early positive From these studies and from consumers’ stated concerns reports are coming from a unique and generally accept- in the more recent studies cited earlier in this chapter, it is

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86 TRANSITIONS TO ALTERNATIVE VEHICLES AND FUELS clear that policies aimed at promoting increased use of AFVs facturers and a few ratings companies and analysts show that will have to address adequate provision of infrastructure. BEVs and PHEVs are thought to have lower lease residual values, an indicator of marketplace resale value. Pike Research analyst David Hurst estimated in 2011 that both 4.11 IMPLICATIONS the Nissan Leaf and the Chevrolet Volt would have residu- To painlessly achieve any necessary transition to alterna- als of around of 42 percent at 3 years—lower than either the tive light-duty cars and trucks, the new-generation vehicles popular Toyota Prius, which has a 60 percent residual value intended to replace petroleum-burning LDVs will have to at 3 years, or corresponding conventional ICEVs such as the provide utility, value, creature comforts, style, performance, Nissan Versa (a Leaf counterpart) or the Chevrolet Cruze (a and levels of convenience in fueling and repair and mainte- Chevrolet Volt counterpart), both at 52 percent (Hurst, 2011). nance service that closely replicate those of the liquid-fueled The relatively rapid rate of performance improvement and vehicles being phased out. They are going to have to fulfill cost reduction that is characteristic of some new technologies consumers’ needs and desires, or consumers will have to can both help and harm rapid adoption of AFVs, fostering a be presented with disincentives to continued purchase of larger market by lessening both cost and convenience barri- conventional ICEVs or offered various incentives to make ers. Rising production volumes for biofuels could bring down up for the things they perceive they would lose in a switch their costs and make them more widely available, similarly to an alternative vehicle or fuel. Most people do not want addressing two barriers in ways that can accelerate expanding to pay more for a green vehicle, and of those who are will- demand. Improved batteries and battery-charging rates could ing, most would expect fuel and other savings to recoup the help reduce or even eliminate BEV range anxiety, fostering a additional purchase expense over their period of ownership. larger market by lessening both cost and convenience barri- Boston Consulting Group recently found in a survey of 6,593 ers. Rising production volumes for biofuels could bring down consumers in the United States, Europe, and China that 40 their costs and make them more widely available, similarly percent of U.S. and European car buyers say they would addressing two barriers in ways that can accelerate expand- be willing to pay up to $4,000 more for an AFV but would ing demand. Improvements in materials and engineering expect full “payback” over the first 3 years of ownership could make it possible to produce AFVs that are competitive (Boston Consulting Group, 2011). Only 6 percent of U.S. with gasoline vehicles with respect to cargo capacity, towing respondents said they would be willing to pay a premium— ability, and other performance characteristics, and without the average was $4,600—without expecting to earn back the the cost premiums that would inhibit widespread adoption. money during their full ownership period (Boston Consulting Conversely, rapid rates of technology advancements could Group, 2011). inhibit diffusion beyond an early-adopter segment. Such So although consumers overwhelmingly say that they progress would hasten the obsolescence of earlier gen- want fuel efficiency and energy security, they have not dem- erations of an advanced AFV technology and also suppress onstrated a willingness to pay much extra for it or to accept residual values. For example, if ongoing improvements in inconvenience in order to attain it. Vehicle purchase price, the battery technology, such as steadily decreasing costs and ris- long-term cost of ownership, the time it takes to refuel, the ing performance, reduce the purchase price of a newer BEV availability and cost of fuels, and the perceived need to down- relative to older BEVs still operating within their battery life size and to surrender performance attributes such as speedy expectancies (see Chapter 2), then early AFV models could acceleration and cargo and towing capacity all are cited in depreciate more rapidly than is typical in the car market. This various studies as reasons people are not interested in AFVs. could lead to expectation among consumers of additional Some of this is due to lack of information, and studies such advances in the future, and a corresponding uncertainty about as those conducted by Axsen and Kurani (2011) and Zhang et how well new generations of BEVs would hold their value if al. (2011) have shown that word of mouth and demonstrated additional advances do indeed occur. This uncertainty could use by neighbors, friends, and relatives all have a positive inhibit purchases by consumers concerned about resale value impact on consumers’ willingness to consider AFVs. That, or could result in unfavorable lease terms. of course, requires getting the vehicles into people’s garages However, because of the time it takes for automakers to and onto the roads. bring new technologies into their fleets and for the national Some of these barriers, of course, are likely to change over LDV fleet to turn over, these barrier modifications would time. As additional advanced-technology vehicles are placed have to be in place by or before 2030 to have a great impact into service, public familiarity with and knowledge of their on the fleet in 2050. advantages, and will improve, perhaps mitigating perceived Absent a national emergency that requires consumers to disadvantages. AFVs also will develop a track record for abandon the gasoline or diesel ICEV, achieving the volumes resale value—a key component in determining overall cost needed to realize sufficient consumer acceptance in the early of ownership and one that is missing now because few of the years of a planned transition to AFVs is unlikely without vehicles have been in the market long enough to develop a significant government policy intervention. resale value history. Early estimates published by the manu-

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CONSUMER ATTITUDES AND BARRIERS 87 The simulations described in Chapter 5 suggest that the Caulfield, B., S. Farrell, and B. McMahon. 2010. Examining individuals’ types of AFVs that might be needed to achieve the desired preferences for hybrid electric and alternatively fuelled vehicles. Trans- port Policy 17(6):381-387. levels of petroleum and GHG reduction are those that Consumer Reports. 2011a. Survey: Cost Savings Are Driving Shoppers to initially will carry a large price premium because of their Better Fuel Economy. Available at http://news.consumerreports.org/ technology content. Once advanced vehicle technologies cars/2011/05/survey-cost-savings-are-driving-shoppers-to-better-fuel- have become widely diffused, the vehicles in which they economy.html. Accessed on May 30, 2011. are incorporated will become much closer in cost to the ———. 2011b. Survey: Car Buyers Want Better Fuel Economy and Are Willing to Pay for It. Available at http://news.consumerreports.org/ advanced “conventional” vehicles that then would be avail- cars/2011/05/survey-car-buyers-want-better-fuel-economy-and-are- able. In fact, the committee’s midrange case shows that both willing-to-pay-for-it.html. Accessed on August 12, 2011. BEVs and FCEVs could cost less than advanced ICEVs by ———. 2012. High Gas Price Motivate Drivers to Change Direction. May. 2050. (See Figure 2.8 in Chapter 2.) In addition, the superior Consumer Reports.org. Available at http://www.consumerreports.org/ energy efficiency of those alternative vehicles would return cro/2012/05/high-gas-prices-motivate-drivers-to-change-direction/ index.htm. more than enough benefit to consumers, in terms of reduced Crain, K., 2011. If you build it, they will come. Automotive News 85(April fuel consumption, to offset any cost premium that did exist. 4):12. The trick will be to persuasively convey this information to Deloitte Development LLC. 2010. Gaining Traction. A Customer View of consumers. Electric Vehicle Mass Adoption in the U.S. Automotive Market. New Accomplishing this is likely to require increased under- York: Deloitte Global Services, Ltd. Available at http://www.deloitte. com/assets/Dcom-UnitedStates/Local%20Assets/Documents/us_ standing of consumers’ attitudes about issues of sustainabil- automotive_Gaining%20Traction%20FINAL_061710.pdf. ity, climate change, and environment and of how to motivate Deloitte Touche Tohmatsu Ltd. Global Manufacturing Industry Group. consumers in these arenas. The President’s Council of Advi- 2011. Unplugged: Electric Vehicle Realities Versus Consumer Expecta- sors on Science and Technology has recently recommended tions. New York: Deloitte Global Services Ltd. 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