Fuel Economy: How Will Consumers Respond?

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1 Fuel Economy: How Will Consumers Respond? Julie Becker Vice President Environmental Affairs Alliance of Automobile Manufacturers Asilomar Conference August 2015

2 Number Of Models Investment = Great Product in the Showrooms MPG 40+ MPG Models Achieving 30+ MPG and 40+ MPG 700% Model Year Source: fueleconomy.gov

3 How Much Improvement is Necessary? Source: 2015 WardAuto Fuel Economy Index Improvement Required for CAFE Standards Small Car 20% 44% Crossover 36% 64% Midsize Car 20% 44% SUV 46% 75% Large Car 48% 77% Van 29% 56% Luxury Car 41% 70% Pickup 26% 52% Car Total 25% 50% Truck Total 34% 61% All light vehicles % 57%

4 Consumers Like What They See Compared to 10 Years ago QUALITY SAFETY TECH FUEL ECON Much Better Somewhat Better Source: Auto Index 2015 National Tracking Poll of 5K Monthly Slightly Better BETTER SAME Slightly Worse Somewhat Worse Much Worse WORSE

5 And We Are Marketing Fuel Efficiency When you see advertisements from Automakers, how often does the company provide information on fuel economy? 41% Ads almost always include information on fuel economy 39% Ads sometimes include information on fuel economy 7% Ads rarely or never include information on fuel economy 7% You don t pay attention to information on fuel economy 5% Not sure Source: Auto Index 2015

6 Shoppers Decide Before Visiting Dealer Today, consumers can choose from 14 models of battery electric vehicles and 11 models of plug-in hybrid electric vehicles with more on the way. Sales are up, but in 2014 electric vehicles were only 0.73% of new car sales nationwide (120,215 out of million). 86% of new car shoppers decide their next car s fuel type BEFORE visiting a dealership 59% view a car dealership primarily as place to COMPLETE A TRANSACTION once a purchasing decision has been made 58% DO NOT see the role of a new car dealer to encourage the purchase of alternative powertrains Source: Auto Index 2015

7 What the NAS Panel Said About Understanding Consumers The most reliable information about consumer preferences comes from surveys of drivers who have made a recent new car purchase. One such survey, conducted by Strategic Vision in 2013 of over 300,000 new vehicle buyers, found that while consumers value fuel economy, most do not consider it the most important attribute.

8 The Consumer Perspective is Complex and Multi-Dimensional Customer Priorities & Preferences (% Strongly Agree) SUPERIOR HANDLING COMFORTABLE RIDE QUIETEST INTERIOR FUEL ECONOMY CAPABILITY TO OUTPERFORM OTHERS LOOK GOOD WHEN DRIVING VERSATILITY IN INTERIOR PRICE TOW HEAVY LOADS ENVIRONMENTALLY FRIENDLY 10% 8% 34% 32% 29% 27% 24% 20% 42% 41% Source: Strategic Vision

9 Rank of 92 Purchase Reason Percentage 1 Overall Value for the Money 68% 2 Overall Safety of the Vehicle 67% 3 Braking 66% 4 Front Visibility 66% 5 Price/Deal Offered 63% 8 Overall Durability 61% 9 Overall Driving Performance 60% 10 Warranty Coverage 59% 11 Overall Impression of Reliability 59% 14 Driver Seat Adjustability 55% 15 Fuel Economy/Mileage 54% Source: Strategic Vision 67 Overall Environmental Friendliness 35%

10 What the NAS Panel Said About Understanding Consumers There is evidence that consumers will not widely adopt technologies that interfere with driver experience, comfort or perceived utility even for large improvements in fuel economy. A challenge in meeting the CAFE/GHG standards in lies in what further improvements can be gained from the internal combustion engine. Failing that, vehicle manufacturers may encounter significant barriers in marketing new, consumer-facing technologies, especially those with perceived or real trade-offs in vehicle utility, such as driving range for limited range [BEVs].

11 Aspirational Interest in Alternative Powertrains Diminishing 80% 70% 60% 50% 40% 30% 20% 10% 0% May '12 July '12 Source: Auto Index What Type of Engine Will Your Next Vehicle Be Powered By? Sept '12 Gasoline Hybrid Diesel Electric Not Sure (37) Remarkable consistency over three years Subtle increase in preference for gas (50) Subtle decrease in preference for hybrids Nov '12 Jan '13 Mar '13 May '13 July '13 Sept '13 Nov '13 Jan '14 Mar '14 May '14 July '14 Sept '14 Nov '14 Jan '15 Mar '15 May '15

12 What the NAS Panel Said About Understanding Consumers There are a range of theories and explanations for why consumers may or may not value lifetime fuel savings It is important to resolve these issues because they will affect the costs and benefits of the rule.

13 January February March April May June July August September October November December January February March April May June July August September October November December January February March Hybrid Vehicle Sales (% of sales) Price Of A Gallon Of Gas Gas Prices Absolutely Impact Behavior Here on Hybrids Retail Market Share Of Hybrid And Gas Prices: Hybrid Sales Gas Prices $3.80 $3.60 $3.40 $3.20 $3.00 $2.80 $2.60 $2.40 $2.20 $2.00 Source: EIA, RL Polk

14 January February March April May June July August September October November December January February March April May June July August September October November December January February March Units Sold Price Of A Gallon Of Gas And Here on Choice of Vehicle Segment 750K 700K 650K 600K 550K 500K 450K 400K 350K 300K Retail Sales Of Cars And Trucks By Gas Prices Cars Trucks Gas Price $4.00 $3.50 $3.00 $2.50 $2.00 $1.50 Source: WardsAuto Group EIA

15 Units Sold Sales of Alternative Powertrain LDVs 600k 500k 400k 300k 200k 100k k Sales Numbers and Percentage of Total Sales Volume 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Hybrids Plug-in Hybrid Electric Hydrogen Percent All Volume Source: WardsAuto Group

16 Based on Data from IHS Automotive

17 What the NAS Panel Said About Understanding Consumers How much consumers actually value increases in fuel economy in new vehicles is critical to evaluating the costs and benefits of fuel economy and greenhouse gas standards, but the scientific literature does not provide a definitive answer. The report concludes that agencies should do more research on consumer valuation of fuel economy and other vehicle attributes, and consumer response to unfamiliar technologies in the vehicle market. - NAS News Release