Looking to increase their (s)miles per gallon

Editor’s note: Scott Pimley is director, research services, automotive research group, Maritz Research, St. Louis. Based in the firm’s Torrance, Calif., office.

Wherever we turn lately, the idea of living a green lifestyle is not far away. In the automotive world, the introduction of hybrid vehicles has received a great deal of attention. This article attempts to demystify hybrid vehicles by examining consumer attitudes about them.

It is important to note that not all hybrids are created equal, and many factors will impact their performance. According to greencarcongress.com, among the factors that will define a hybrid vehicle’s performance are: the power and quality of its electric motor, the type and efficiency of its fuel engine, the quality of its engine powertrain management software and its battery capabilities. Most consumers are unaware of these factors. Still, these qualities will impact performance and thus condition how consumers estimate their return on investment with a hybrid vehicle.

The alternative technology that goes furthest toward winning the race is likely to become dominant, given the importance consumers place on fuel efficiency. New interest in clean diesel technology and full electric vehicles may lead to innovations with these technologies that produce higher MPG. It is unclear exactly where hybrids and other alternative technologies will lead manufacturers. However, as hybrids represent the first green technology to catch on in the U.S., it is interesting to see how the vehicle’s early adopters are reacting to them, and to determine what is working and what could be improved. The issues will remain crucial for vehicle manufacturers as they grapple with meeting corporate average fuel economy (CAFE) standards, regardless of exactly where the alternative fuel pendulum swings.

In Maritz Research’s New Vehicle Customer Study (NVCS), we have been collecting data on hybrids for model years 2005 though 2007. We arranged the results of our analysis to correspond with the ownership cycle. We first discuss consideration of hybrid vehicles and then move on to purchase. We next turn to the early ownership experience. Finally, we conclude with new owners’ thoughts regarding purchasing hybrid vehicles in the future.

The studies are nationally representative of individuals purchasing or leasing vehicles during each model year. The survey covers the period of early ownership and most respondents complete it within a couple months of purchase. For a given year, sample sizes are large, generally in excess of 100,000 respondents. This provides us with sufficient data to examine the relatively small proportions of individuals who have purchased a hybrid vehicle.

Key findings

Consideration of hybrid vehicles

Americans’ interest in hybrids and the promise of fuel economy and environmental friendliness is demonstrated by their willingness to consider hybrids and their consistent ratings of hybrid fuel solutions as their top alternative fuel choice.

When asked whether they would consider a hybrid version of their new vehicle had it been available, roughly seven in 10 indicate they would have. However, as Figure 1 illustrates, in 2005, 73 percent of new owners would have considered a hybrid, though this fell slightly in 2006 and 2007. Whether the high score achieved during the first year of hybrid introduction will return in the future will probably be heavily influenced by consumer satisfaction with vehicles going forward.

In addition to their high likelihood to consider hybrid vehicles, in Figure 2 we see when asked what type of alternative fuel they found most appealing, vehicle buyers most often indicate hybrid vehicles are their preferred alternative fuel type. The proportion listing hybrids, though relatively low, is still substantially higher than the next alternatives. This is most likely because hybrids are probably the best-known alternative technology at this point. In addition, it may result from a lack of knowledge of some of the recent advances in diesel and especially biodiesel. In addition, there has been an increased interest in pure electric vehicles. The uptick likely reflects new developments in electric engines and public relations activities surrounding them.

Purchasing a hybrid

So, how does the interest and buzz about hybrids translate into purchasing one? Since the introduction of hybrid vehicles in 2005, the units have realized a slight increase in the proportion of the market taken up by hybrid vehicles as total share of market. However, the proportion still remains under 5 percent. Using data from Automotive News and HybridCars.com, we estimate that in 2005 roughly 1.1 percent of new light vehicles sold were hybrids, while the figures for 2006 and 2007 are 1.5 percent and 2.2 percent respectively. The gradual increase in the demand for hybrid vehicles is driven partially by the increasing diversity in brands and vehicle types offered. For instance, in 2005 only four brands were represented in the hybrid market, whereas in 2007 that increased to seven. Similarly, the hybrid market has become more diversified in terms of vehicle types, with 71 percent of hybrids in the market in 2005 consisting of small cars, but decreasing to 61 percent by 2007, with models in other vehicle segments filling in the gaps.

Also, not all hybrid systems are alike. Full-hybrid vehicles can start and be propelled without the use of any power from a traditional fossil-fuel engine. Vehicles such as the Toyota Prius and Ford Escape operate with a full-hybrid system. So-called “mild hybrids” have also entered the market, and these vehicles need the use of an internal combustion engine at all times, while the electric motors assist in propulsion. Vehicles such as the Honda Civic Hybrid and Chevrolet Silverado offer mild-hybrid systems. The introduction of these mild-hybrid systems has also been a source of incremental growth.

Environmental and economic reasons for purchasing a hybrid

When considering purchasing a new vehicle, those who choose hybrids are motivated by a desire to obtain an environmentally-friendly vehicle, but even more importantly, to achieve the greatest level of  fuel economy. In Figures 3 and 4, we compare the proportion of all new-vehicle owners against those who purchased hybrids, examining the proportions of each who consider environmental friendliness and fuel economy (MPG) extremely important. Across all three years, individuals who purchased a hybrid were significantly more likely than buyers in general to consider environmental friendliness (roughly seven in 10 vs. three in 10) and especially MPG (roughly eight in 10 vs. four in 10) extremely important.

When asked to name the most important reasons for purchasing their vehicles, hybrid owners across all three years name fuel economy and environmental friendliness as their two most important  reasons. In fact, from among an extensive list of purchase reasons, roughly four in 10 hybrid owners select fuel economy and another two in 10 choose environmental friendliness as the most important reasons they purchased their vehicle. This pattern differs markedly from that demonstrated by vehicle buyers overall, who are divided in terms of what they consider most important; the maximum proportion choosing a reason (reliability) was about 11 percent. In addition, in reviewing the purchase reasons data, we see those who chose hybrids are more likely than owners in general to consider issues such as style, comfort, roominess and even price to be significantly less important.

Owning a hybrid

Over the past three years, hybrid owners have consistently provided similar ratings about their hybrid ownership experience. Generally, they report ownership experiences similar to those who purchase non-hybrid vehicles. However, when it comes to experiencing problems, hybrid owners actually report fewer problems than owners of vehicles in segments in which hybrids are represented. Also, while they tend to be particularly satisfied with their MPG, it appears to fall far short of their expectations.

In Figure 5, we show the proportion of new owners who are completely satisfied with their vehicles both for the market overall and among hybrid purchasers. Across all three years, it appears that hybrid owners register approximately the same level of satisfaction with their vehicles as consumers in general.In Figure 6, we show the proportion of new owners who have experienced a problem with their vehicle. (In this analysis, we compare hybrid owners against those who purchased a vehicle in segments where hybrids also occurred. This reduces the bias associated with including trucks, whose owners typically report a higher proportion of problems.) Across all three years, it appears that hybrid owners are less likely than those in the vehicle segments in which hybrids occurred to have experienced a problem. In 2005, hybrid owners were eight percentage points less likely to have experienced a problem, while the respective percentage differences in 2006 and 2007 were six and five. It will be interesting to investigate whether hybrid owners continue to report fewer problems over the ownership cycle.

In addition, hybrid owners are significantly more likely than buyers overall to indicate complete satisfaction with the mileage they receive. Figure 7 illustrates that across all three years, hybrid owners are about twice as likely as the market in general to indicate they are completely satisfied with their MPG. In fact, in 2007, hybrid owners report they obtained a median MPG of 42, both in city/suburb and highway driving, compared with buyers overall who report 20 and 25 miles per gallon, respectively.

However, despite obtaining higher MPG and greater satisfaction with it, hybrid owners report their MPG falls far short of their expectations. In fact, hybrid owners are significantly more likely than vehicle purchasers in general to obtain lower-than-expected MPG. In Figures 8 and 9, we show the proportion of vehicle owners who are getting lower-than-expected MPG both for city/suburb and highway driving. Over the past three years, roughly half of hybrid  owners indicate their city/suburb and highway mileage fell below their expectations, significantly higher than the market in general. This suggests a communication opportunity in informing consumers of realistic MPG under real-world conditions. The way things stand today, some consumers are most likely feeling they got a “bait and switch” on MPG.

Still, not all hybrid models are created equal. In Figure 10, we show the proportions of new-vehicle buyers claiming their city/suburb and highway MPG at least meets their expectations for the hybrid models that do the best and worst. Within each year, the differences between the models that perform best and worst on MPG typically vary between 30 and 40 percentage points. Some of this is due to the different emphases manufacturers place in designing hybrids. Specifically, some stress performance and these models tend to obtain lower MPG. Still, it is reasonable to conclude that some automakers are doing a better job of setting customer MPG expectations.

In 2008, federal guidelines for estimated MPG are set to change and become more reflective of how people drive, in that the testing will more accurately reflect speeds typically driven, use of air conditioning, etc. The government predicts that estimated MPG stickers will reflect lower MPG across the board, but that the current estimates for city driving in hybrids should drop most dramatically (i.e., about 20 percent to 30 percent). It will be interesting to see whether this more accurate labeling of performance will reduce expectations for hybrid vehicles going forward.

Thinking about hybrids: the future

When looking toward the future, how do consumers feel about hybrids? In Figure 11, we report on the proportions of consumers who would consider fuel economy, availability of hybrids, and advanced environmental technology extremely influential when purchasing their next vehicle. From 2005 to 2007, nearly four in 10 new purchasers indicate that when looking forward to their next vehicle, fuel economy will be an extremely important influence. While far fewer specifically indicate that advanced environmental technologies and the availability of hybrids will be extremely influential to them, we believe that to the extent hybrids and other advanced environmental technologies continue to yield greater MPG, they will be more appealing to consumers.

Paying attention

Data from Maritz’ NVCS studies clearly show that Americans are paying attention to the development of alternative-fuel technologies in general and hybrid vehicles in particular. More of this appears to be driven by an interest in fuel economy and MPG than environmental concerns, though the environment appears to be part of the consideration set for many Americans.

At this juncture, it is not entirely clear how hybrids will fare with new vehicle buyers. On the one hand, hybrid technology appears to be the favored fuel alternative. In purchasing their most recent vehicles, roughly seven in 10 Americans would have considered a hybrid if it had been available in the model they were looking for. If vehicle manufacturers start to increase the number and types of hybrid models available, then interest in and purchase of these vehicles could well increase. Also, if hybrids continue to have fewer problems than other vehicles and this extends throughout the life of the vehicle, this could motivate buyers to more seriously consider them for their next vehicle.

On the other hand, certain factors could move interest away from hybrid vehicles. Keep in mind that the data reported here only cover recent purchasers of vehicles. It is still an open question how owners will feel about hybrids over the course of ownership. For instance, over the long haul, owners might find that their dashed MPG expectations detract from their satisfaction with their vehicle. This clearly will vary by model and some models may end up being winners here while others may fall away. Looking forward, it is not clear how hybrid owners will feel about their vehicles if their battery should die and the alternatives are paying thousands of dollars to replace the battery or purchasing a new vehicle.

Another factor that could reduce interest in hybrids would be the development of alternative technologies such as biodiesel. In fact, we are seeing renewed interest in the industry in new clean-diesel technology (BMW, VW, Mercedes and others) and full-electric technology (Nissan, Subaru and others).

Great favor

In the relatively short run, as fuel prices continue to escalate, the technology that wins the maximum MPG race will most likely garner great favor. It may be that hybrids are the future (they certainly have a strong positive halo) or they may be a transitional step toward other technologies. Whether this will be a hybrid or something else is not clear as auto makers work furiously to meet CAFE standards. Environmental concerns and fuel prices are driving the market to find more fuel efficient forms of propulsion. This is instilling innovation in the industry and creating more drivetrain market fragmentation.

In short, only time will tell how hybrids will fit into the offerings of automakers in future years. We will certainly continue to track hybrids and to see how they stand up against both conventional and alternative automotive technologies.