Alternative Fuel Vehicles Feasibility Study

Alternative Fuel Vehicles Feasibility Study

As a leader in the rental vehicle industry for the past 30 years, ABC Rental Cars has continually remained a step ahead of its competition. To continue to set the pace for other rental agencies to follow, and to ensure ABC Rental Cars' dominant position in the marketplace, alternative fuel vehicles (AFV), or more specifically, hybrid vehicles, should be evaluated as to the feasibility and consumer interest of introducing these types of vehicles into our fleet.

Currently, gasoline prices are at an all-time high. The United States' dependency on foreign oil is also at an extremely high level, and with the ever-shifting Middle Eastern political climate teetering at volatile levels, hybrid vehicles are an important avenue to be considered. While hybrid car sales currently lag behind sales of conventional vehicles, J.D. Power & Associates, a market research firm, estimates that hybrid vehicle sales will increase to half a million by the year 2006. In addition, nearly 20 new models of hybrid cars, SUV's, and trucks will be rolled out to consumers in the next few years (Mossy Automotive Group, 2004). ABC Rentals can reap the rewards of providing these vehicles to its consumers, provided the cost associated with this program is mutually beneficial to both parties.

Initially, the types of fuels that are available need to be researched to determine the viability of introducing hybrid vehicles into our fleet. While there are several options of alternative fuels available, most are not practical. The fuels analyzed included natural gas, biodiesel, electricity, ethanol, Fischer Tropsch, liquefied natural gas, methanol, and propane. Ultimately, the research concluded that the only practical, economical, and accessible fuel currently available is electricity, when used in the hybrid concept. There are many vehicles that use electricity. The most popular concept is used in hybrid vehicles. These vehicles have an electric motor, with a separate gasoline motor. One of the benefits is fuel economy. According to an EPA report, hybrids "can more than double the gas mileage of conventional gasoline or diesel-powered cars." Also, this use of energy reduces emissions because gasoline consumption is reduced. Next, the gasoline motor charges the battery as the car is running, nullifying the need for recharging stations. Ultimately, the most practical fuel that can be considered at this time is electricity combined with gasoline, which is used in hybrid vehicles. (EPA, 2003)

As a means to gauge consumer interest in these types of vehicles, we also needed to research our competitors to distinguish if hybrid vehicles would be a practical addition to our fleet. Currently, EV Rental Cars is the only company in the United States to rent hybrid cars to the public. At this time, there are a total of eight locations with hybrid vehicles: four locations in California: Los Angeles, Burbank, Ontario and San Diego, one location in Phoenix, Arizona, two locations in Virginia: Dulles and Arlington, and one in Washington D.C. With all of the locations above in mind, EV Rental Cars has grown in fleet size to more than 400 cars throughout the eight different locations (www.evrental.com, 2001).

One of the vehicles available to rent at EV Rentals is the Toyota Prius, which is a full size family sedan. This vehicle rents for $49.99 per day, or $299.94 per week, and EV Rentals offers 150 free miles per day and .25/mile thereafter (www.evrental.com, 2001). The Prius achieves 60 mpg in the city and 51 mpg on the highway (autos.yahoo.com, 2004). Comparatively, Honda has introduced the Honda Insight, which in the rental vehicle industry is considered to be a standard size car, and the Honda Civic hybrid, which is considered to be a compact car. These two cars are offered by EV Rentals at a similar price to the Toyota Prius (www.evrental.com, 2001). The Honda Insight achieves an EPA highway mileage of 66 mpg and 60 mpg in the city, while the Honda Civic hybrid can travel 650 miles with a full tank of gas (www.honda.com, 2004).

As indicated above, these three cars are not only great when it comes to mileage, but another advantage they enjoy is that they are also environmentally friendly. For example, the Prius produces 90 percent less harmful emissions than a traditional car (www.ineed2know.org, 2004), which is important to those individuals that are concerned about the environment. Even President Bush seemed to agree that alternative fuel vehicles needed to be further investigated when he endorsed the concept of alternative fuel vehicles and allocated more than a billion dollars toward the transition to hydrogen fuels (www.evrental.com, 2001). On the other hand, these types of cars are not a practical investment if cost and availability are issues. Not only is the price higher, but due to limited interest in hybrids by consumers at this time, there is only a small geographic area where hybrids are being rented. Most locations are situated in California, Arizona, and Washington; therefore, if ABC Rental Cars is looking for a new rental opportunity that could expand quickly, hybrid vehicles may not be the ideal choice.

Initial startup costs and maintenance costs are also important factors to consider. The price of a hybrid automobile is higher than that of a comparable gasoline engine powered automobile. According to the Website ineed2know.org, a consumer can expect to pay from $3,500 to $6,000 more for a hybrid vehicle. The money a consumer saves in purchasing a hybrid depends greatly on the cost of gasoline. For example, if gas is priced at $1.80 per gallon, it might take the average driver between 10 and 15 years to make up a $3,500 increase in the initial price. The higher the gas prices go, the less time it will take to recoup the higher price of purchasing a hybrid (ineed2know.org, 2004). However, statistics detailing the amount of time needed to recoup initial investment costs for businesses were not available at this time.

Batteries for hybrid vehicles cost considerably more than conventional car batteries. Hybrid batteries sport a price tag of $1,000 - $2,000, more than 10 Ð'- 20 times that of a gasoline powered vehicle (ineed2know.org, 2004). While most hybrid batteries are covered under the vehicle warranty, once the warranty expires it will be the owner's responsibility to cover the cost of a new battery.

Below are some specific pricing examples of hybrids that are currently on the market: The Toyota Prius has a suggested retail price of $21, 708, which is comparable to the Corolla that retails at $15, 580. The hybrid Honda Civic cost $20, 650. That's about $2,300 more than the Honda Civic with a gasoline powered engine. (Phelan, 2004) Eartheasy.com lists the Honda Insight with a base retail price of $19,080