Alternative Fuel Automobile Sector

1. Alternative Fuel Automobile Sector Tabitha Kastner Lester Mooney Nate Ramirez Peter Sitton Lea Ann Hart-Chambers Tyler Redden

2. Define Sector • The sector focus is on alternative fuel automobiles • Automobiles that do not solely depend on gasoline or diesel • With in the sector of alternative fuel automobiles we will be focusing on the Gas/Electric Hybrid cars • The Gas/Electric Hybrid cars are starting to become a new trend in automobiles and also becoming popular among consumer.

3. Major Competitors within the Sector

4. Toyota- Overview Toyota has been the best success story as far as hybrids are concerned. Their Prius was the first hybrid to go into mass production, and claimed well above half of the market share in 2005. They offer a Highlander hybrid SUV and they have plans to introduce a Sienna hybrid minivan in 2007.

5. Toyota Strengths • They hold most of the market share of hybrid cars and because they mass produce their hybrids they will be able to take better advantage of economies of scale • The Prius has dominated the market and has almost become synonomous with the word “hybrid” giving Toyota brand name equity towards the hybrid market

6. Toyota Weaknesses • There is such a high demand for the Prius that Toyota now has a waiting list close to six months before you would actually have the car in your possession • As other companies are coming out with new hybrid models. Toyota has used the 2004 Prius to satisfy the 2005 model which may leave some customers unsatisfied with the options available from Toyota.

7. General Motors- Overview GM has launched a hybrid propulsion program that is targeting the highest fuel consuming vehicles first such as transit buses, full size trucks, and SUVs. They have delivered more than 345 hybrid-power buses to 22 U.S. cities. If that number reached 1,000 than the annual savings for the U.S. would be more 1.5 million gallons of fuel. They will have a mid-size vehicle hybrid option available to consumers in 2007.

8. General Motors Strengths • They have teamed up with cities to help reduce pollution, and therefore developed a relationship with the government which will help their market share as new fuel-efficient technologies come about • They offered the worlds first full-size hybrid truck in 2004 when the Chevrolet Silverado hit the market with an estimated 10% improvement in fuel efficiency

9. General Motors Weaknesses • They have fallen behind in offering a hybrid model car which may cost them market share when they attempt to launch the hybrid Chevrolet Malibu in 2007 • Even though they are the only company who offers a hybrid truck the technology can easily be imitated and it will not provide a sustainable competitive advantage

10. Honda - Overview Honda was the first automobile manufacturer to launch a gasoline / electric hybrid in the United States with the debut of the Insight. The Insight is still the most fuel efficient vehicle in the two seater class. Honda has also debuted hybrid versions of the Civic and Accord models.

11. Honda Strengths • First to launch a gas electric hybrid in the United States. • Maintain some of the highest fuel economy numbers in the market. • Combine power, luxury, and fuel economy with the Accord Hybrid

12. Honda Weaknesses • Do not offer a sport utility hybrid as of yet • Honda Accord is one of the more expensive hybrids with the price starting above $30,000 • No plans to develop any other models of hybrids in the near future.

13. Ford-Overview Ford currently offers two hybrid vehicles, the Mercury Mariner and the Ford Escape. Both of these vehicles fall into the sport utility category, but plans are definitely in the works to debut a pickup with the Ranger Hybrid.

14. Ford Strengths • First company to release a hybrid SUV in America • Ford Escape has beaten the EPA estimates of fuel economy in testing situations • Escape Hybrid was named the North American truck of the year in 2005

15. Ford Weaknesses • Immobility of the hybrid SUV as seen with the Lexus and Toyota hybrid SUV’s being released this year • Do not offer a hybrid car, and this may cost them the market of buyers who do not need SUV’s

16. Macroeconomic Impacts

17. Dominant Economic Traits • Growing sector • Global market • High barriers to entry – capital intensive • Threat of rivalry – Honda vs. Toyota • Threat of substitutes – other fuel efficient cars that cost less • Threat of buyers – lots of car choices

18. Market Size • Hybrid cars are a growing sector, but still less than 1% of all vehicles in use. • 88,000 hybrids sold in 2004 • 92,738 sold in first half of 2005

19. Market Growth • U.S. car market: 2% growth annually • Hybrids 2000-2004:111% growth annually • Estimates: Sales plateau at 3% in 2010 OR 80% of car sales by 2015

20. How fast are hybrids growing?

21. Competitive Rivalry Compacts & Sedans Toyota vs. Honda SUVs Toyota vs. Ford

22. International & Domestic Issues • Gas Prices If we raise fuel efficiency standards in American cars by 7.6 mpg we would save enough to eliminate 100% of our gulf oil imports into this country. • Tax Deduction for hybrids $2,000 in 2005 and $500 in 2006 • Pollution and the environment

23. Sector Health/Vitality

24. Porter’s Competitive Forces • Threat of New Entrants • Growth Niche; many are entering • Threat of Substitutes • Regular Fuel Vehicles with MPG +30 • Other Alternative Fuels: CNG, LNG, Bio-Diesel, EV • Threat of Buyers • Currently more buyers than vehicles driving the market • Threat of Suppliers • Not much price competition for special HEV components • Threat of Industry Competition • Overall in auto industry this is huge • Toyota currently dominates hybrids – others are chasing

25. HEV Appeal • Hybrids are a growing niche in the auto market – competition is gearing up based on demand factors and consumers have been so far willing to pay more for green vehicles • Buyer demographics from JD Power Survey • Innovator - Early Adopters (but a little older than avg.) • Higher level of education • Higher income avg.$100,000 • Females are a bigger share of group • Betting that fuel will continue upward trend • Want to help environment • Drive less and keep their cars longer

26. HEV Success Factors • Differentiation – Appeal to niche buying demographic; then to mainstream • Price of Oil/Gasoline - MPG • Lower Emissions – Green • Mass Production - Price of Vehicles/ Competition amongst automakers • Quality – Dependability – Reliability on par with traditional vehicles

27. HEV Competition • Current Players Recap • Toyota • Honda • Ford • Future Competitors – Jumping in later this year • GM (Now in California, Washington, Oregon, Nevada, Alaska and Florida. ) • Daimler- Chrysler • 2005 - 2008

28. Comparison of Firms

29. Comparison of the Automakers

30. Opportunities & Issues • Economies of Scale are not yet fully in effect in this market • Tax incentives may continue or be curtailed • Growth – all lines don’t have HEV options • Minivans, Large Trucks, Vans, Luxury Cars • Many hurrying into niche to compete • Consumer prices should drop • Continued growth forecast in U.S. expected to continue (J.D. Power) • 0.5% sales in 2004 – projected at 3.5% by 2012

31. Opportunities & Issues • Possible backlash from environmental groups against makers of those making hybrids only for the power boost could taint appeal • Gas Prices driving market could plateau or drop • Competition from Turbo-Diesel and Bio-Diesel • J.D. Power estimates that this market will grow to 7.55 of U.S. by 2012 • Hydrogen fuel/fuel cell vehicle development could make for a short lived market • Testing is already underway, but fueling and supply issues remain • Buyers concern over “special needs” vehicle maintenance and higher cost may slow market adoption

32. Future Issues

33. Future Issues • Drivers for change: • Decreasing amount of Oil available, Worldwide • Non-renewable resource • Increasing Gas Prices • Global Exchange, in partnership with Rainforest Action Network, is asking Ford and its competitors to improve the efficiency of their vehicles to 50 mpg by 2010 • Jump Start Ford Campaign

34. Remote Environment • Remote • War in regions of the world that have majority of oil reserves • New Oil Reserves discovered • Driving a hybrid car is one way to take a real step toward reducing our dangerous addiction to oil.

35. Competitor Movements • GM and DaimlerChrysler, reformed hybrid “Naysayers,” signed a strategic alliance December 2004 to develop hybrid gasoline-electric engines together. • Volkswagen, Down on hybrids: “We are not interested in making cars which don’t make money. • Toyota’s commitment to minimizing the environmental impact and maximizing quality at every stage of the vehicle's lifecycle—from production, through use, and disposal—is viewed as an integral part of 'kaizen', (continuous improvement).

36. Future… • The number of hybrid electric models on the market is expected to increase from 10 in 2005 to 44 by 2012 • The number of diesel models is expected to grow from 14 to 26. • Saturate the market • Economies of Scale • Increasing Production of Hybrid Models • Price and cost will go down.

37. Impacts of Change • Will there be one superior technology • (VHS vs. Beta) • Hydrogen fuel cell • Diesel or Diesel/Electric • Gas/Electric Hybrid • GM and Daimler-Chrysler Alliance • Build an industry standard? • full hybrid, mild hybrid, plug-in hybrid, parallel hybrid and serial hybrid...

38. Moving Forward ->> • US Consumption spurred on industry change toward alternative fuel autos. • “Hybrid cars already exist as commercial products and are available to cut pollution now. On the other hand, fuel-cell cars are expected on the same schedule as NASA's manned trip to Mars—and have about the same level of likelihood.”

39. Sources • Common Dreams News Center: http://www.commondreams.org/ • The Detroit News: http://www.detnews.com/2005/autosinsider/0507/25/0auto-258263.htm • Fuel prices connection: http://home.businesswire.com/portal/site/google/index.jsp?ndmViewId=news_view&newsId=20050627005270&newsLang=en • Hybrid Cars.com: http://hybridcars.com/ • J.D. Power and Associates: http://www.jdpower.com/news/releases/pressrelease.asp?ID=2005086 • General auto industry good stuff Standard & Poor’s: http://www.netadvantage.standardandpoors.com/NASApp/NetAdvantage/login.jsp?url=/NASApp/NetAdvantage/showIndustrySurvey.do?code=aup • Good hybrid information including current sales data and split: http://www.greencarcongress.com/2005/07/hybrid_sales_in.html • Growing competition & market segmentation: http://www.detnews.com/2005/specialreport/0501/09/B01-54328.htm • Market growth – hybrid effect on US market: http://news.kypost.com/apps/pbcs.dll/article?AID=/20050518/BIZ/505180398/1014/NEWS02

40. Sources Cont. • Sales and future forecast of hybrid & diesel sales: http://www.cnn.com/2005/AUTOS/06/28/bc.autos.hybrids.reut/ • Star Tribune Newspaper: http://startribune.com • Toyota already looking to differentiate: http://www.aiada.org/article.asp?id=44803 • Toyota’s hybrid expansion strategy: http://waw.wardsauto.com/ar/auto_hybrid_expansion/index.htm • The Washington Post: http://www.washingtonpost.com/ac2/wp-dyn/A9389-2004Dec17 • Wired Magazine: http://www.wired.com/wired/archive/12.09/start.html?pg=2