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Dealer Insights - September October 2014 - What’s the Future of 'Green' Vehicles in the U.S.?

Sep 18, 2014

It has been nearly two decades since the first vehicle powered by a hybrid gas-electric engine, the Toyota Prius, was introduced. The other major car manufacturers soon followed with their own hybrids and alternative fuel vehicles — first, the Honda Insight and later, the Chevy Volt and Nissan Leaf, among many others.

This led some to predict that sales of vehicles powered by electricity, natural gas, hydrogen and other alternative fuels would soon overtake sales of traditional gasoline-powered vehicles. Stubbornly high gasoline prices and ongoing environmental concerns have reinforced the belief in so-called “green” vehicles among their most diehard proponents.

But so far, sales of green vehicles have yet to take off in the United States. In fact, they remain minuscule when compared to sales of gasoline and diesel powered vehicles. In 2013, electric, fuel cell, hybrid, natural gas and plug-in hybrid vehicles accounted for just under 4% of light vehicle sales, according to WardsAuto — and the vast majority of these were hybrids.

More hybrid models

Nearly 60 different hybrid cars and trucks are now marketed and sold in this country, and customers purchased about 500,000 of them last year. In comparison, about 15 million gasoline and diesel powered vehicles were sold in the nation last year.

The Toyota Prius remains the most popular green vehicle here, outselling all other green vehicles by a wide margin. Prius vehicles accounted for about 60% of all alternative fuel vehicles sold in the United States last year. And since hybrid vehicles were first introduced here in 2000, nearly as many Prius vehicles have been sold (1.538 million) as all other hybrid vehicles combined (1.550 million).

Not surprisingly, the popularity of green vehicles is higher in some areas of the country than others. Car buyers in California, for example, tend to be more apt to buy green vehicles than those in the Midwest, where the environmental message doesn’t resonate as strongly.

A survey conducted last year by market research firm J.D. Power and Associates determined that environmental concerns ranked far down the list of reasons why Americans choose a particular vehicle model. Fuel economy was the top consideration of consumers buying a nonpremium vehicle, and the third most important consideration of those buying a premium vehicle. Of course, green vehicles offer better fuel economy than gasoline-powered vehicles, so this could drive future green vehicle sales if gas prices stay high.

Incentives to buy

Financial incentives like tax credits and subsidies may also provide a reason for many buyers to consider a green vehicle. Federal and state tax credits can significantly lower the final purchase or lease cost of an alternative fuel vehicle. And in some states, drivers of some green vehicles even get to drive in the high-occupancy vehicle (HOV) lanes. Federal legislation mandating better fuel economy — 35.5 mpg by 2016 and 54.5 mpg by 2025 — could also help boost green vehicle sales in the years to come.

These and other factors could paint a brighter future for green vehicle sales in the nation, at least looking out to the next decade. J.D. Power predicts that, by 2025, more than one-third of passenger vehicles sold in the U.S. will be equipped with alternative power trains and operated with alternative fuels. And about 17% of U.S. vehicles will be hybrid gas/electric hybrids (or HEVs) and plug-in hybrids.

A good bet

Will these predictions pan out, or will green vehicles remain a tiny niche of the American car market? Only time will tell. But given advancements in technology and growing environmental concerns, it’s a good bet that green vehicles will become more, not less, common in the years to come.

Dealer Insights - September/October 2014

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