SAIC Says It Will Be In The Hybrid Game In 2011

The company is wrestling with how to cut its production costs on the vehicle, in order to cut the price tag for the end user. Currently, SAIC says that the cost of the car is 20% higher than that of its comparable conventional models. The company will invest nearly $1 billion in research and development for hybrid technology.

Company officials also backed away from their earlier claims that they were interested in an overseas acquisition of possibly General Motors or Chrysler. Instead, the company says it will concentrate on developing its position in the domestic Chinese market and meeting the Chinese government's request to produce 2 million vehicles with Chinese automaker First Auto Works (FAW). Earlier this year, SAIC suspended production at its British factory, based on a steep decline in demand for the company's vehicles.

The company says its January sales were up 7.6% from the same time last year, due in large part to heavy investment by the Chinese government. Officials say, however, that they expect to see an overall first quarter decline in sales of nearly 5 percent.

Photo Credit: Courtesy of SAIC Motor Co.

Aptera Close To Starting Production On EV

The Aptera 2e is a three-wheeled creature that seats just two passengers, and according to the company, will get more than 100 mpg and the company says the hybrid version, the Aptera 2h - available sometime in 2010 - will average more than 300 mpg. The company, whose assembly plant is in Vista, CA, will start cranking out vehicles with a very distinct profile in the fourth quarter of 2009. The vehicles will range in price from $25,000 to $40,000.

The company says that it has taken reservations for more than 4,000 vehicles to date and expects the Aptera to appeal mostly to tech-savvy men who are looking for a second or third vehicle. Initially, the company expects to produce about 10,000 vehicles per year and has plans to step up production to 100,000 units in the next two years.

Aptera is being fronted by Idealab, Esenjay Petroleum and Google.org, but its three-wheel design excludes it from eligibility for interest loans from the federal government for fuel-efficient cars. No matter, the company says; it has plenty of cash to fulfill its Q4 production. Aptera is still taking reservations for vehicles. To reserve an Aptera, visit the company Web site. You'll need to put down a $500 refundable deposit and be prepared to wait.

Now for the bad news: you can't buy an Aptera 2e unless you live in California. The company is working to get sales restrictions in other states lifted but has no timetable for expanded sales.

Photo Credit: Photo Courtesy of Aptera

Hybrid Repair Costs May Be Coming Down

According to the report, on average, the Toyota Prius' repair cost is higher, but when the data are isolated to individual model years, (2007 and 2008), the cost differential for repair of a 2007 or 2008 Prius is no different than the cost of a highly efficient gas-powered automobile. The largest repair differential is seen in the 2006 Toyota Prius.

It's difficult to conclude expressly that the repair cost of the Prius is dropping, relative to other vehicles, since the Audatex data show that two-thirds of the Prius claims in 2008 involved vehicles in the 2006-2008 model years, compared to just 44% of gasoline-powered vehicles that had insurance claims in 2008.

One reason that the cost of repairing a Prius in 2007 and 2008 is dropping may be that the number of Priuses sold in the US has increased substantially since 2006. The higher production volumes make the cost of producing replacement parts in volume lower. In fact, the study shows that large increases in the cost of repairs can be attributed to frequent design changes that aim to reduce vehicle weight or improve the performance of the hybrid drive train.

Parts that are specially adapted for hybrids can come with a premium. Changes in the appearance of the vehicle – even minor ones – can add a substantial premium to the cost of a cosmetic repair because replacement parts for vehicle redesigns have not yet achieved price breaks from high volume production.

Sheet metal work on hybrid vehicles takes longer than on conventional gasoline powered vehicles, and labor rates for that service are slightly higher. This is explained in part by the distribution of hybrid vehicles around the country. Along the East and West coasts, labor rates are higher because the cost of living is higher. In areas where hybrid distribution is low, the cost of skilled labor needed to work on hybrids can be attributed to relative scarcity.

Audatex notes that the vast majority of insurance claims are for crash damage repairs, rather than mechanical failures, and Toyota noted that no Prius battery packs have been replaced due to malfunction or age-related deterioration.

Big-Box Retailer Elektra Figures Into Chinese Auto Sales Plan

The issue of the dealer network is key, as Tesla and Fisker are finding out. Both of these companies are attempting to build their dealer network right now. Tesla has a few California sales spots, but consumers want to see the cars before they plunk down $100,000 (give or take ten grand) to get them into their driveways.

It takes someone very special to sell a car to a car dealer, especially in today's economy. Right now, dealers are up to their eyeballs in cars that consumers are afraid to buy. So the answer for the Fiskers and the Teslas and the BYDs of the world is critical. No dealers means no sales.

Or does it?

GS Motors CEO Kathleen Ligocki says that she expects her company to be at the forefront of the Chinese invasion. GS Motors will begin producing Chinese vehicles from the First Auto Works at GS Motors' factory in Michoacan, Mexico in 2010. According to Ligocki, the factory has an annual production capacity of 100,000 units.

But what about the dealers? To borrow a phrase from Tony Soprano: fuggetaboudit. In an interview with Automotive News, Ligocki says that she expects the Chinese to transplant their Mexican sales model to the US.

And exactly what is that?

The company uses both independent agencies like traditional car dealerships, and "mini-agencies" located inside Elektra stores, a Mexican retail chain. Big-box retailers, you know…like Wal-Mart or Costco. Right inside the store…

To date, the FAW has sold about 4,000 imported vehicles in Mexico using this distribution model and Ligocki is confident the model will transfer to the US market. So what secret weapon will the Chinese be using in their bid for automotive domination?

Women.

Men like going to the independent agencies to buy their vehicles. Women, on the other hand, like purchasing cars in the retail environment they're familiar with. Women directly purchase nearly half of all vehicles sold in the US and influence the purchase of a whopping 80 percent of every vehicle that leaves the factory.

Ligocki also says that the first GS Motors vehicles will retail for between USD $5,500 and USD $9,000, and will travel north of the border in five years or less.

Source: Automotive News
Photo Credit: Ryan Jesena

Hybrid Sales Aren't Keeping Automakers Afloat

Average gas prices in January remained below $2 in most parts of the US, reducing consumer drive for hybrid vehicles even farther. Automakers are now increasing buyer incentives to purchase hybrid vehicles, something not seen as late as last summer, when dealer inventories of hybrid vehicles were non-existent. Currently, consumers are seeing average incentives on hybrid vehicles of about $1,000, while average incentives on conventional vehicles are declining. So far, that approach hasn't worked very well. Most manufacturers reported even sharper-than-overall declines in sales of hybrid vehicles during the month of January.

Most of the major automakers have reported steep production cuts and have idled factories in an effort to soak up excess inventory of new vehicles. In addition, the automakers are partnering with banks and credit unions to extend low-interest financing on new car purchases.

One element of the stimulus plan may help. The Senate briefly considered adding a provision that would offer vouchers to car buyers who trade in any vehicle older than 10 years for a newer car that achieves at least 25 mpg, and would have to get at least 5 miles more per gallon than the trade-in. The provision was subject to income limitations of $75,000 and excluded households that owned more than two vehicles. The proposal, originally offered by Sen. Debbie Stabenow of Michigan and Sen. Tom Harkin of Iowa, was pulled amid concerns of the mushrooming bailout bill, now said to exceed $900 billion.

Another proposal still under consideration offers vouchers of up to $4,500 for owners who trade in less fuel-efficient vehicles for ones that achieve substantially better fuel economy. That proposal has come under fire by the UAW, which says that the proposal promotes the sale of foreign vehicles.

Photo Credit: Tracy Apps, via Flickr

Battery Debate May Be Academic

For environmentalists and consumer advocates, the batteries in a hybrid car are potentially dangerous to the environment, not to mention that they're insanely expensive and have a historical tendency to explode. (To be fair, you can also get a conventional lead-acid battery to explode, compliments of gases that can escape the battery.)

For protectionists and policy advocates, battery production capability needs to be local. Most auto batteries are made in Asia right now, and some people are concerned that a massive foray into electric and hybrid electric vehicles would mean that North America and Europe are just trading dependence on foreign oil for dependence on foreign batteries.

In short, batteries had better be powerful, safe, cost-effective and readily available. From a technology perspective, Li-ion batteries provide the best energy density (balanced with safety and cost) of the current battery formulations on the market.

Unfortunately, one of the primary components of Li-ion batteries – lithium – isn't widely available. In fact, lithium is the least common of the first twenty elements on the periodic chart. Lithium is widely distributed around the Earth, but the concentrations of the metal in its elemental form are extremely low. Small amounts of lithium are found in rocks, the oceans and other geological formations, but these are not readily accessible. The largest known deposit of lithium, which accounts for about half of the world's reserves, is found under the salt flats of Bolivia.

The major automotive and battery manufacturers that have approached Bolivia regarding the possibility of tapping into the country's lithium reserves have all been sent away empty-handed. Bolivia isn't particularly interested in parting with its lithium without getting something really, really good in return. What Bolivia really wants in exchange for its lithium is to become a star on the world's geo-political scene. And that, according to Bolivian president Evo Morales, is non-negotiable.

For now, the world's supplies of lithium are coming from Argentina, Chile and Tibet, but the availability of lithium itself, perhaps moreso than the location of the worlds Li-ion battery production facilities, will drive automotive battery design, cost and the speed at which the automotive industry can move away from petroleum for years to come.

Photo Credit: Bionerd, via Flickr

The Real Impact Of Stricter Emissions Regulations

For automakers - both foreign and domestic - the challenge is to meet more stringent emissions regulations in the timeframes that some states are proposing. The question of how to balance the inclusion of more fuel-efficient technologies into the automotive design cycle has long vexed the automakers. Most vehicles have a 3-5 year design cycle from concept to production.

Generally, technological advances are incorporated into vehicles gradually, allowing manufacturers and their suppliers to make the necessary investments to support newer production requirements. Newer technologies also typically come with higher production costs. Traditionally, vehicle makers have introduced the latest technology into their premium lines, where the cost of advancement is better borne by upscale purchasers.

With the slowdown in the economy, car makers are taking hits on many different fronts. Research and development dollars have been slashed from budgets, meaning that fewer technological advances are being put into production. Consumers and legislators are demanding smaller, more fuel-efficient cars, which have lower profit margins. The reduced income means that the manufacturers have less cash on hand to modernize production facilities, fund research and development, and push new technologies into less expensive product lines.

Further, technologies that will help reduce greenhouse gas emissions are very expensive, and while they may be attractive to consumers, 8 of 10 consumers aren't willing to pay more for environmentally friendly vehicles. In the near term, the automakers may be better served by concentrating on improving the efficiency of internal combustion engines as a quick way to reduce emissions.

Much of the gains in fuel efficiency are coming from reducing the weight of a vehicle. Currently, after the engine, the second heaviest component in a vehicle is the wiring harness. Automakers are looking into small scale electronic controls and multi-function chip controllers to reduce the weight of the harness, and still include the required and desired technologies that regulators and consumers are both looking for.

The intermediate term tradeoff for lower emissions may be fewer model choices. Carmakers may need to concentrate on technologies that will meet legislative requirements first and consumer preferences second. Initially, this may have a negative impact on vehicle sales, and may force consumers to keep older, less-efficient cars on the road for longer periods of time.

In the long term - perhaps as long as 20 years - automakers will develop more fuel-efficient, safer and more environmentally friendly vehicles, but they also need the cooperation of individual states to balance emissions targets with the realities of the technological developments that can make those targets a reality.