Is what’s good for the affluent also good for consumer fuel choice?

Rodin3.jpgYou and I want to be called rational. We want to believe that with solid analysis, most things are predictable by smart people in this complex world of ours. Are they? I thought about this after reading a recent interview with a noted futurist at Mercedes-Benz, Eric Larsen.

My conclusion, based on his view of the future of cars and transportation fuels, is that his thinking — while provocative — is too tidy, often too rational and many times likely wrong. His comments brought back the words of Matthew Arnold, “We do not do what we ought; what we ought not, we do; and lean upon the thought; that chance will bring us through” – a variation on chaos theory.

Let’s together go through some of Larsen’s views, which, at times, I have taken the liberty to paraphrase or summarize (fairly, I hope).

Larsen: Continued suburban growth, wealth and American family needs will support and create demand for large vehicles.

In making an argument for large cars, Larsen indicates that the suburbs will be around for a long time and that young people will want children and home-based lives, with lots of space around them. They will fill up a car with kids, dogs and stuff from big-box supply stores. That means people will still want big cars. Conversely, rich people want luxury, based on their income and their desire to show off. He indicates, In our new AMG model we have an idea of, one man, one engine. Although he doesn’t use the term, according to Larsen, wealthy people are somewhat schizoid. They want to show they care about the world, and to do this many often buy the more-expensive Prius or provide a niche market for Tesla. But they go back and forth between doing good and doing what their wealth permits and their status seems to generate, a desire for big, technologically contemporary cars. Wealth is so tough to manage! No wonder psychiatrists charge big bucks.

Kaplan: While America’s love for the big car remains a legacy of the good ‘old days when gasoline prices were low for long periods of time and incomes were growing – contrary to Larsen – habits, income and demography seem to be changing slowly, but nevertheless changing, and the result may lead to less suburban growth, more atypical families and less income for gasoline, particularly among low and moderate income families. In this context, smaller cars that behave more parsimonious with gas will likely show a visible uptick in sales, over time. Ladies and gentleman, place your bets on where prices will be in one, two, three or more years out. Make a fair guesstimate on trends concerning vehicle popularity and fuel use (your guesses will be no worse than what the experts predict). The odds are that gas prices will return to their “normal” highs and smaller cars that use alternative fuels will take a larger share of the market.

Larsen: Fracking has been a strong influence, keeping gas prices low.

Kaplan: Sure, fracking has led to higher levels of oil production in the U.S. and softened the market for gasoline, but lower prices (already on the rise again) relate to much more than fracking. They include: lower consumer demand, increased global supply of oil, the changing value of the dollar, the decision of the Saudis to avoid lowering production and to keep prices low to secure increased market penetration, etc. Most frackers did not anticipate the recent significant drop in the cost to consumers at the pump. Quite the contrary!

Larsen: Internal combustion engines are getting better mileage.

Kaplan: Yes, they are getting better mileage, thanks in part to CAFE standards and thanks in part to technology. New cars also emit less pollutants and GHG emissions. So what’s the rub?

Internal combustion engines using gasoline are likely to always generate more pollutants, and more GHG emissions than the alternative fuels now on the market. Dependence on gasoline because of reliance on non-flex-fuel internal combustion engines will also continue to lead the United States into military conflict to safeguard our own and our allies need for oil. Big cars pushed by Larsen, for the most part, continue to be gas guzzlers. Larsen is right to suggest that use of alternative fuels, including natural gas and electricity, instead of gasoline in bigger and newer luxury cars will help mitigate their present negative environmental, economic and security impacts. I am sorry he didn’t extend his comments to converting older big cars to flex-fuel status so they could use other alternative fuels that he seems to favor.

Larsen: [In context of his support of larger cars] natural gas is a cleaner fuel and easier to install from a technical point of view.

Kaplan: Larsen’s comment is basically correct for new cars and cars aimed at a luxury market. The fuel is cleaner than gasoline and installation of CNG equipment, when building a new car from the ground up, is not difficult. However, CNG, at the present time, adds about $8,000 or more to the price of a vehicle – whether new or converted – which prices them out of the market for most low- and moderate-income families.

Thanks to the leadership of the governors of Colorado and Oklahoma, a bipartisan demonstration is going on in 22 states. It focuses on replacing older state cars in fleets with Detroit-produced CNG vehicles. One of the key objectives of the effort is to see if building demand among states can get Detroit to develop a CNG fueled car that fits the budgets of more than just a relatively few Americans.

An equally promising initiative that would convert natural gas to ethanol is now being considered by both business, political, and foundation leaders across the nation. Ethanol, while not perfect, is a better, cheaper and more environmentally friendly fuel than gasoline. Its use requires a flex-fuel vehicle. Together, both will meet Mr. Larsen’s priorities. They will clearly reach the pocketbooks of the rich and famous. Happily, although not apparently Larsen’s major concern, both together will also reach the budgets of many low- and moderate-income households.

Larsen: Refueling with gasoline takes five minutes, once a week. People have anxiety about running out of fuel with electric cars. Tesla, cities and garages are building charging stations. But will they be sufficient?

Kaplan: Electric cars will become more popular as the price comes down, batteries provide fuel for longer driving distances, more infrastructure is developed by the private sector. Larsen’s question, if electric cars become popular, are they really going to put a charger in every space in the garage, is a bit specious. Not every corner has a gas station and not every space in a garage needs to include a charging station. Greater mileage from batteries on a single charge will generate (excuse the play on words) the ultimate distribution of charging stations in garages and, indeed, on roads and freeways.

Larsen: Hybrids can do well in the suburbs, where everyone could have a charging station in the garage, with rooftop solar panels to produce electricity.

Kaplan: Clearly, Larsen would not be a good candidate for a coming-back-to-the-city initiative. Indeed, his apparent views do not fit the movement back to cities at the present time on the part of many diverse households in America. Irrespective, someday soon, solar panels will charge stations in different locations to fuel hybrids and electric vehicles. If panels succeed in the suburbs, they can also succeed in cities (please try singing to the tune of “New York, New York” … if you can do it here, you can do anywhere). The sun has not been appropriated by suburbanites.

Larsen works as research director at Mercedes, which probably colors his views of urban America, the demand for luxury cars and fuel options. His perceptions of where we are as a nation regarding alternative fuels is narrow and seemingly limited. But he has raised some interesting observations related to the roles of demography, place of residence, and income to car buying and consumer choices regarding fuels. I wish he was less dogmatic, more expansive and less riveted intellectually by his experience at Mercedes. We need to introduce him to chaos theory and more alternative fuels.

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