Alternative Fuel Vehicles - Two Considerations

As we approach the six month mark in our publication's brief history, I have to concede that I have not had the time, energy, and resources to cover all of the subjects I deem important. I'll further state that the lapse that most troubles me is the slighting of alternative fuel transportation. Mostly we've focused on fuels, not on the vehicles that consume them, and that skews the whole industry perspective. Now, with the recent publication of an important new study by MIT's Sloan School of Management, I'm inclined to address things vehicular at some length.

The MIT report is entitled "Transition Challenges for Alternative Fuel Vehicle and Transportation Systems", and it's just out. It's relatively brief at just over thirty pages, but it has already prompted a good deal of discussion in journals devoted to alternative energy and even in the mainstream press.

The conclusion of the authors is that alt fuel vehicles of whatever sort face a hard row to hoe and are unlikely to comprise any high percentage of cars or truck on the road for decades. While not denying that gasoline prices are likely to continue to ascend, the authors do not see elevated fuel prices prompting consumers to adopt some other combustible fuel such as diesel, ethanol, biodiesel, natural gas, or hydrogen, or to resort to more radical solutions like all-electric vehicles.

For people in the alternative fuels industries this has got to be very bad news—unless, of course, they're purveyors of synfuels which effectively constitute refined petroleum products of unconventional origin. Everyone else, it would appear, is plumb out of luck—if the MIT scientific heavyweights are to be trusted.

But are they to be trusted? Well, let's examine their reasoning.

Alt Fuel Vehicles as Durable Goods

The MIT paper is an exercise in what I would call scientific market analysis. It's got lots of equations—pages of them, in fact—suggesting that the conclusions carry the kind of formulaic inevitability we're accustomed to seeing in fields such as classical physics or mechanics. In other words, the laws of the market identified in the text are, we are asked to believe, immutable and implacable.

But on closer examination the formulae turn out to be not quantitative in any meaningful way but merely a means of representing the juxtaposition of the unquantifiable factors figuring in the purchasing decisions of individuals. And these factors align pretty closely with common sense, man in the street observations, to whit—advertising, favorable word of mouth, and various financial incentives play key roles in fostering the growth of new classes of vehicles, and that an extensive support infrastructure must parallel the growth of the new category if it is ultimately to succeed.

So you need some brain trust at MIT to tell you that? Clearly not, nor, I think do the jargon and equations with which the study is replete ultimately further our understanding of the subject. But at the same time I must say that I found a lot of very acute observations in the piece. The people who wrote it have clearly studied and thought about alternative fuel cars both extensively and cogently.

First of all, they note quite accurately that many attempts to introduce such vehicles have been made before, and that they have never achieved more than limited success. I suppose one could argue that Brazilian flex fuel vehicles and European diesel powered automobiles represent a solid successes on a local scale, but numerous efforts on the part of various nations to promote natural gas, liquid petroleum gas, methanol, and hydrogen have essentially gone nowhere, while the attempted revival of the battery powered electric car in the nineties was an unmitigated debacle. The jury, I suppose, is still out on hybrids, which are enjoying some success in the U.S., but have failed to spark much enthusiasm abroad.

They also suggest that the process of buying an alternative fuel vehicle is much like that involved in any other high priced durable consumer product entailing a heavy commitment of discretionary income—if indeed money spent on a car is discretionary in any real sense in our society. According to the marketing theories expressed in the paper such product categories necessarily have a fairly slow adoption rate because the purchasing decision is so deliberate, and the situation is made worse when there are predecessor product categories whose the items will only be replaced after years of usage. Thus even if alternative fuel vehicles suddenly achieved 50% of new car sales they would not comprise a majority of cars on the road for many years. The natural turnover of the fleet—the "vehicle parc" as the authors call it—is simply too gradual.

In addition, the authors point out how a partially built out fueling infrastructure, which can scarcely be avoided initially, presents a crippling disadvantage for the alternative fuel vehicle, one that is likely to strangle it in the cradle, so to speak. Infrastructure tends to concentrate in cities where fueling stations can be profitably operated when initial penetration of the new vehicle types is low, and such a state of affairs is apt to have two highly unfavorable consequences. First of all, relatively few individuals will be directly exposed to the new vehicles because the owners of those vehicles will tend to live in the cities; moreover, because fueling stations will be relatively hard to find elsewhere, the alternative fuel vehicle driver will be disinclined to make long trips to places where fuel may not be readily available, which further restricts the exposure of the general public to the new technology. And since, in the authors' view, direct exposure to the new type of vehicle plays a key role in the purchasing decision, the user base is unlikely to grow appreciably beyond the core contingent of early adopters.

Of course one doesn't have this problem with a hybrid electric vehicle, but as the authors observe, such vehicles do not represent overall good value. They exceed the fuel economy of conventional ICE cars, but their performance is compromised compared to that of conventional cars of equivalent price. And indeed the price premium associated with the hybrid power plant may be such that the vehicle will not pay for itself in fuel savings for many, many years.

Our Take

Elsewhere on this Website in the Primers section we have a piece entitled "The Structure of Transportation Revolutions" which I wrote several years ago and which has circulated anonymously through the Worldwide Web ever since. It's worth reading to provide some context to what I'm going to say next, but it's not essential to grasping my points.

And here's my first point. I have a great respect for the Sloan School of Management and for the professors who teach there. They have contributed greatly to our understanding of how consumer markets work. But I do not believe based on my study of the history of transportation that vehicles are just another species of durable goods.

For some especially apt illustrations let us journey back in time nearly 120 years ago to the last years of the eighteen eighties and the first years of the nineties, for in the last twelve years of the nineteenth century the transportation universe was transformed as it has never been before or since.

Let's review the five crucial events that ushered in the modern age of transportation.

In 1888 Leon Serpollet, a French steam engineer, introduced the world's first production automobile, a three wheeler which utilized an innovative steam engine with a flash boiler that could raise steam in a few seconds. The first model used powdered coal for fuel, but next year Serpollet switched to kerosene.

In that same year, 1889, Peugeot a large diversified French manufacturer, showed their first automobile at the Paris Exhibition. This car, which was also a three wheeler, utilized a body and chassis manufactured by Peugeot and in which was installed the Serpollet steam engine. Several were sold to the public. Next year Peugeot replaced the steam engine with a gasoline internal combustion engine purchased from Daimler Benz.

Meanwhile Peugeot was simultaneously participating in another transportation revolution. Peugeot had been manufacturing safety bicycles, essentially the modern type with a chain drive to the rear wheel and both wheels of equal proportions, but had only achieved a middling success with the new design. High wheeled "ordinary" bicycles were still preferred by many male riders while females tended toward tricycles of various designs.

In 1889, the same year that Peugeot showed its first car, an Irish firm named Dunlop after its founder began promoting pneumatic rubber tires on the bicycle racing circuit where safety bicycles were competing unsuccessfully against ordinaries. The new tires made all the difference and the safeties began setting speed records. By 1890 ordinaries had almost disappeared from the track.

Not only did pneumatic tires reduce the weight of the wheel assemblies, an important factor in increasing speed, but they vastly enhanced the rider's comfort, and they soon found a market beyond the racetrack. In 1890 safety bicycle sales began to explode. Within a couple of years ordinaries disappeared from the market and safety bicycles were being produced by the millions in Western Europe and in the U.S.

Now let's look at yet another transportation revolution, one that was largely confined to U.S. at first.

In 1888 the city of Richmond, Virginia, debuted an electric street railway system, the first really successful trolley car system in the world. Within five years hundreds of similar systems were in operation all over the U.S.

In the same period two further revolutions in transportation took place, although both hung fire, so to speak, for a few years.

In 1884 Charles Parsons, an English aristocrat and gentleman scientist, invented the steam turbine. Thirteen years later he built the first turbine powered watercraft. By 1910 almost the entire British fleet had converted to turbine drive, and by World War I all of the major navies of the world had switched to turbines as had many large merchant ships and ocean liners.

In 1892 Rudolph Diesel invented the compression ignition internal combustion engine that bears his name. Diesels began to be utilized in smaller ships and yachts a decade later, and had virtually obsolesced small marine reciprocating steam engines by 1910.

Now what had all of these revolutions in common, and especially those involving the safety bicycle and the electric light rail system? They happened with extraordinary speed. Everyone assumes that technological change has accelerated tremendously in the century that has elapsed since the coming of modernity in the eighteen nineties, but today we're talking about phasing in hybrids and hydrogen fuel cell cars over the course of decades when our great grandparents were changing their modes of transportation in a matter of years.

Nor were these changes accompanied by a lot of public policy initiatives, public works, subsidies, and legislative fiats—the comprehensive energy and transportation policies all of our Presidential candidates are touting. No American city commissioned blue ribbon studies before putting in a streetcar line, and millions of Americans purchased automobiles before there was a network of paved roads linking the major cities and before there was a comprehensive fueling infrastructure. The gradual diffusion process which the authors of the MIT report believe to be necessary for the spread of alternative fuel vehicles did not characterize the insurgent transportation technologies of a hundred and more years ago.

Now it is true that both the bicycle and the automobile industries spent lavishly on advertising and promotion, and, moreover, pioneered new forms of advertising. Bicycle manufacturers, for instance promoted their wares through highly publicized professional bicycle races, and through the medium of the outdoor advertising poster which was just coming into vogue. The then trendy Art Nouveau style was commonly employed in bicycle posters, and athletic young women in abbreviated cycling costumes were often depicted in such advertisements. Even then manufacturers sensed that sex sells, and the message broadcast by the girl on the safety bike was unmistakable. "I am my own woman, and I care not about wagging tongues and Mrs. Grundy." Presumably when she wasn't riding, she might be doing other things that shocked Victorian sensibilities.

So why did the transformation revolutions of the turn of the last century occur with such explosive speed while our own attempts to revolutionize transport are meeting with so little success?

One thing that must be said is that the new types of vehicles that appeared in the eighteen nineties did not really represent replacement technologies. Rather they were fundamentally new. A safety bicycle was a practical form of mass transport while an ordinary bicycle was a dangerous toy. An electric trolley car was to some extent a replacement for the cable car, but the latter had so many practical limitations that it never exerted any profound influence on American life and never took hold in Europe at all. And the gasoline automobile diverged widely in its usage patterns from the horse drawn buggy and was never in any real sense a horseless carriage.

But we really need to look further than this issue of replacement versus disruptive technology and note how the new forms of transportation of the fin de siecle impinged upon the larger material culture and social institutions of that era. And we shall do that in the next installment of this series.