Vehicle Technology and Consumers Focus on the Future Automotive Research Conferences John German American Honda Motor Co., Inc. November 10, 2008
Three powerful forces define Honda s compliance strategy 1. Honda s philosophy 2. The marketplace 3. Regulators at both the federal and state level
Honda wants to be a company that society wants to exist Genuine concern for environmental and safety issues High targets, Challenging Spirit Pursuit of new technology Solutions that also satisfy customer needs
Wide FE Technology Application 2006 Model Year Data from the 2006 FE Trends Report, US EPA MPG (adjusted combined) 34 30 26 22 18 Civic Accord CR-V Element Pilot Industry Average Odyssey Ridgeline 14 small car midsize car large car small SUV midsize SUV large SUV midsize vans large vans small pickup midsize large pickup pickup *Pilot is larger and heavier than average mid-size SUV: 4750 ETW versus 4264 average
Honda Hybrid Vehicle Development 4th 1st Hybrid Technology Expanded to our volume leader vehicle 2nd Nov. 2005 3rd Higher power added to increase use of hybrid vehicles Dec. 1999 Mar. 2002 Enhanced Fuel Economy for V6 engine Dec. 2004 4
Three powerful forces define Honda s compliance strategy 1. Honda s philosophy 2. The marketplace 3. Regulators at both the federal and state level
$4.50 $4.00 $3.50 $3.00 $2.50 $2.00 $1.50 $1.00 $0.50 $0.00 Real Gasoline Price Real Gasoline Prices (2008 $ per gallon) 1950 1960 1970 1980 1990 2000 Motor Gasoline Retail Prices, U.S. City Average, adjusted using CPI-U Jun 08 $4.07
Fleet Fuel Economy $4.50 Real Gasoline Prices and In-Use Fleet MPG (2008 $ per gallon) 35 $4.00 $3.50 $3.00 Real Gasoline Price Car mpg 30 25 $2.50 $2.00 20 15 MPG $1.50 $1.00 $0.50 Car + Light Truck mpg 10 5 $0.00 1950 1960 1970 1980 1990 2000 In-Use MPG from Transportation Energy Data Book: 2007 0
Gasoline Cost per Mile $0.22 $0.20 $0.18 $0.16 $0.14 $0.12 $0.10 $0.08 $0.06 $0.04 $0.02 $0.00 Real Gasoline Cost for Cars - Cents per Mile (2008 $ per gallon) 1970 1975 1980 1985 1990 1995 2000 2005 Jun 08 $4.07
Real Fuel Cost - % of Disposable Income % of Per Capita Disposable Income 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Real Fuel Cost of Driving a Passenger Car 10,000 Miles % of Per Capita Disposable Income 1970 1975 1980 1985 1990 1995 2000 2005 BEA, Table 2.1, Personal Income and It's Disposition Jun 08 $4.07
Turrentine & Kurani, 2004 In-depth interviews of 60 California households vehicle acquisition histories found no evidence of economically rational decision-making about fuel economy. Out of 60 households (125 vehicle transactions) 9 stated that they compared the fuel economy of vehicles in making their choice. 4 households knew their annual fuel costs. None had made any kind of quantitative assessment of the value of fuel savings.
Has F/E Importance Changed? Top Box Percent 70% 65% 60% 55% 50% 45% 40% 35% 30% FE $1.76 $1.61 $1.85 $2.13 $2.51 $2.74 $2.88 2001 2002 2003 2004 2005 2006 2007 Reliability A Well Made Vehicle Durability Good Running Engine Mfr's Reputation Safety Features Ease Of Handling Price Or Deal Offered Fun To Drive Riding Comfort Warranty Coverage Value For The Money Interior Roominess Dealer's Service Exterior Styling Prev Exp w / Make Fuel Economy Exterior Color Quietness Vehicle's Image The purchase importance of Fuel Economy did not change much from 2001 to 2007, despite 75% increase in fuel prices Strategic Vision New Vehicle Owner Survey 2001-2007
F/E Importance by Segment 70% 60% 50% FE F/E Importance by Market Segment Compact Entry/Prem Compact Entry Midsize Car Premium Midsize Car Fullsize Car Entry Luxury Car % Top Box 40% 30% 20% 10% Mid Luxury Car Prem/Lux Sport Car Premium Sports Car Sporty Car Compact Pickup 0% Y 2002 Y 2003 Y 2004 Y 2005 Y 2006 Y 2007 Fullsize Pickup Entry SUV And only the Compact Car segments register a consistent, significant gain in the purchase importance of fuel economy. Strategic Vision New Vehicle Owner Survey 2002-2007
Environmental Trends Willing to Pay More for Environmentally Friendly Vehicle Percent Agree Strongly (Top Box) 30% 25% 20% 15% 10% 5% 0% $2.51 $2.74 $2.88 2005 2006 2007
Consumers are, as a general rule, LOSS AVERSE Will decline a bet with even odds of winning $110 or losing $100. Gal (2006) shows that loss aversion can be derived from two simple postulates: Consumers require a motive to act Consumers have imprecise (fuzzy) preferences
Uncertainty about several key elements of the net present value calculation makes an expenditure on higher fuel economy a risky bet Sure, there s a fuel economy label on every car but what MPG will I get? How long will my car last? How much driving will I do? What will gasoline cost? What will I have to give up to get better fuel economy? and how much will it cost?
Hybrids: Who is the buyer? Customer Profile Early Adopter Early Majority Majority Hanger- On Innovator Insight-Prius-Civic Increasingly risk averse
Since 1987, technological advances have been used to improve attributes other than fuel economy Car Data from EPA s 2008 FE Trends Report 36 33 30 27 24 21 18 15 12 9 % manual 0-60 time weight MPG 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 3600 3300 3000 2700 2400 2100 1800 1500 1200 900 Fuel efficiency has increased by about 1.6% per year since 1987 However, this has mostly been used to increase other attributes more highly valued by the customer, such as performance, comfort, utility, and safety 42 40 38 36 34 32 30 28 26 24 22 MPG 1981 1983 1985 1987 1989 1991 1993 1995 1981 wts, accel, & % manual actual data 1997 1999 2001 2003 2005 2007
Customer Demand Summary Real fuel costs are low Most customers value other attributes higher than fuel economy Most customers are Risk Averse
Three powerful forces define Honda s compliance strategy 1. Honda s philosophy 2. The marketplace 3. Regulators at both the federal and state level
New Vehicle Regulations Congress has established new CAFE standards Next Administration (and possibly Congress) will address GHG at the federal level California The Pavley standards are on hold for the moment EPA denied waiver new Administration could reverse Preemption issue still in litigation Because of the direct relationship between CAFE and GHG reductions, California regulations would force even higher fuel economy than the new CAFE standards ZEV mandate will require PHEVs/EVs/FCVs
New CAFE law is a game changer Honda supported new CAFE law, but it is very challenging 35 mpg by 2020 overall Annual improvement over twice historical rate All must go to fuel economy, not other attributes Maximum feasible standards through 2030 NHTSA s proposed 2011-15 standards very stringent Average 4.5% annual increase Only 3.3% annual increase needed to reach 35 in 2020 Attribute-based standards fundamentally alter the competitive landscape No advantage to making smaller vehicles just results in a higher standard to meet Regulating technology, not fuel economy
Honda s Powertrain Progress for CO2 reduction CO2 reduction No single solution multi-pronged approach Insight IMA Civic IMA FCV Fleet test Accord IMA Global IMA Research for mass production FCV development for future HEV expansion Clean diesel V6 Civic GX CNG i-vtec i-dsi Diesel Gasoline DI Cylinder deactivation i-dsi Gasoline HCCI High efficient gasoline engine Base engine improvement
Basic Hybrid System Designs 1) Belt-Driven Alternator/Starter 2) Integrated Motor Assist 3) Power-Split Battery Engine Battery Inverter Inverter Generator Inverter Motor Trans Engine Power Split Device Motor GM/BMW/Chrysler 2-mode 2 is a power-split variation
Hybrid System Attributes Stop/ start Regen brake Alternator support Launch/ Power assist Electric drive BAS belt-driven alternator starter 12v 42v Yes Crank to idle Limited Moderate Limited Moderate Limited IMA integrated motor assist <100v >100v Crank to idle Crank to idle Moderate Extended Moderate Moderate Moderate Moderate Limited Powersplit >100v Crank to idle Extended Moderate Extended Moderate Benefits, complexity, and cost increase together
Evolutionary Direction of Hybrid Technology Cost reduction and performance enhancement 40 * US Combine mode CO 2 reduction rate (%) 30 20 10 Gasoline--Diesel Hybrid Technology 0 I-DSI Gasoline VCM I-VTEC COST expensive
Honda Hybrid System IMA System Overview IMA: Integrated Motor Assist Main High-efficiency engine IMA battery Inverter Auxiliary power Motor-assist mechanism 2008 Civic Hybrid & IMA System i-vtec IMA: 3-stage VTEC + motor Certified as an AT-PZEV EPA city/highway rating of 40/45 mpg
Honda Hybrid Vehicle Development 5th Insight All new 2009 More affordable 6th CR-Z 2010-11 4th 1st Hybrid Technology Expanded to our volume leader vehicle 2nd Nov. 2005 3rd Higher power added to increase use of hybrid vehicles Dec. 1999 Mar. 2002 Enhanced Fuel Economy for V6 engine Dec. 2004 4