ORNL/TM-2004/181



# Future Potential of Hybrid and Diesel Powertrains in the U.S. Light-Duty

Vehicle Market

August 2004

David L. Greene Oak Ridge National Laboratory

K. G. Duleep Energy & Environmental Analysis, Inc.

Walter McManus
J. D. Power and AssociatesDOCUMENT AVAILABILITY

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### FUTURE POTENTIAL OF HYBRID AND DIESEL POWERTRAINS IN
THE U.S. LIGHT-DUTY VEHICLE MARKET

David L. Greene Oak Ridge National Laboratory National Transportation Research Center

2360 Cherahala Boulevard Knoxville, TN 37932

K.G. Duleep Energy & Environmental Analysis, Inc. 1655 North Fort Meyer Drive, Suite 600 Arlington, VA 22209

Walter McManus
J.D. Power and Associates 5435 Corp Drive, Suite 300 Troy, MI 48098

August 20, 2004

Prepared by the

OAK RIDGE NATIONAL LABORATORY

P.O. BOX 2008 Oak Ridge, Tennessee 37830 managed by UT-Battelle, LLC

for the

U.S. DEPARTMENT OF ENERGY
under contract No. DE-AC0500OR22725v 

### TABLE OF CONTENTS Page

LIST OF FIGURES ................................................................................................................ .........v

LIST OF TABLES................................................................................................................. ....... vii

ACKNOWLEDGMENTS ............................................................................................................. ix

ABSTRACT ...................................................................................................................... ........ xiii

1. INTRODUCTION ............................................................................................................... ......1

2. HYBRID AND DIESEL TECHNOLOGY STATUS AND PROSPECTS...............................3

2.1 DIESELS................................................................................................................... ...........3

2.2 HYBRIDS................................................................................................................... .........7

3. RECENT MARKET ASSESSMENTS ...................................................................................13

3.1 DOE PROJECTIONS ........................................................................................................14

4. METHODOLOGY AND DATA.............................................................................................17

4.1 SCENARIOS OF DIESEL AND HYBRID INTRODUCTIONS.....................................17

4.2 CONSUMER CHOICE MODEL ......................................................................................18

4.3 MARKET SEGMENTATION AND CHOICE MODEL STRUCTURE .........................20

4.4 CHOICE MODEL CALIBRATION .................................................................................22

4.5 PRICE SLOPES.............................................................................................................. ...22

5. RESULTS .................................................................................................................... ............31

5.1 THE LONG-RUN POTENTIAL MARKET SHARES OF DIESEL AND HYBRID

VEHICLES ..................................................................................................................... ...31

5.2 2008 SCENARIOS ............................................................................................................ 39

5.3 2012 SCENARIOS ............................................................................................................ 41

5.4 IMPACTS ON FUEL ECONOMY ...................................................................................44

5.5 SENSITIVITY ANALYSIS ..............................................................................................48

6. CONCLUSIONS................................................................................................................. .....55

REFERENCES ..................................................................................................................... .........57

APPENDIX A: CALCULATION OF CO NFIGURATION AND CLASS CONSTANTS..........63

APPENDIX B: ASSUMED PRODUCT INTRODUCTIONS......................................................67

APPENDIX C: CHARACTERISTICS OF DIESEL AND HYBRI D PRODUCT LINES

FOR WHICH THRE IS NO MODE L YEAR 2002 COUNTERPART ..................................77vii 

### LIST OF FIGURES Figure P age

1 The Public’s Impression of Diesel Fuel Availability in May, 2004 ..........................................4

2 Diesel Vehicle Owners’ View s on Clean Diesel Vehicles ........................................................5

3 Gasoline Vehicle Owners’ View s on Clean Diesel Vehicles ....................................................6

4 Gasoline Vehicle Owners’ View s on Hybrid-Electric Vehicles................................................8 5 Hybrid-Electric Vehicle Owners’ Views on Hybrid-Electric Vehicles.....................................8 6 Intent to Purchase Diesel or Hybrid-Electric Vehicle..............................................................13 7 Projections of Light-Duty Hybr id and Diesel Market Shares..................................................14 8 Projected Diesel Market Sh ares in the United States...............................................................15 9 Nested Multinomial Logit Model Structur e and Approximate Price Elasticities....................20 10 Power Functions Describing the Co st of Limited Fuel Availability........................................28 11 Technology Market Shares by Vehicle Type >2012 Diesel Only Scenario ............................33 12 Makes, Models, Configurations by Vehi cle Type >2012 Diesel Only Scenario.....................33 13 Technology Market Shares by Vehicl e Type >2012 Full Hybrid Scenario.............................34 14 Makes, Models, Configurations by Ve hicle Type >2012 Full Hybrid Scenario .....................35 15 Technology Market Shares by Vehicle Type >2012 Diesel & Full Hybrid Scenario .............36 16 Makes, Models, Configurations by Vehicle Type >2012 Diesel & Full Hybrid Scenario......37 17 Technology Market Shares by Vehicle Type >2012 Diesel & ISAD Hybrid Scenario ..........38 18 Makes, Models, Configurations by Vehicle Type >2012 Diesel & ISAD Hybrid Scenario...38 19 Diesel and Hybrid Vehicle Market Shar es by Vehicle Type: 2008 Average Scenario ...........39 20 Distribution of Hybrid Vehi cle Sales by Degree of Hybrid ization, 2008 Average Scenario..40 21 Diesel and Hybrid Market Shares by Vehicle Class, “Best Guess” Scenario .........................40 22 Distribution of Hybrid Ve hicle Sales by Degree of Hybr idization, 2008 “Best Guess”

Scenario ..................................................................................................................... ...........41 23 Hybrid and Diesel Market Shares by Vehicle Class, 2012 “Average” Scenario.....................41 24 Distribution of Hybrid Technology Type s in the 2012 “Best Guess” Scenario ......................42 25 Comparison of Market Success in “Ave rage” and “Best Guess” Scenarios ...........................43 26 Distribution of Hybrid Vehicle Sa les by Degree of Hybridization, 2012 “Average” Scenario ............................................................................................................ .....43 27 Distribution of Hybrid Ve hicle Sales by Degree of Hybr idization, 2012 “Best Guess”

Scenario ..................................................................................................................... ...........44 28 New Light-Duty Vehicle Aver age Fuel Economy by Scenario...............................................45 29 Sensitivity Analysis of Diesel Market Share, >2012 Diesel/Full Hybrid Scenario.................49 30 Tornado Chart Showing Influence of Inputs on Diesel Market Share.....................................50 31 Sensitivity Analysis of Hybrid Market Share, >2012 Diesel/Full Hybrid Scenario................51 32 Tornado Chart Showing Influence of Inputs on Hybrid Market Share ...................................51 33 Sensitivity Analysis of LDV Fuel Ec onomy, >2012 Diesel/Full Hybrid Scenario.................52 34 Tornado Chart Showing Influen ce of Inputs on LDV Fuel Economy.....................................53 35 Comparison of Market Success in 2008 and 2012 under “Best Guess” Scenarios .................55ix 

### LIST OF TABLES

Table Page

1 Estimated Additional Torque and Fuel Economy of Light-duty Diesel Vehicles.....................3

2 Estimated Incremental Retail Pric e Equivalent for Diesel Vehicles .........................................6 3 Estimated Additional Torque and Fuel Economy of Hybrid Vehicles......................................9 4 Estimated Incremental Retail Price Equiva lent of Hybrid Systems by Vehicle Type.............10 5 Planned Introductions of Hybrid-Elect ric Vehicles in the U.S. Market ..................................11 6 (Part 1) Definitions of Vehicle Classes....................................................................................21 6 (Part 2) California Energy Commissi on (CEC) Vehicle Classification System......................21
7 Estimated Price Elasticities for Diesel a nd Hybrid Market Shares Based on a Survey by J.D. Power and Associates.................................................................................................. 23 8 Price Slopes, Elasticities, Prices a nd Market Shares for Market Segments.............................24

9 Coefficients of the NMNL Vehicle Choice Model..................................................................26 10 Numbers of Diesel and Hybrid C onfigurations Offered, by Scenario.....................................32 11 Summary of Results of Diesel Hybrid Market Scenarios........................................................46 12 Average Fuel Economy of Passe nger Cars and Light Trucks .................................................47 13 Assumptions for Sensitivity Analys is of Hybrid and Diesel Choice.......................................48xi 

### ACKNOWLEDGMENTS

The authors thank the U.S. Departments of En ergy and Transportation, and Natural Resources Canada for supporting this researc h. We also thank the represen tatives of those agencies who provided invaluable guidance and advice throughout the course of the project.

Barry McNutt, Office of Petroleum and Tran sportation Fuels, Polic y and International Affairs, U.S. Department of Energy Ed Wall, Office of Freedom Car and Vehi cle Technology, U.S. Department of Energy Philip Patterson, Office of Energy Efficiency and Renewable Energy, U.S. Department of Energy Thomas White, Office of Petroleum and Tran sportation Fuels, Policy and International Affairs, U.S. Department of Energy John Maples, Energy Information Administ ration, U.S. Department of Energy Peter Feather, National Highway Traffic Sa fety Administration, U.S. Department of Transportation Kenneth Katz, National Highway Traffic Safety Administra tion, U.S. Department of Transportation Peter Reilly-Roe, Transportation Energy Use Division, Natural Resources Canada

The authors thank these individuals and Steve Plotkin, Argonne National La boratory for critical reviews of an earlier version of this report.

The authors also thank the many individuals from private industry in the U.S., Japan and Europe who met with us and shared their knowledge and insights, especially the following.

Daimler Chrysler, Detroit, Michigan: Bernard Robertson, Senior Vice President, Engineering Technol ogies and Regulatory

Affairs Philip Benjamin, Manager, Small Vehicle Product Team, Hybrid Vehicle Engineering Reginald Modlin, JD, Director, E nvironmental and Energy Planning Loren Beard, Senior Manager, E nvironmental and Energy Planning Lawrence Oswald, CEO, Global Electric Motorcars, LLC, Daimler Chrysler

U.S. Environmental Protection Agency, Ann Arbor, Michigan: Charles Gray, Director Adva nced Technology Division, Office of Transportation and Air Quality Karl Hellman, Assistant Director, Advanced Technology Division, OTAQ Jeff Alson, Corporate Average Fu el Economy Policy Issues, OTAQ Robert Heavenrich, Fuel Economy Trends, OTAQ John White, Cooperative R&D Agreements, OTAQ

General Motors, Detroit Michigan: Hazem Ezzat, Director, Powertrain Engineering Shareef Ultari, Senior Research En gineer, Diesel Engine Research Peter Savagian, Chief Engineer, Traction and Thermal Systemsxii Ford Motor Company, Detroit, Michigan: Graham Hoare, Director, Powertrain Research & Advanced Engineering Larry Brouwer, Chief Engineer, Advanced Powertrains William Stockhausen, Staff Technical Specia list, Strategic Powertrain Technologies, Powertrain Research & Advanced Engineering Robert Hammerle, Senior Staff Technical Sp ecialist, Chemical Engineering Department Richard Baker, Corporate Technical Speci alist, Combustion & Emissions Advanced Diesel Systems Richard Bell, Manager, Worldwide Recy cling Planning, Vehicle Environmental Engineering Mike Tamor, Project Leader, Hybrid Electric Vehicle Design

Daimler-Chrysler, Stuttgart, Germany: Harald Braun, Manager, Passenger Car Developm ent, Powertrain Electronics, Alternative

Drives Gerhard Doll, Leader, V8 Diesel Engine Development Andreas Graf, Manager, Re gulatory Affairs, Emissions and Fuel Consumption Gerhard Schweinle, Senior Manager, Regul atory Affairs and Government Liaison for Mercedes-Benz Passenger Cars Oliver Storz, Manager, Emission Certific ation and Government Liaison Worldwide (excluding USA) Large Pa ssenger Cars and in Use Rudolph Thom, Director, Development MB-Pas senger Cars Certification and Regulatory

Affairs

FEV, Aachen, Germany: Peter Walzer, Executive Vice President Michael Krüger, Chief Engineer, Diesel Combustion Systems

Continental TEMIC, Landsberg, Germany: Frank Blome, Director , Profit Center ISAD Frank Kozlowski, Sales and Marketing, Profit Center ISAD Horst Kornemann, Director, Product Line Electronic Drives, ISAD Uwe Mohrstadt, Senior Manage r, Sales and Marketing, ISAD

Bosch, Stuttgart, Germany: Stefan Becher, Group Leader, Development Engine Test Field, Commercial Vehicle Engines, Emission Legislation, Fuels Marcus Parche, Vice President, Marketing Thomas Wintrich, Head of Depa rtment, Advanced Engineering

Volkswagen, Wolfsburg, Germany Ekkehard Pott, Advanced Gasoline Engines Wolfgang Steiger, Director, Powertrain Group Research

Japan Automotive Research Inst itute, Tsukuba, Ibaraki, Japan: Kiyoyuki Minato, Senior Researcher Hirota Keiko, Researcherxiii Chuo University, Tokyo, Japan: Professor Tanishita, Department of Civil Engineering

Hitachi Automotive Systems, Hitachinaka, Japan Fumitoshi Emura, Manager of Sales Mr. Naiato, Senior Chief Engineer Tadashi Fujikado, General Manager, Marketing and Planning Department Tatsuo Horiba, Chief Researcher, Saitana Research Laboratory, Shin-Kobe Electric Machinery Co., Ltd.

Panasonic Electric Vehicle Energy, Nagoya, Japan Yuichi Fujii, Executive Vice President Osamu Takahashi, General Mana ger, Engineering Department Tadashi Fujikado, General Manager, Marketing and Planning Department

Toyota Motor Corporation, Nagoya, Japan Masatami Takimoto, Senior Managing Dir ector, Powertrain De velopment Group and Fuel Cell Development Group

Toyota Motor Corporation, Toyotashi, Japan Kenichiro Takama, Project General Manager, R&D Management Division Toshiyuki Sekimore, General Manager, El ectric and Hybrid Vehicle Engineering

Division Takehisa Yaegashi, Senior General Ma nager, Powertrain Development Group Toshiro Yoshida, General Manager Powertrain Planning Department Takuku Masuoka, General Manager, Governme nt and Regulatory Affairs Department, Engineering Administration Division Fumiaki Ohya, General Manager, Governme nt and Regulatory Affairs Department, Engineering Administration Division

Honda Motor Company, Ltd., Tokyo, Japan Hikekazu Kanour, Chief Engineer, A dvanced Product Planning Division Hiroo Shimada, Chief Engineer, Ad vanced Product Planning Division Kenji Nakano, Chief Engineer and Ma nager, Engineering Development H2 Hiroshi Shuto, Chief Engineer, Regulatory Information Coordination Department Satoshi Fujitani, Chief Engineer, Regulato ry Information Coordination Department John German, Environmental and En ergy Analyses, Honda of America

While all of the individuals mentioned above made significant contributions to the quality of this report, any errors or omissions it may contai n are the sole responsib ility of the authors.xv 

### ABSTRACT

Diesel and hybrid technologies each have the potential to increase light-duty vehicle fuel economy by a third or more without loss of perf ormance, yet these technologies have typically

been excluded from technical assessments of fuel economy pote ntial on the grounds that hybrids are too expensive and diesels ca nnot meet Tier 2 emissions sta ndards. Recently, hybrid costs have come down and the few hybrid makes availa ble are selling well. Diesels have made great strides in reducing particulate and nitrogen oxide emissions, and are likely though not certain to meet future standards. In light of these deve lopments, this study takes a detailed look at the market potential of these two powertrain techno logies and their possible impacts on light-duty vehicle fuel economy. A nested multinomial log it model of vehicle choice was calibrated to 2002 model year sales of 930 makes, models and engine-transmission conf igurations. Based on

an assessment of the status and outlook for the tw o technologies, market shares were predicted for 2008, 2012 and beyond, assuming no additional incr ease in fuel economy standards or other new policy initiatives. Current tax incentives for hybrids are a ssumed to be phased out by 2008. Given announced and likely introductions by 2008, hybrids could capture 4- 7% and diesels 2-4% of the light-duty market. Based on our best guess es for further introductions, these shares could increase to 10-15% for hybrids and 4-7% fo r diesels by 2012. The resulting impacts on fleet average fuel economy would be about +2% in 2008 and +4% in 2012. If diesels and hybrids were widely available across vehicle classes, makes, and models, they could capture 40% or more of the light-duty vehicle market.1 

### 1. INTRODUCTION

Direct-injection diesel engines a nd hybrid-electric power trains ca n significantly increase fuel economy without sacrificing attribut es consumers value, but at a hi gher cost. At present, only a few makes and models offer these power train opt ions and there is considerable uncertainty
about their future in the U.S. light-duty vehicle market. This study assesses the future market potential of these technologies in competition w ith conventional gasoline power trains, and their potential impact on new light-dut y vehicle fuel economy. Estimates are developed of the market potential for these technologies in compe tition with the conventional gasoline internal combustion engines that domina te the U.S. market today.

Diesel and hybrid technologies each have the po tential to increase any gi ven light-duty vehicle’s fuel economy by a third or more without loss of performance, yet these technologies have typically been excluded from technical asse ssments of fuel economy potential on the grounds that hybrids are too expensive and diesels cannot meet Tier 2 emissions standards (NRC, 2002). However, hybrid vehicles are already present in the automotive marketplace and are selling well; sales increased 26% from 2002 to 2003 despite th e availability of onl y three hybrid models (CNN, May 17, 2004). In Europe, sales of mode rn, direct-injection, hi gh-pressure-injection diesel cars comprised 44% of 2003 passenger car sales (Schmidt, 2004). Yet only one manufacturer offers light-duty di esels in the United States toda y and captures about 0.2% of the market. Diesels have achieved significant reducti ons particulate and nitrogen oxide emissions in recent years and appear to be poised to meet Ti er 2 emissions standards for at least bin 8 and very likely bin 5 (Duleep, 2004).

Honda introduced the first hybrid vehicle into the U.S. market in 1999, the two-seater Honda Insight. Toyota followed with the Prius in 2000, a vehicle they had introduced into the Japanese market in 1997. Hybrid sales in the U.S. reached 38,000 units in 2002 (J.D. Power, 2003) and increased to 43,500 units in 2003 and from January to April 2004 23,000 hybrids were sold (Miller, 2004). Response to the redesigned m odel year 2004 Prius was especially strong: more than 12,000 purchase requests were made befo re the model was introduced in October 2003 (Toyota, 2004). As a result, T oyota raised its production plan for the U.S. from 36,000 to 47,000 units (Toyota, 2003). With demand for hybrids spurred on by higher fu el prices in 2004, manufacturers have been unable to keep pace with demand and waiting lists for hybrids have lengthened.

The potential impact of hybrid technology on new light-duty vehicle fuel economy if all vehicles were converted to hybrids was assessed by Burke and Abeles (2004). They estimated that if all new light-duty vehicles were m ild hybrids, fleet average fuel economy would increase to 38 miles per gallon (mpg), at a cost increase of 7- 9%. If all were full hybrids 42 mpg could be achieved for a price increase of 16-18%. Thei r study did not address the market acceptance of hybrid technology, however.

In light of the fact that both technologies are present in the U. S. light-duty vehicle market today and are selling well, albeit with very limited pro duct availability, it is no longer reasonable to assume that these technologies will play no role in determining future light-duty vehicle fuel economy. This study assesses the market potentials of hybrid and diesel technologies in the U.S. light-duty vehicle market, as well as their likel y impacts on the fleet average fuel economy of2 new light-duty vehicles. The impacts on fuel economy are based on estimated consumer demand for these technologies, with no subsidies or fu rther increases in fuel economy standards.

The estimated market potentials and fuel economy impacts assume no new policies to drive the market toward high fuel economy vehicles, such as higher CAFE standards or tax incentives for hybrid vehicles. Indeed, the ex isting federal tax incentives for hybrid vehicles are assumed to expire, as planned, before 2008. It is further a ssumed that manufacturers will neither lower nor raise the fuel economy of conventional gasoline vehi cles as a result of the introduction of new diesel and hybrid products. No significant technological advan ces are assumed for any of the technologies except for those needed to control diesel NO X emissions to Tier 2, bin 5 levels. Economies of scale and learning-by-doing in th e production of hybrid ve hicles and emissions control systems for diesels are also assumed. Finally, the analysis is based on the mix of vehicles sold in the United States in model year 2002 and their attributes. No attempt has been made to project how consumers preferences or manufacturers offerings may change over the next 5-10 years, except for the introductions of new hybrid and diesel powertrains.

The following section briefly reviews the status and prospects for the cost and performance of diesel and hybrid technologies. In Section 3, previous projecti ons of hybrid and diesel market

shares are reviewed. In Section 4, the data and methods used to assess future market potential are presented. Readers less interested in mathematic al details may wish to skim this section. In Section 5, results are presented fo r eight scenarios to 2012 and beyond.3 

### 2. HYBRID AND DIESEL TECHNO LOGY STATUS AND PROSPECTS

Although hybrid and diesel vehicles already have a limited presence in the North American lightduty vehicle market, they both face challenges to th eir future market success. Diesels must find a way to meet future Tier 2 emissions standards at the bin 5 level if they are to capture more than a niche market in the United States. Both hybr ids and diesels face the challenge of consumer acceptance of their higher costs. In this section the status and outlook for these technologies are briefly reviewed, and our assumptions about future attributes are presen ted. The review draws heavily on in-depth reviews of the status of these technologies (Duleep, 2003; 2004).

2.1 DIESELS

Turbo-charged, direct-injection, hi gh-pressure common rail, light-dut y diesel engines are a well established technology that capture d 44% of the European passenger car market in model year 2003 (Schmidt’s, 2004). While higher motor fuel prices in Europe are clearly part of the explanation for the diesel’s suc cess there, there is also no doubt that car buyers consider the modern diesel an acceptable alte rnative to the gasoline engine de spite its higher price. Diesels have other advantages and disadvant ages than simply fuel economy a nd cost that will affect their success in the North American market. Advantag es such as greater driving range and higher torque may allow the diesel to capture a signific ant share of the North American market despite

lower fuel costs.

2.1.1 Diesel Advantages

The diesel’s much higher compre ssion ratio, lean burn operation and direct injection make it not only more energy efficient but give it more tor que than a spark-ignition gasoline engine of the same displacement. In addition, diesel fuel contains about 10% more energy by volume than gasoline, a fact that further in creases the diesel’s advantage in miles per gallon. Manufacturers are unlikely to try to downsize di esels to fully match the performa nce of a comparable gasoline engine vehicle. In our judgment, manufacturers will design diesel vehicles with not only higher fuel economy but also increased torque. Table 1 shows by calenda r year the increases in fuel economy and torque we assume di esels will offer relative to a comparable gasoline vehicle. Tighter emissions standards accoun t for the decrease in the diesel’s fuel economy benefit from 2005 to 2008. Improved technology is assumed to restore most of the emissions penalty by

2012.

Table 1. Estimated Additional Torque and Fuel Economy of Light-Duty Diesel Vehicles

Torque MPG

2005 25% 35%

2008 25% 30%

2012 25% 33%

For a given make and model of vehicle, manufacture rs are likely to offer the same size of fuel tank on gasoline and diesel versions. This im plies that diesels will provide 30-35% greater4 range, an added plus. In a 2002 survey by J.D. Power and Associates (McManus, 2003), 32% of respondents rated driving range as “extremely important” (8-10 on a scale of 1 to 10). Of those citing range as extremely important, 73% gave “hav e to refuel less frequently” as a key concern, while 44% cited “saves time.” This suggests that there is nuisance cost of refueling over and above the value of the time saved. Indeed, 27% said they simply “don’t like to refuel.” In the quantitative modeling presented below, only th e value of time saved and not the avoided nuisance cost of refueling is c onsidered, implying that we have most likely underestimated the value of greater range to consumers.

2.1.2 Market Barriers

Diesel fuel availability is a concern of many motorists. In a 2002 survey by J.D. Power and Associates (McManus, 2003), 46% cited limited dies el fuel availability as a concern for clean diesels. In a more recent survey (Caravan, 2004), only 35% of respondents said diesel fuel availability would be of no concern if they were considering buying a diesel vehicle (Figure 1). Another 20.8% considered it somewhat of a pr oblem, but not a big deal, while another 8.2% viewed it as a problem, but not one that would prevent them from buying a diesel. On the other hand, only 27% said it was a serious enough problem that they either might not (7%) or would not (21%) buy a diesel because of it. In total, almost two thirds of respondents did not consider fuel availability a show stopper for diesels.



### Impression of Diesel Fuel Availability Opinion Research Corporation, May 20,2004

34.7%

20.8%

8.2% 6.5% 20.6%

9.2%

0% 5% 10% 15% 20% 25% 30% 35% 40%

Not a problem,

available everywhere Somewhat of a problem Problem but would still buy Serious problem might not buy Serious problem would not buy Don't knowRelative Frequency

Figure 1. The Public’s Impression of Diesel Fuel Availability in May, 2004

Owners of gasoline vehicles ge nerally still believe that di esels are noisy, smelly and underpowered relative to gasoline vehicles. In the 2002 J.D. Power survey, 32% cited engine noise as a concern, and 27% cited exhaust odor. Thirty-one percent indi cated lower performance was a concern. In large part, this is due to unfamiliarity with modern diesel technology. Compared with 1988 diesel technology, modern dies els have 100% more torque, 60% less noise,
90% lower emissions and 30% less fuel consum ption (Birch, 2003). Mo dern diesels are not noisier than gasoline engines, do not produce a di esel odor, and accelerate as well as comparable5 gasoline vehicles. This suggests that many of the nega tive perceptions about diesels held by car buyers could be overcome with advertising and gr eater exposure to modern diesel vehicles.

Two of the top three concerns emerging from the 2002 J.D. Power survey were the availability of service and repair locations, and th e fact that the type of vehicl e a car buyer wanted might not be

available as a diesel. Both of these concerns would be addressed if mo re manufacturers offered diesels on more makes and models. Thus, a key question is whether dies els could significantly

increase their market share even with the curr ent level of fuel availability and limited product offerings, i.e., can the diesel solve it s “chicken or egg” problem on its own?

Surveys of owners of gasoline vehicles and diesel vehicles conducted by J.D. Power and Associates (McManus, 2004) reveal two key insi ghts about the potential market for diesel vehicles. First, diesel vehicl e owners have strongly positive perceptions of diesel vehicles, except for their higher price (Figure 2). Second, owners of gasoline vehicles have generally positive perceptions of diesel vehicles, but they are more negative than those of the owners of diesel vehicles (Figure 3). Diesel owners per ceive their vehicles to be much more reliable, powerful, and fuel efficient than gasoline vehicl es. They see them as cleaner and having about equal acceleration performance. More than half, however, consider the price of a diesel to be “worse.” More than half of gasoline vehicl e owners believe diesels are more powerful and (surprisingly) cleaner; about thr ee quarters consider them to be more fuel efficient. But they view diesels as about equally reli able, slower, and more expensive. Because the vast majority of gasoline owners are unfamiliar with diesels, it is likely that their perceptions would improve with greater exposure to diesels. These insights s uggest that diesels are potentially a mass-market technology in the United States, provided that th eir price can be held at an acceptable level.

Diesel Vehicle Owners: Clean Diesel v. Gasoline Vehicles

0% 20% 40% 60% 80% 100% Price of vehicle Emissions/pollution levels

Fuel economy/efficiency Performance (acceleration) Power (torque) Reliability/dependability

Better Equal Worse

Figure 2. Diesel Vehicle Owners’ Views on Clean Diesel Vehicles6 Gasoline Vehicle Owners: Clean Diesel v. Gasoline Vehicles

0% 20% 40% 60% 80% 100% Price of vehicle Emissions/pollution levels

Fuel economy/efficiency Performance (acceleration) Power (torque) Reliability/dependability

Better Equal Worse

Figure 3. Gasoline Vehicle Owners’ Views on Clean Diesel Vehicles

Undoubtedly the most significant downside of the dies el in the eyes of the consumer is its higher price. Diesels are more costly to manufacture ch iefly because of their much higher pressure fuel injection systems and what we project will be far costlier emissions control systems. The

estimates shown in Table 2 reflec t the view that meeting Tier II bin 5 standards will add $550 to the retail price of a small diesel vehicles and $750 to the price of a larger one. The retail price equivalent (RPE) measures used throughout this report reflect a full mark-up over manufacturing costs, including all normal overh eads and profits. The RPEs show n include the incremental costs of all necessary components, includi ng all emissions control equipment.

Table 2. Estimated Incremental Retail Price Equivalent for Diesel Vehicles

Small Vehicle (2.0-2.5L I4) Midsize Vehicle (3.0-3.5L V6) Large Vehicle (4.5-5.0L V6) 2005 $1,750 $2,300 $2,500 2008 $2,280 $2,925 $3,200 2012 $2,300 $2,950 $3,250

We assume that diesels will have no greater durab ility than spark-ignition gasoline engines. We

also assume that diesels will continue to have li mited fuel availability, which we put at 33% of refueling outlets through 2008 (Hadder, 2004). However, with a larger number of light-duty diesel vehicles on the road, it is reasonable to as sume that fuel availability will increase. The sensitivity of future market shares to this assumption was tested, however.7 2.2 HYBRIDS

Hybrid vehicle designs can span a spectrum fr om 12-volt stop-start sy stems to over 300-volt systems with a substantial range of all-electric drive. In additi on, for any given level of electric power capability, manufacturers may choose to emphasize fuel economy or performance.

Discussions with manufacturers and review of their product plan s indicate that the carmakers have divergent views about the de sirability of the different desi gn options and their potentials for market success (Duleep, 2003). On the one hand, this will lead to a broad array of designs tested in the marketplace. On the other hand, it will ta ke more time to sort out the winners and losers. Details of our assessment can be found in EEA, Inc. (Duleep, 2004).

It is assumed that all manufact urers face the same costs and can achieve the same technology performance. While it is clear that this is not the case today, it is our view that competition will

drive the market in this direction in the future. The key assumptions about vehicle attributes used in this market analysis are given below. Assumed market introductions are listed in the appendix.

Four types of hybrid systems are used in this assessment. They are listed below in order of increasing use of electric power, re generative braking, energy storag e capacity and benefit to fuel

economy.

1. Stop/Start (S/S) : This hybrid system includes only the ability to shut off the engine when

it would otherwise idle and to restart it instantly on demand. This provides no torque boost to aid acceleration, but offers a fuel economy advantage of 7.5% over the EPA test cycle.

2. Integrated Starter Alternator with Damping (ISAD) : This hybrid system will operate at 42 volts and will allow some power to be contributed by the electric drive system in addition to the stop/start capabi lity. An increase in torque of 10% and 12.5% higher fuel economy are expected.

3. Integrated Motor Assist (IMA) : This 114 volt hybrid system is expected to be produced only by Honda through 2012. In comp arison to the ISAD design it has a larger electric motor and greater battery power and energy storage and allows more electricity to be used for motive power. The system is expected to provide 15% higher torque and 20% greater fuel economy on average.

4. Full Hybrid (FH) : These 300+ volt systems permit limite d all-electric drive in addition to supplementing the power of the internal combustion engine. For cars, full hybrid systems should offer 20% more torque and 40% more miles per gallon; for light trucks increases of 15% in torque and 35% in fuel economy are expected.

2.2.1 Hybrid Advantages

Surveys show that consumers think of fuel economy (mentioned by 78%) and low pollution (54%) when they think of hybrid vehicles (McM anus, 2003). Apparently because of early hybrid designs, they do not think of increased performa nce. Even owners of conventional gasoline vehicles see hybrids as exceptional when it come s to fuel economy and emissions (Figure 4), according to survey data developed by J.D. Po wer and Associates (McManus, 2004). But when it comes to acceleration performance and power, most gasoline vehicle owners believe hybrids8 are inferior to gasoline vehicles. Gasoline ve hicle owners also give hybrids low grades for reliability, and they believe they are much worse when it comes to price.

Owners of hybrid vehicles have ve ry different opinions about thei r vehicles (Figure 5). Not only do they consider them to be en tirely superior when it comes to fuel economy and air pollution, but they perceive the hybrid’s pe rformance and power to be just as good as that of a conventional gasoline vehicle and they give hybrids better marks for reliability. Even hybrid owners, however, see hybrids as more expensive.

Gasoline Vehicle Owners: Hybrids v. Gasoline Vehicles

0% 20% 40% 60% 80% 100% Price of vehicle Emissions/pollution levels

Fuel economy/efficiency Performance (acceleration) Power (torque) Reliability/dependability

Better Equal Worse

Figure 4. Gasoline Vehicle Owners’ Views on Hybrid-Electric Vehicles

Hybrid Vehicle Owners: Hybrids v. Gasoline Vehicles

0% 20% 40% 60% 80% 100% Price of vehicle Emissions/pollution levels

Fuel economy/efficiency Performance (acceleration) Power (torque) Reliability/dependability

Better Equal Worse

Figure 5. Hybrid-Electric Vehicle Owners’ Views on Hybrid-Electric Vehicles9 Just as diesel owners had a mo re favorable impression of their vehicles than non-diesel owners, hybrid owners hold a better opinion of hybrids. On the one hand, there is almost certainly selfselection bias in these survey results. The more significant point, however , is that owners of these alternative power tr ains find them to be as good or be tter than gasoline vehicles in all respects except price. The fact that those w ho know these vehicles well are happy with them is important, since it implies that except for price th ere is no major market barrier to the success of either hybrids or diesels. Both tech nologies have mass-market potential.

The combination of a conventional gasoline engine and an electric motor with high torque at low rpm permits exceptional launch and acceleration. Just as for diesels, it is likely that manufacturers will offer consumers both increased fuel economy and increased torque in future hybrid designs (Table 3). Stop/start systems will offer no increase in torque because they do not have the ability to use the starter/alternator fo r motive power. With other systems, torque will increase with the power of the electric motor. The full hybrid system is estimated to give only a 15% torque increase and 35% fuel economy benefit when used on larger light trucks.

Table 3. Estimated Additional Torque and Fuel Economy of Hybrid Vehicles

Hybrid System Change in Torque Change in

MPG
S/S 0% 7.5%

ISAD 10% 12.5%

IMA 15% 20% Full (cars and small trucks) 20% 40% Full (larger light trucks) 15% 35%

Although a hybrid vehicle’s batter y pack will take up additiona l space, we do not expect manufacturers to reduce the size of a hybrid’s fu el tank in comparison to a conventional gasoline vehicle. The Honda Civic hybrid’s fuel tank, fo r example, holds 13.2 gallons, exactly the same as conventional gasoline engine Ci vics. With fuel tanks of e quivalent size, increased fuel economy will translate into increased range.

Hybrids may have other advantages that we make no attempt to take into account. With smaller engines and all-electric drive at low speeds, hybrids are likely to be quieter than conventional gasoline vehicles. With two powerplants, hybrids could offer a kind of low-speed 4-wheel drive

at little additional cost. Fina lly, with the ability to generate high-voltage electric power and considerable capability for storing electricity, hybrids can electrify many functions now performed mechanically or hydraulically, and ca n even provide electrical outlets for household appliances and tools. It seems likely that some combination of features will be found that will add value for customers. In the analyses pres ented below, however, we do not attempt to add extra value to hybrids to take account of this likelihood.

Finally, hybrids are perceived to be environmenta lly friendly vehicles, and some car buyers are willing to pay something extra for a green vehicle. Fifty four percent of respondents to a J.D. Power and Associates survey who said they would consider buying a hybrid cited lower pollution as a reason (McManus, 2003) . Nevertheless, we do not at tempt to quantify the value of environmental friendliness in the quantitative analysis presented below.10 2.2.2 Market Barriers

Surveys of American consumers conducted by J.D. Power and Associates (McManus, 2003) indicate that insufficient pow er (34%), price (27%) and ve hicle dependability (24%) are consumers’ top concerns about hybrid vehicles. Another 12% mentioned ba ttery reliability as a concern. As a novel technology, it is understandable for consum ers to be concerned about hybrids’ reliability. Very likely, only experience will fully overcome this barrier, though Toyota and Honda have made effective use of customer gu arantees such as extended warrantees to allay the concerns of early purchasers.

The incremental price of a hybrid system is undou btedly the biggest barrier to its success. Hybrid costs have already begun to come down, and further reductions are expected. Toyota

claims that the costs of batteries and motors we re reduced by 30-35% from the first to the second generation Prius (Duleep, 2003). By 2012, we expect that costs will fall to $3,000-$4,000 for full hybrid designs, and from $600 to $640 for simple stop/start systems (Table 4).

Table 4. Estimated Incremental Retail Price Equivalent of Hybrid Systems by Vehicle Type

Hybrid System Small Cars Midsize & Large Cars Small Trucks Large Trucks Stop/Start $600 $640 $640 -- ISAD $1,250 $1,385 $1,450 $1,625 IMA $1,620 $1,790 -- -- Full Hybrid $3,320 $3,920 $3,700 $4,100

2.2.3 Manufacturers Near-Term Plans

The six largest-selling manufact urers in the United States ha ve announced planned introductions of sixteen additional hybrid vehicle configurations by 2008 (Table 5). This would bring the total number of hybrids in the market to nineteen. If these plans are realized hybrid options would be available not just as small to mid-size passenger cars, but in small and large SUVs and pick-ups, and in luxury as well as standard models. These announced introductions are the starting point for our “best guess” 2008 and 2012 scenarios describe d in Section 5, below a nd listed in detail in Appendix B.11Table 5. Planned Introductions of Hybrid-Electric Vehicles inthe U.S. MarketModelNameplate(Division)Vehicle Name(Model) Manufacturer Market Segment Certainty Sales StartChevrolet Malibu Hybrid (BAS) Chevrolet Malibu General Motors Midsize-Entry Announced Jan-2007Chevrolet Silverado Hybrid (AHSII) Chevrolet Silverado General Motors Pickup-Fullsize Announced Jan-2008Chevrolet Silverado Hybrid (FAS)Chevrolet Silverado General Motors Pickup-Fullsize Announced May-2004Chevrolet Tahoe Hybrid (AHS II) Chevrolet Tahoe General Motors SUV-Fullsize Announced Jul-2007Dodge Ram Contractor Special Dodge Ram DaimlerChryslerPickup-Fullsize Announced Oct-2004Ford Escape Hybrid Ford Escape Ford SUV-Entry Announced Jul-2004Ford Midsize Car Hybrid Ford Futura Ford Midsize-Premium Announced Oct-2007GMC Sierra Hybrid (AHS II) GMC Sierra General Motors Pickup-Fullsize Announced Jan-2008GMC Sierra Hybrid (FAS) GMC Sierra General Motors Pickup-Fullsize Announced May-2004GMC Yukon Hybrid (AHS II) GMC Yukon General Motors SUV-Fullsize Announced Jul-2007Honda Accord Hybrid Honda AccordHonda Midsize-Premium Announced Oct-2004Honda Civic Hybrid Honda Civic HondaCompact-Premium In Market Apr-2002Honda Insight Honda Insight HondaCompact-Premium In Market Dec-1999Lexus RX400h Lexus RX 400h Toyota SUV-Luxury Announced Oct-2004Mercury Mariner Hybrid Mercury Mariner Ford SUV-Entry Announced Oct-2006Nissan Altima Hybrid Nissan Altima Nissan Midsize-Premium Announced Oct-2006Saturn VUE Hybrid (BAS) Saturn VUE General Motors SUV-Entry Announced Jan-2006Toyota Highlander Hybrid Toyota Highlander Toyota SUV-Midsize Announced Apr-2005Toyota Prius Toyota Prius Toyota Midsize-Premium In Market Jul-2000Source: J.D. Power and Associates,Hybrid-Electric Vehicle Outlook, First Quarter, 2004, Troy, Michigan.13 

### 3. RECENT MARK ET ASSESSMENTS

A recent survey by Opinion Research Corpor ation (Caravan, 2004) i ndicates substantial consumer interest in both diesel and hybrid technologies. In their 2004 survey, 8.6% of respondents indicated that they w ould definitely buy or were very likely to buy a diesel as their next vehicle (Figure 6). The re spondents were evenly divided with 4.3% in each category. Almost seven percent indicated th ey would definitely buy a hybrid vehicle, with 8.3% indicating a hybrid purchase was very likely. The sum of the two most likely categ ories (“definitely” and “very likely”) suggests the following maximum near-term market potent ials: 8.6% for diesels and 15.2% for hybrids.



### Intent to Purchase Diesel or Hybrid-Electric Vehicle ( Opinion Research Corportation, May 20, 2004)

4.3% 4.3% 13.7% 36.3% 38.5%

3.0% 6.9% 8.3% 27.4% 30.9%

20.4%

6.1%

0% 10% 20% 30% 40%

Definitley will buy Very likely to buy Likely to buy Not likely to buy Definitely won't buy Don't knowRelative Frequency Diesel Hybrid electric

Figure 6. Intent to Purchase Diesel or Hybrid-Electric Vehicle (ORC, 2004)

In 2004, J.D. Power and Associates (McManus, 2004) presented a new, less optimistic forecast of hybrid market share to 2013. From 0.6% of the market in 2004, hybrids were projected to grow to 2.5% of the market in 2008 and 3.2% in 2013, with a lower and upper bound of 2.1% to 4.1%, respectively (Figure 7).

Robert Bosch GmbH (Qualters, 200 4) carried out a study of the di esel’s potential in the North American light-duty vehicle market. Key premis es of the study were that emissions control strategies to achieve bin 8 would be available by 2007, bin 5 solutions by 2009, and that fuel availability would not hinder deve lopment of the diesel market. In addition, they assumed that total market volume would be approximately 17.5 million units, and that manufacturers’ market shares would remain relatively static. The Bosc h assessment did not consider competition from alternative power trains, such as the hybrid.

On the positive side, the Bosch st udy noted the enormous success of diesel engines in the larger (GVW class IIb) pick-up truck market, where they currently hold a 75% market share. In 2003, 550,000 diesel pick-ups were sold in the North Am erican market. Bosch’s opinion is that some14 of the appeal of the diesel in this market segmen t must surely carry over, albeit to a lesser degree, into the lighter truck markets. They therefore conclude that the most likely path for diesel market penetration is to migrate downward from cl ass IIb light trucks to large SUVs, lighter-duty pick-up trucks, standard and sm aller sized SUVs, crossover vehi cles and minivans and, finally, passenger cars. If such a strategy is pursued, th ey foresee the North American diesel market share expanding from about 5% today to ne arly 15% by 2012. The Bosch study includes class IIb light trucks (>8,500 lbs. GVW) which are not included in this study. Excluding class IIb trucks, the Bosch projection for 2012 is 10% of the light-duty market as defi ned here (Figure 7). Approximately half of the new sales are expect ed to come in the light-duty pick-up market segment, and only a very small fraction would be attributable to passenger car diesel sales.



### Projections of Light-Duty (<8,500 lbs. GVW) Hybrid and Diesel Market Shares

JD Power 2004/Hybrid JD Power 2004/Hybrid Bosch/Diesel Bosch/Diesel JD Power/Diesel

Morgan Stanley/Hybrid Morgan Stanley/Hybrid

JDP High

JDP Low JD Power 2004/Hybrid

0% 2% 4% 6% 8% 10% 12% 14% 16% 18%

2000 2005 2010 2015 2020

Figure 7. Projections of Light-Duty Hybrid and Diesel Market Shares (Passenger cars and class IIa light trucks, only)

3.1 DOE PROJECTIONS

Projections of future di esel vehicles sales have been made by the U.S. Department of Energy’s Office of Energy Efficiency and Renewable Energy (EERE) and by the Energy Information Administration (EIA, 2004; Patterson, 2004). Th e EIA’s projection foresees diesel sales reaching 585,000 units by 2005, increasing to 716,000 in 2010 and reaching 765,000 units in 2015. Both the EIA’s and EERE’s projections no minally include class IIb light trucks (>8,500 lbs. GVW). However, only the EIA forecast appear s to have been calibrate d to the current level

of class IIb diesel sales. Curre nt class IIb diesel sales amount to approximately 5% of total class 1 and 2 light truck sales. Over 95% of the light-d uty diesels are projected to be light trucks. The15 EERE projection foresees only 179,000 light-d uty diesels by 2010, followed by a rapid expansion to 2.1 million diesels in 2015 (Figure 8) . Over 40% of the diesels in the EERE 2015 forecast are passenger cars.



### Projected Diesel Market Shares in the U.S.: EERE and EIA (2004 An nual Energy Outlook)

0% 5% 10% 15% 20% 25% 30%

2000 2005 2010 2015 2020 2025Percent of Light Vehicle Sales

EERE EIA

Figure 8. Projected Diesel Market Shares in the United States

These studies reflect a considerable range of uncer tainty but also substantial competitive market potential for diesels and hybrids over the next decade. In the sectio ns that follow, we describe a methodology and data for estimating future market success, based on exp licit assumptions about both the attributes of hybrid and diesel technol ogies and the values consumers attach to them.17 

### 4. METHODOLOGY AND DATA

Evaluating the future market potentials of hybrid and diesel technologies requires: (1) estimating the extent to which manufacturers will offer products with diesel or hybrid options, and (2) predicting consumers’ response to those o fferings. The key piece is consumer acceptance,

since it is reasonable to assume that if enough consumers are willing to pay for diesels and hybrids, manufacturers will, eventua lly, produce them in a variety of shapes and sizes. In the near term, to 2008 and even to 2012, the number of diesel or hybrid offerings will be limited by
several factors:

(1) risk : uncertainty about the market’s response to th ese technologies will lead manufacturers to proceed with caution; (2) response time : redesigning vehicles to accommodat e hybrid or diesel power trains takes time because engineering expertise is in limited supply and because accelerating the normal rate of retooling increases costs; and (3) technology status : the technological readin ess of both technologi es is evolving; for the diesel, there remains a question of how successfully it can reduce pollutant emissions; for the hybrid the question is how quickly and how far it can be moved down the learning curve and its costs reduced.

Indeed, it is likely that almost all hybrid or dies el vehicles that will be available in 2008 have already been announced by manufacturers.

4.1 SCENARIOS OF DIESEL AND HYBRID INTRODUCTIONS

Our method for estimating the future market su ccesses of diesels and hybr ids consists of two steps. First, we specify a detailed scenario of diesel and hybrid pr oduct introductions. Second, we use a quantitative model of vehicle choice to predict the share of the new vehicle market those new products will capture. Scenar ios are defined by, (1) time period (2008, 2012 and >2012), (2) technologies introduced (diesel, hybrid, type of hybrid ), and (3) the makes-modelsengines-transmissions to which the technologies are applied.

For 2008, our scenarios are based primarily on manufacturers’ product announcements, with a few additional models added based on our judgment. For 2012 we have augmented the 2008 introductions with additional, likely product introductions, based on our judgment. The makes and models for which diesel and hybrid powertrai ns are assumed to be available in 2008 and

2012 are listed in tables A.1 and A.2 in the appendix. The >2012 scenar ios are intended to represent market tendencies driven by customer demand and largely unconstrained by make and model availability.

If not every single vehicle configur ation offers a diesel and a hybr id option, which configurations will offer them? This question is critically important to the calibration of the consumer choice model. Unfortunately, there is no obviously correct answer to this question, so we test two

alternatives in the 2008 and 2012 analyses: (1) the announced or most likely (based on our judgment) configuration of each nameplate, a nd (2) an “average” configuration for each nameplate. A precise mathematical definition of an average configur ation is provided in18 Appendix A. We use the aver age configuration method as a lower bound estimate since it is

reasonable to assume that manufacturers w ould tend to offer hybrids or diesels on the configurations that would sell best.

In all, eight scenarios were analyzed:

1. >2012 all configurations potenti ally have diesel available

2. >2012 all configurations potential ly have full hybrid available

3. >2012 all configurations potentially have both full hybrid and diesel

4. >2012 all configurations potentially have both ISAD hybrid and diesel

5. 2008 best guess, best-judgm ent make/model/configuration

6. 2008 product plans, average make/model/configuration

7. 2012 best guess, best judgme nt make/model/configuration

8. 2012 augmented product plan, average make/model/configuration

Diesel and hybrid vehicles will have to se ll well enough for manufacturers to achieve scale economies or the product lines will be canceled. Because drivetrains can be used on more than one nameplate, determining exactly how many diesel engines or hybrid drivet rains of a particular design a manufacturer may be selling is difficult and beyond the scope of this study. Instead we eliminate low-selling models with a simple rule of thumb: if the sum of diesel or hybrid sales for a given nameplate (make and model name) is less th an a specified threshold, all configurations of that nameplate are deleted and sales shares are recomputed. The default assumption for the 2008 scenarios is 5,000 units, for 2012 10,000 units must be sold and for >2012 the limit is raised to 25,000 units. In addition, in the >2012 scenario s every configuration mu st sell more than 2,000

units or it is deleted.

Finally, a sensitivity analysis was carried out on scenario 3 (>2012 Full Hybrid & Diesel) to generate a distribution of outcomes and identify the most important factors determining the market success of diesels and hybrids.

4.2 CONSUMER CHOICE MODEL

The model of consumer choice must be able to predict the effects of introducing new products into the market as well as predicting the impacts of changes in vehicle attributes such as price, fuel economy, range and power. In addition, it must be possible to calibrate the model to the base year sales of the nearly 1,000 makes, mode ls and configurations in the National Highway Traffic Safety Administration fuel economy database. Furthermor e, it is desirable to recognize that there are different segments of the light-dut y vehicle market and that consumer preferences and sensitivity to price may vary across these segments, affecting their propensity to accept diesel or hybrid vehicles. The Nested Multi- Nomial Logit (NMNL) random utility model can be used to carry out all of these tasks.

Random utility models such as the NMNL assume that consumers’ vehi cle choice decisions can be approximately represented as a problem of picking the vehicle which achieves the highest score on a ranking function. The simplest form of ranking, or utility function, is a weighted sum

of relevant vehicle attributes su ch as price, performance, relia bility, functionality, and so on. Recognizing that not every consumer attaches th e same value to each attribute, and that there19 may be unmeasured or unmeasurable yet releva nt attributes, a random component that varies

across individual consumers is adde d to the ranking function. Let u ij be the ranking score for the

i th vehicle for the j th individual, let w l be the weight of the l th attribute, x il , and let ε ij be the j th

individual’s random component for the i th make and model. By convention, the weight for vehicle price, w P

= 1, so that the units of w l x il are dollars.

) (

1 

# ∑

= + + = K

l ij il l i ij x w A b u ε

Equation 1

In equation 1, A i is a constant term reflecting the value, in dollars, of attributes of vehicle i not included in the set of measured attributes, x il . The parameter b is a critical parameter in that it determines the sensitivity of cons umers’ choices to changes in the dollar values of alternatives.

Because w p =1, the coefficient of pric e (or price slope) is b.

Assuming that the random terms follow the type I extreme value distribution (a somewhat skewed bell shaped distribution similar to the nor mal distribution), then th e probability that the

i th make and model will be chosen, given that the choice will be made from the k th vehicle class, is given by the multinomial logit (MNL) function.



## ∑

= = L

l bu bu

k i

l i

e e p

1 |

Equation 2

Given a large enough population of car buyers, p i will also be the market share of the i th make

and model. Sales for that carline can then be estimated by multiplying total light-duty vehicle sales by the predicted market share, S i = p i S. In equation 2, b is th e coefficient of vehicle price and is also the inverse of the variance of the random utility term, ε

.

The NMNL model assumes that choices within a class of vehicles, e.g. choices among makes and models of small SUVs, follow the logit mode l of equation 2. Choi ces among vehicle classes follow a similar logit model, in which the utili ty function for a class is a probability-weighted average of the utility scores of the vehicles with in the class. The expected utility of class k, U k , is given by the following log sum.

⎟ ⎟ ⎠ ⎞ ⎜ ⎜ ⎝ ⎛

= 

## ∑

= k

ik n

i u k e b U

1 ln 1

Equation 3

The probability that a consumer will choose a vehicle from class k is then given by the following logit function.



## ∑

= + +

=

n

K BU A BU A

k

K K k k

e e p

120 Equation 4

Here K is used to index summation over all ve hicle classes and n is the number of vehicle

classes. A K is a vehicle class-specific constant term analogous to the vehicle constant term A i in equation 1. Likewise, B is a slope parameter th at determines the sens itivity of choices among vehicle classes to changes in their expected value. The probability that vehicle i will be chosen from class k, which is equivalent to its exp ected market share, is given by the product of equations 2 and 4, the class and conditional vehicle choice probabilities p ik = p i|k p k

.

4.3 MARKET SEGMENTATION AND CHOICE MODEL STRUCTURE

The market structure assumed for this analysis is shown in Figure 9. Light-duty vehicles are divided into five classes (k = 1, 5): (1) standard passenge r vehicles, (2) luxury vehicles, (3) sportscars, (4) pick-up trucks, and (5) standard vans. Standard passenger vehicles are further divided into passenger cars and passenger trucks. Passenger cars contain small, compact and midsize-large cars; passenger trucks comprise minivans, as well as small and large SUVs. Luxury vehicles are further divided into cars and trucks, sportscars are divided into luxury and standard segments, and pick-ups are split in to small and large size classes (Table 6).

Light-Duty Vehicles Sales -1

-2 Sports Cars Luxury Vehicles

-2 -3 Lux Sport Sportscar Lux Car Lux Trk

Passenger Vehicles

-3 Passenger Cars Passenger Trucks Pick- ups

-4 -4 -3 Small Comp Mid-Lg Small Van Small SUV Large SUV SM P-U Lg P-U Van

Make/Model/Configuration Choices -7 to -9

Figure 9. Nested Multinomial Logit Model Structure and Approximate Price Elasticities (shown in bold numbers)

A useful feature of the NMNL model is the ab ility to group more similar vehicle types into

“nests” within which demand will be more sens itive to price (elastic) than choices among the nests. The implication of Figure 9, for exampl e, is that the choice among a small, compact and midsize-large car will be more price sensitive than the choice between a car and all sizes of passenger trucks. Choices among (1) standard van, (2) pick-up, (3) luxury vehicle, (4) passenger vehicle, and (5) 2-seater vehicl e will be even less price sensitiv e, because these vehicle types serve very different functions. Within the lowe st level nests, choice am ong makes and models of large SUVs, for example, will be most sensitive to small price changes. A price elasticity of -7, for example, implies that a 2% increase in pri ce would produce a 14% reduction in market share.21 Table 6 (Part 1). Definitions of Vehicle Classes

Vehicle Class CEC Class Number of Configurations Price 1. Minicompact & Subcompact 1,2 102 <$35,000 2. Compact 3 125 <$35,000 3. Midsize & Large 94 <$35,000

4. Small Van 9 36 <$35,000 5. Small SUV 11,13 162 <$35,000 6. Large SUV 12 13 <$35,000

7. Small Pick-up 7 64 <$35,000 8. Large Pick-up 8 56 <$35,000

9. Luxury Sedan 1-5 117 >$35,000 10. Luxury Truck 7-16 43 >$35,000

11. Standard Sportscar 6 37 <$35,000 12. Luxury Sportscar 6 49 >$35,000

13. Standard Van 10 32 <$35,000

Table 6 (Part 2). California Energy Commission (CEC) Vehicle Classification System

Passenger Cars

CEC Classes Passenger Volume (Cubic Feet)

1. Mini Under 82 2. Sub Compact 82—89 3. Compact 90—95
4. Mid Size 96—105 5. Large 106+ 6. Sports Under 89

Trucks

CEC Class Passenger & Cargo Volume (cu feet) Gross Vehicle Weight Rating (lbs) 7. Compact Pickup <4,500 8. Standard Pickup 4,500—8,500 9. Compact Van <=170
10. Standard Van >170 11. Compact Utility 120—170 12. Standard Utility >170 13. Mini Utility <120 16. Truck Chassis Only22 4.4 CHOICE MODEL CALIBRATION

Calibration of the NMNL model to base year 20 02 sales and vehicle attr ibutes requires three steps. First, price slopes must be estimated for every nest and for every level of choice shown in Figure 1. The price slopes are critical parameters and are used in estimating coefficients for all the other attributes. Second, va lues per unit must be estimated for all variables included in the

NMNL model. Attribute values are converted to NMNL model coefficients by multiplying values per unit by the purchase price coefficient. Third, intercept terms must be estimated to

insure that the NMNL model exact ly predicts the base year market shares of, (1) every make, model and configuration, and (2) every ve hicle market segment shown in Figure 9.

Price slopes not only determine the sensitivity of demand to purchase price but to all other

variables included in the model. In the NMNL model, the price coefficients define the importance of unobserved attributes, factors left out of the formal model. If choice is highly price-sensitive, it implies that consumers percei ve vehicles to be very similar except for the factors explicitly included in the model. If choice is relatively insensitive to price, it implies that most of the important factors on which consum ers base their choices are not explicitly represented in the model. If c hoice is insensitive to price, the choice model will tend to give all vehicles an equal share of the market. In consid ering how sensitive choice may be to price, it is important to keep in mind that choices at the lowest level nests in Figure 1 are among similar vehicles, including diesel, hybrid or conventional gasoline versions of the same make and model. Thus, it is reasonable to assume a high degree of similarity with respect to attributes excluded from the model and, therefore, relatively high se nsitivity to price. At the highest level, the choice among a sportscar, standard passenger vehicle, luxury vehicle, pick-up truck and standard van will be based primarily on factors not explicitly included in our NMNL model. Choices at this level should be much less sensitive to pri ce. Indeed, the theory of NMNL models requires that price sensitivity uniformly decrease as one moves from the lowest level choices upward. This theoretical requirement is very useful in calibrating the model’s price slopes.

Given the price and attribute coefficients, interc epts must be estimated for every make, model and configuration. This allows the expected utilities of classes to be computed. Given the class expected utilities and class pr ice slopes, intercept terms can be calculated for each market segment. This calibration insures that the NM NL model exactly predicts each make, model and configuration share, and all the class shares for the base year.

4.5 PRICE SLOPES

Price slopes are computed using th eir relationship to price elastic ity, vehicle price, and market

share in the NMNL model. Let β k be the price elasticity for choices in vehicle class k, P k the average price of a vehicle in the class, and let p k be the average market share for vehicle configurations in class k. Then the price slope for class k is given by equation 5.

) 1 ( k k k
k p P b

− = β

Equation 523 The same relationship can be used to calcula te price elasticities for choices among vehicle

classes.

McManus (2004) presents useful survey data on the potential sensitivity of diesel and hybrid market shares to their incremental prices. Fo r each of the two alternative powerplants, a J.D. Power and Associates survey asked respondents how likely they would be to buy that powerplant if it cost a certain amount more than a comparable gasoline engine vehicle. Demand, in terms of market share, was set equal to the sum of those responding they would definitely or probably want to buy the powertrain in question. For the diesel, the cost increments were $1,500, $2,500, and $3,500 (2003 dollars). For the hybrid the cost increments were $3,000, $4,000 and $5,000.

Table 7 shows the market shares and cost increm ents, and implied price elasticities based on the midpoint formula for computing arc elasticities. In both cases, the price elasti cities for the initial price increment are just over -8, indicating highly elastic demand. In both cases price elasticities decrease with increasing price.

Table 7. Estimated Price Elasticities for Diesel and Hybrid Market Shares Based on a Survey by J.D. Power and Associates

Price Increase Market Share Relative Change

in Price (Base = $25,026) Relative Change in

Share Arc Elasticity Using Midpoint

Formula

Diesel
$0 .75 - - - $1,500 .44 .0599 -0.514 -8.6 $2,500 .34 .0400 -0.261 -6.5 $3,500 .28 .0400 -0.182 -4.6 Hybrid
$0 .59 - - - $3,000 .21 .1199 -0.971 -8.1 $4,000 .19 .0400 -0.057 -1.4 $5,000 .18 .0400 -0.061 -1.5

The inferences shown in Table 7 must be inte rpreted with caution because they are based on what consumers say they would do rather than what they actually did, and because of the crudeness of the estimation method. Nonetheless, the numbers are generally consistent with other price elasticity estimates from the economic literature. Gr eene (1986) analyzed the choice between gasoline and diesel engines for the same make and model in the U.S. market between 1979 and 1983 and found a price elasticity of appr oximately -10 (Greene, 1994). For choices between makes and models, Irvine (1993) obtained pr ice elasticities ranging from -4.6 to -17.0, with a mean of -10.4. Berry et al. (1995) analyzed choices among 2,217 carlines from 1971 to

1990 and found that elasticities for 1990 model year cars ranged fr om -6.5 to -3.1, with price sensitivity generally decreasing with increasing pr ice. In a similarly comprehensive analysis, Bordley (1994) found an average own price el asticity of -5 for choices among makes and models. Bordley also found a pr ice elasticity of -2 for choices among broad market segments (e.g., subcompact, sports car, etc.). Finally, ther e is a general consensus that the price elasticity of demand for light-duty vehicles overall is cl ose to -1 (Kleit, 1990; McCarthy, 1996; Bordley, 1994).24 Price slope coefficients are calculated from assu med price elasticities, base year vehicle prices and market shares, as shown in equation 5. The default price elasticities assumed at each level of the choice structure are shown in Figure 9. Th e resulting price slopes and the data used to compute them are provided in Table 8.

Table 8. Price Slopes, Elasticities, Prices and Market Shares for Market Segments

2002 Market

Make/Model Average Price Average Price Share (%) Count Share Elasticity Price Slope All Vehicle Classes 20.00% -2 $25,026 -0.000100

Passenger Vehicle 72.59% 50.00% -3 $22,769 -0.000207

Passenger Car 43.35% 33.33% -4 $20,349 -0.000295

Small Car 7.61% 102 0.98% -7 $17,226 -0.000410 Midsize Car 14.53% 125 0.80% -7 $19,234 -0.000367 Large Car 21.22% 94 1.06% -7 $22,233 -0.000318

Passenger Truck 29.24% 33.33% -4 $26,357 -0.000228

Minivan 7.01% 36 2.78% -7 $25,651 -0.000281 Small SUV 20.40% 162 0.62% -7 $26,208 -0.000269 Large SUV 1.83% 13 7.69% -7 $30,718 -0.000247

Pick-up 15.31% 50.00% -3 $22,451 -0.000267

Small Pick-up 5.19% 64 1.56% -7 $19,099 -0.000372 Large Pick-up 10.12% 56 1.79% -9 $24,170 -0.000379

Luxury 8.53% 50.00% -3 $47,429 -0.000127

Luxury Sedan 3.95% 117 0.85% -7 $47,256 -0.000149 Luxury Truck 4.59% 43 2.33% -7 $47,578 -0.000151

Sportscar 2.88% 50.00% -2 $29,534 -0.000135

Standard Sportscar 2.30% 37 2.70% -7 $23,393 -0.000308 Luxury Sportscar 0.57% 49 2.04% -9 $54,159 -0.000170

Van

Standard Van 0.69% 32 3.13% -7 $23,726 -0.000305

4.5.1 Estimating the Value of Attributes

Attribute coefficients are calculated from the estimated value in dollars of one unit of an attribute. The slope coefficient for an attribut e is its value per unit times the appropriate price slope. To the greatest extent possible, attribute values are de rived from assumptions or taken from the existing economic literature. For example, it is possible to calculate the value of a change in fuel economy by calculating the presen t value of fuel savings. While this method requires making a number of arguable assumptions, it has the advantage of transparency. The behavior of the model is directly dependent on it s coefficients which can be directly traced to specific assumptions about consumer behavior. Another virtue of this approach is that it makes it possible to test the sensitivity of model predictions to key assumptions such as the price of fuel, consumer discount rates, or th e value of time spent refueling.25 4.5.2 Fuel Economy

The value of fuel economy is derived from a ssumptions about vehicle use, the consumer’s payback period and discount rate. EPA test fuel economy numbers ar e discounted to more accurately reflect real-world driving experience. For conventional gasoline vehicles, EPA composite MPG numbers are multiplied by 0.85. A lthough there is not yet definitive evidence, it appears that hybrid vehicle MPG s hould be discounted more severe ly (0.80) and diesel powered vehicles less (0.925). Since fuel costs are in un its of dollars per mile, the attribute weight for fuel cost must be in units of present value mile s, in other words miles driven over the consumers’ payback period, discounted to present value. Th e assumptions for these calculations are shown in Table 9. The annual miles by vehicle class for the first year of ownership are shown in the first column. Usage decreases with age and the ra tes of decline are given in the second column. It is assumed that consumers demand a simple 3- year payback, that is, they count the first three years of undiscounted fuel savings.

Fuel economy determines the fuel cost per mile of travel, which equals the price of fuel, P f , divided by fuel economy in miles per gallon, E. T hus, the value weight translates fuel cost per mile of travel into present value dollars (equival ent to dollars spent on purchase price). In effect, it answers the question, “H ow much is a change of $1 per mile in fuel costs worth at the time of purchase?” This depends on how many miles the ve hicle will be driven over time, M(t) = M

o e - δ t , the buyer’s payback period, L, and discount rate, r. 1 The present value of fuel cost is given by the following equation, in which w f is the fuel cost per mile weight.



## ∫ ∫

= − −

= − − = = = L

t f f rt t

o L

t f rt t

o f f w E P dt e e M E P dt e e M E P V

0 0 δ δ

Equation 6

Equation 6 reveals that the fuel co st per mile weight is in unit s of discounted or present value miles. Multiplying w f by the appropriate class-specific price slope yields the coefficient for fuel cost per mile. The reference assumptions are th at consumers value fuel costs using a simple 3- year payback period, i.e., L=3, r=0 (Table 9). This same assumption was one of two used in the National Academy of Sciences (NRC, 2002) assessmen t of U.S. fuel economy regulations, and is also roughly consistent with a recent nationwide random sample survey (Caravan, 2004) which indicated a 2.5 year payback period with an uns pecified discount rate . Estimates based on a recent survey of California residents implied payback periods ranging from 2 to 10 years (Adler, et al., 2004).

4.5.3 Range

The value of increased range is the present value of time that need not be spent refueling. As noted above, it is likely that there is also a nui sance value associated w ith refueling events. However, in the absence of specific evidence ab out the nuisance cost of refueling and because we would prefer to undervalue rath er than overvalue the attributes of diesel and hybrid vehicles in our analysis, the value of range is based so lely on the value of time spent refueling without any additional nuisance value.

1 It may be more accurate to view the discount rate as a re quired rate of return on an investment in fuel economy.26Table 9. Coefficients of the NMNL Vehicle Choice ModelFUEL ECONOMY SLOPESRANGE SLOPESFUEL AVAILABILITYPERFORMANCEAnnualMilesRate of UseDecrease/yrPaybackHorizon(yrs)DiscountRatePresentValueMilesFuelcost/miSlopesTankSize(gals)MinutesPerRefuelValue of Time(2002 $/hr)SlopesCScaleBExponentValue of1 N-m(2002 $)SlopesSmall Car 15,502 4.6% 3 0.0%42,534 -17.456 13.66.6 $17.91 -34.5427 -0.5 -0.33333 $7 0.00287Midsize Car 15,502 4.6% 3 0.0% 42,534 -15.604 14.56.7 $20.00 -35.0513 -0.5 -0.33333 $7 0.00257Large Car 15,502 4.6% 3 0.0%42,534 -13.536 17.47.1 $23.12 -36.9490 -0.5 -0.33333 $7 0.00223Minivan 17,239 4.3% 3 0.0%47,569 -13.352 20.77.5 $26.67 -44.3941 -0.5 -0.33333 $10 0.00196Small SUV 17,955 5.7% 3 0.0%48,262 -12.970 18.97.3 $27.25 -42.7935 -0.5 -0.33333 $10 0.00188Large SUV 17,955 5.7% 3 0.0%48,262 -11.914 26.08.1 $31.94 -51.5016 -0.5 -0.33333 $10 0.00173Small Pick-up 19,151 5.8% 3 0.0% 51,381 -19.131 19.1 7.3 $19.86 -46.1849-0.5 -0.33333 $10 0.00261Large Pick-up 19,151 5.8% 3 0.0% 51,381 -19.480 25.88.1 $25.13 -66.1052 -0.5 -0.33333 $10 0.00265Luxury Sedan 15,502 4.6% 3 0.0%42,534 -6.355 19.2 7.3 $49.14-60.6890 -0.5 -0.33333 $15 0.00224Luxury Truck 15,502 4.6% 3 0.0% 42,534 -6.407 26.1 8.1 $49.47 -68.5169-0.5 -0.33333 $15 0.00226StandardSportscar15,502 4.6% 3 0.0% 42,534-13.081 15.5 6.9 $24.32 -36.3521 -0.5 -0.33333 $7 0.00215LuxurySportscar15,502 4.6% 3 0.0% 42,534-7.216 17.5 7.1 $56.31 -76.7129 -0.5 -0.33333 $7 0.00119Standard Van 19,151 5.8% 3 0.0%51,381 -15.648 32.58.9 $24.67 -57.2262 -0.5 -0.33333 $10 0.0021327 Total lifetime refueling cost is equal to the mile s driven per year divide d by the effective vehicle range (which gives the total number of refueling events per year) multiplied by the time required to refuel (in hours), multiplied by the value of tim e (in $/hr), integrated over the consumers’ ownership horizon and discounted to present value.



## ∫ ∫

= − −

= − − = = = L

t R rt t

o L

t rt t

o R R w dt e e vHM R dt e e M R vH V

0 0 1 δ δ

Equation 7

Equation 7 reveals that range s hould appear as the inverse of range in the NMNL model.

The reference assumptions are a three year tim e horizon, zero discount rate, $20 per hour, an average refueling time of 6 minutes, and an effect ive storage volume of 80% of the total fuel tank volume. It is not clear that consumers use the same method to value future time spent refueling as they use to value future fuel savings . However, in the absence of specific evidence, we choose to use consistent methods and assumptions.

4.5.4 Torque/acceleration/power

The value of acceleration or powe r-to-weight is very subjective and a wide range of estimates

can be found in the literature. Greene (2001) used a value of $12.50 per horsepower (in 1990$, or about $16 in 2002 $), based on studies by Donndenlinger and Cooke (1997) and Greene and Liu (1988). This is equivalent to $375 (2002 $) per second re duction in 0-60 mph acceleration time. A recent study using stated preference surv ey data from Californi a (Adler et al., 2004) found values over $1,000 per second.

Although there is no exact relations hip between torque and horse power, for most vehicles the ratio is typically about 3/2. This would make the value per Nm about $10 in 2002. A value of $7 per 1 Nm of torque is assumed for all vehi cles except luxury cars a nd trucks, for which a value of $15/Nm is used. For example, the willin gness to pay for an increase in torque from 300 to 400 Nm would be $700 to $1,500, roughly what c onsumers would pay for a 6- instead of a 4-, or an 8- instead of a 6-cylinder engine.

The hybrid’s increase in torque is likely to be more pronounced when accelerating from a stop or when rpm is otherwise low, while the diesel’s to rque will be most noticeable at mid-range engine speed. In the absence of information about the relative value of thes e two kinds of power, no attempt has been made here to resolve the issu e of whether “off the line” acceleration is more valuable than passing acceleration (Santini, 2004). Both are assigned the same value.

4.5.5 Fuel Availability

The cost of limited fuel availability is a ssumed to be a power function of the fraction, x , of refueling outlets that offer the fuel in question.

a A Cx V = Equation 828 Greene (1998) found that either a power function or an exponential functi on fit survey data on the perceived cost of low fuel availability. Ni cholas et al. (2004) used a power function to fit data on the extra travel time necessary to refuel on home to work trips in the Sacramento area as

the number of service stations was reduced in a simulation modeling anal ysis. Greene (2001) assumed that the value (cost) of 5% availability in present, purchase price equivalent dollars was -$2,750, while the cost of 10% availability woul d be only about -$1,000. A power curve fitted to the Nicholas et al. (2004) simulation results and assuming a value of time of $20.00 per hour, results in costs of about -$2500 at just under 0.5% availability, d ecreasing to -$500 at about 10% availability (Figure 10). The a ssociated coefficients are C =-0.546 and a = -0.345. For this analysis, coefficient values of C = -0.5 and a = -0.33 were used. These estimates of the cost of limited fuel availability are considered to be conservative because they do not include any estimate of the risk of running out of fuel or of waiting for a pump if queues form, and because the value of many new car buyers’ time is likely to be substantially higher than $20/hr.



### Cost of Limited Fuel Availability (P assenger Car)

-$8,000 -$7,000 -$6,000 -$5,000 -$4,000 -$3,000 -$2,000 -$1,000 $0

0% 10% 20% 30% 40% 50%

Fraction of Stations Offering FuelPresent Value Dollars

After Nicholas, et al., 2004

Greene, 2001

Figure 10. Power Functions Describing the Cost of Limited Fuel Availability

According to the Census Bureau, approximately 42,000 non-truck-stop stat ions offered diesel fuel in 1997 (Hadder, 2004, p. D-6) out of a to tal of 127,000 refueling outlets (33%). Because all truck-stops can be assumed to offer diesel fu el the number of diesel fuel outlets undoubtedly exceeds 42,000. On the other hand, The Census Bureau (2004, table 4.17) report 171,000 retail fueling outlets in 2002 based on a National Petroleu m Survey. Despite considerable uncertainty in these numbers, we assume 33% as the baseline availability in 2008.

4.5.6 High Quality Diesel Fuel

Every potential diesel manufacturer interviewed for this study e xpressed a desire to see higher quality diesel fuel in the U.S. market. In this study, we do not consider the potential impact of high-quality diesel fuel availability on the market potential for diesel vehicles. However, we note that widely available high- quality diesel fuel could only in crease the market potential of light-duty diesels.29 Manufacturers were unanimous in requesting diesel fuel that would meet the World-wide Fuel Charter requirements for Category 4 Diesel Fuel . None thought that hi gh quality diesel fuel would be essential for meeting Tier 2 emissions st andards; the low-sulfur diesel coming to U.S. markets in 2006-7 would be adequate for that pur pose. Rather, high-quality diesel fuel would

allow manufacturers to deliver benefits to diesel car buyers in terms of qui cker, easier ignition at low temperatures, faster, smoother warm-up, cleaner injectors and fuel system and reduced engine wear.

Hadder (2004) has analyzed the likely fuel producti on, logistics and result ing consumer costs of high-quality diesel fuel significantly different from th e ultra-low sulfur diesel fuel required to be in the market in 2010, and satisfying the World- wide Fuel Charter requirements. Depending on the volume of sales and market share, the distri bution costs of high-quality diesel could add 0-5 cents per gallon to its pump price. Hadder f ound that the added costs of refining high-quality diesel, principally distillate dearomatization and cetane improve r, would add about 3 cents per gallon. Finally, because the energy content per ga llon of high-quality di esel is likely to be slightly lower than that of ultra-low sulfur diesel, consumers would suffer another 2 cents per gallon cost increase due to reduced fuel economy. All told, consumers could be expected to pay 6-10 cents per gallon more for high- quality diesel than for ultra-lo w sulfur diesel. This is, in general, less than the additional cost of premium gasoline versus unleaded regular. Premium gasoline, however, is often required to avoi d engine knock. It is highly unlikely that manufacturers would require high- quality diesel fuel, though it might be recommended. Thus, high-quality diesel would be a customer option, purchased only when consumers felt it delivered more in benefits than it cost. In this respect, the availability of high- quality diesel could only increase the desirability of diesel vehicles.

4.5.7 Extra Features of Hybrids or Diesels

No attempt was made in this analysis to estimate the potential extra value that hybrids may be

able to create due to the availa bility to generate and store high -voltage electricity or to impute extra value to diesels based on durability or other factors.

4.5.8 Make, Model and C onfiguration Intercepts

Configuration-specific intercepts ensure that the NMNL model exactly predicts base year market shares. The intercepts represent the value to the consumer of all vehicle attributes not explicitly included in this model (all attributes other than price, fuel economy, range, torque and fuel availability). The formulas for computing vehicle and class intercepts can be found in Appendix A.

4.5.9 Minimum Sales Thresholds

After introducing the diesel and hybrid vehicles and predicting their market shares, we then delete diesel or hybrid carlines that fail to achie ve minimum sales thresholds. This is done by summing sales of diesel or hybrid configurations to the make a nd model level, and checking for adequate sales to achieve scale economies. Diesel s or hybrids with sales less than the threshold value (5,000 in 2008; 10,000 in 2012; 25,000 for >2012) sold within a given nameplate are deleted. In addition, in the >2012 scenarios each configuration must sell at least 2,000 units. Market penetrations are then be re-estimated.31 

### 5. RESULTS

Eight scenarios were developed, two each fo r 2008 and 2012, and four for beyond 2012 (>2012). For 2008, assumptions about the introductions of hybr id and diesel vehicles are based primarily on manufacturers’ announced product plans (a li st of makes and models assumed to be introduced can be found in Appendix B). A “best guess” forecast is based on these announcements plus our own judgments about pr obable new introductions. In general, we believe that diesels and hybrids wi ll most often be introduced on th e better selling versions of
makes and models. A lower forecast was also constructed based on the assumption that the diesel or hybrid configuration will be an average configuration of its make and model. The

mathematics of this method are described in Appendix A. The 2012 scenario builds on the planned introductions of the 2008 scenario and ex tends them, again based on our judgment. The average 2012 scenario uses the same method of averaging configuration intercept terms as the

2008 scenario.

Two other factors are assumed to differ between 2008, 2012 and >2012. In 2008, the minimum sale for the hybrid or diesel versions of a name plate is set at 5,000 units , reflecting a willingness of manufacturers to accept low volumes during the first few years. In 2012, the minimum production volume is raised to 10,000. For th e >2012 scenarios, a mi nimum make and model sales volume of 25,000 units is assumed. In addition, in the >2012 scenarios a minimum sales limit of 2,000 units is enforced for each individua l diesel or hybrid configuration. For 2008,
diesel fuel is assumed to be available at 33% of retail outlets. In 2012 and >2012, assuming that more diesel vehicles are on the road, availability is increased to 50%.

Because consumers value diversity of choice, the sales of diesel and hybrid vehicles are strongly dependent on the number of makes, models and configurations offered for sale (Table 10). However, economies of scale work against offering many makes and models; the more configurations offered, the fewer sold per config uration. The initial num ber of makes, models and configurations offering diesel and hybrid vers ions is strictly an assumption. The model, however, determines which makes and models w ill exceed the assumed sales thresholds (5,000 for 2008, 10,000 for 2012 and 25,000/2,000 for >2012). This will depend not only on the attractiveness of diesel or hybrid vehicles, but on competition between them. For example, in the Diesel Only scenario, 257 diesel vehicles exceed the sales thresholds. When diesels must also compete with full hybrids in the Di esel/Full Hybrid scenario, the num ber of diesel vehicles that exceed the sales thresholds drops to 210.

5.1 THE LONG-RUN POTENTIAL M ARKET SHARES OF DIESEL AND HYBRID
VEHICLES

We begin by exploring the implications of c onsumers’ preferences, unconstrained by the availability of diesel and hybrid offerings. Four >2012 scenarios address the question, “How big could the diesel and hybrid markets become if hybrids and diesels were generally available throughout the light-duty vehicle market?” No part icular date is attach ed to these scenarios because they are intended to represent the l ong-run tendencies of the marketplace. Assuming that customers’ preferences will eventually dictate manufacturers’ decisions, these scenarios

should indicate the direction in which the market will move after the initial hurdles have been32 overcome. How fast and how far the market will move will depend on a number of factors, including the rates of technological progress a nd learning, manufacturers’ willingness to take risks, future fuel prices, government polic ies towards fuel economy and greenhouse gas emissions, and the evolution of consumers’ preferences.

Table 10. Numbers of Diesel and Hybrid Configurations Offered, by Scenario

SCENARIO (921 Conventional Gaso line Configurations) No. of Diesel Configurations No. of Hybrid Configurations

2008 Best Guess 38 54 2008 Average Configuration 35 46

2012 Best Guess 46 90 2012 Average Configuration 46 72 >2012 Diesel Only 257 0 >2012 Hybrid Only 0 235 >2012 Diesel/Full Hybrid 210 155

>2012 Diesel/ISAD 176 228

Rather than guessing which models manufacturers will choose to introduce, we initially assume that all models, body styles and engine-transmission combinations, ( except sports cars for diesels and standard vans for both technologies ) will be available in conve ntional gasoline, hybrid and diesel versions. However, if the total diesel or hybrid sales within a make and model do not sum to at least 25,000 units, a ll diesel or hybrid configurations fo r that make and model are canceled. In addition, if any individual c onfiguration’s sales fall below 2, 000 units, that configuration of

the make and model is also deleted. No such minimum sales requirements are imposed on conventional gasoline vehicles, which should tend to bias our estimates against hybrids and diesels, to some degree. This will also produce a shift in the distribution of sales toward makes

and models with successful diesel or hybrid options.

Four >2012 scenarios have been created. Tw o introduce only diesels or only full hybrids to explore how each competes head-to-head against ga soline. A third assumes that both diesels and full hybrids are widely available, but no other type s of hybrids are consider ed. A final scenario introduces diesels and only the milder ISAD-type hybrids, to determine whether a less expensive but lower fuel economy hybrid would be more or less successful than the full hybrid design.

5.1.1 Diesels Only

In head-to-head competition with gasoline, and under the availability assumptions described above, diesels succeed in capturing 31% of th e light duty vehicle market. Were there no minimum sales volume constraints, diesels woul d have had a 38% market share. Diesels do better in the light truck market, as anticipated by the Bosch North American diesel market study. Diesel passenger truck sales amount to 1.9 million units, 960,000 diesel pick-ups are sold, and luxury trucks include 250,000 diesels (Figure 11). But 1.8 million diesel passenger cars are also sold, 1.1 million of which are large cars. The tendency to predict a greater diesel market share for trucks is underlined by the fact that more dies el passenger trucks are sold despite the fact that there are fewer configurations of passenger trucks (82) to choos e from than passenger cars (95) (Figure 12).33 In the light truck segment, dies el light-duty vehicles average 31.3 MPG in comparison to 24.3 for gasoline. The 31% diesel market share produces a 7.4% increase in new light-duty vehicle average fuel economy.



### Technology Market Shares by Vehicle Type >2012 Diesel Only Scenario

0% 10% 20% 30% 40% 50%

Passenger

Cars Passenger

Trucks Pick-ups Luxury

Vehicles Sportcars Standard

VanShare of Light-Duty Market

Diesel

Gasoline

Figure 11. Technology Market Shares by Vehicle Type >2012 Diesel Only Scenario

Makes, Models, Configurations by Vehicle Type >2012 Diesel Only Scenario

0 50 100 150 200 250 300

Passenger

Cars Passenger

Trucks Pick-ups Luxury

Vehicles Sportcars Standard VanNumber Gasoline

Diesel

Figure 12. Makes, Models, Conf igurations by Vehicle Type >2012 Diesel Only Scenario34 5.1.2 Full Hybrids Only

Full hybrids take 26% of the market in direct competition with conven tional gasoline engines, (this compares with 31% for diesels). The somewh at smaller market share for hybrids is a result of the diesel’s lower price (see Tables 2 and 4) an d slightly greater torque (25% versus 15-20%). The hybrid’s greater fuel economy (35-40% vers us 33%) and therefore greater range are not enough to make up for the diesel’s price and torque advantages. Thus, the diesel seems to offer customers value closer to its purchase price pr emium than the hybrid, but only a little closer.

Hybrids do reasonably well across vehicle types, selling 1.5 million passenger cars, 1.6 million passenger trucks, 700,000 pick-ups and 270,000 luxur y vehicles (mostly trucks) (Figure 13). Hybrids also have fewer passenge r car than light truck configur ations available (Figure 14).



### Technology Market Shares by Vehicle Type >2012 Full Hybrid Scenario

0% 10% 20% 30% 40% 50%

Passenger

Cars Passenger

Trucks Pick-ups Luxury

Vehicles Sportcars Standard

VanShare of Light-Duty Market

Hybrid

Gasoline

Figure 13. Technology Market Shares by Vehicle Type >2012 Full Hybrid Scenario35 Makes, Models, Configurations by Vehicle Type >2012 Full Hybrid Scenario

0 50 100 150 200 250 300

Passenger

Cars Passenger

Trucks Pick-ups Luxury

Vehicles Sportcars Standard

VanNumber Gasoline

Hybrid

Figure 14. Makes, Models, Confi gurations by Vehicle Type >2012 Full Hybrid Scenario

The 26% market share of full hybrids raises overa ll new light-duty vehicle fuel economy to 25.9 from 24.3, a 6.7% increase. Although full hybr ids are assumed to deliver 40% better fuel economy for any given passenger car or small light truck and 35% for any large light truck, on average the hybrid light-duty vehi cle fleet has only 32% higher fuel economy. The reason for this is that hybrids tend to sell better on the less efficient vehicle configurations. Thus, a greater proportion of the less-efficient c onfiguration hybrids meet the sa les threshold. Whereas the average fuel economy of all gasolin e vehicles is 24.3, the averag e fuel economy of the gasoline vehicles for which hybrid versions are available in the Full Hybrid scenario is 23.5. The addition

of new makes and models for these somewhat lowe r mpg configurations causes a shift in sales in their favor, also increasi ng the market shares of the classes to which they belong. Such a shift towards vehicle configurations and classes where new options ar e introduced is an inherent

feature of the NMNL model. The mathematics of the mode l guarantee that introducing new makes and models will produce such sales shifts. The extent of the shifts depends on the NMNL model structure, on its parameters, and on the nu mber and characteristics of the new makes and

models introduced. The effect is to reduce the fuel economy increase caused by introducing diesels and hybrids. Another feature of our methodology that also mitigates potential fuel economy gains is the fact that we do not apply the same sales thresh olds to gasoline vehicles that we apply to diesel or hybrid ve hicles. As a result, there is no culling of lower fuel economy gasoline vehicles in cases where introduction of diesels or hybrid s may cause their sales to fall below the threshold level. These two aspect s of our method should make our estimates of potential fuel economy increases cons ervative, all other things equal.36 5.1.3 Diesels and Full Hybrids

With equal assumptions about availability of make s and models to start with, diesels do slightly better than hybrids in a three-way competition wi th conventional gasoline vehicles. Together they capture 40% of the light- duty vehicle market, with diesel s taking 23.8% to the hybrids’ 16.5% (Figure 15). Both technologies appear to co mpete better in the light-truck market than in the passenger car market. The diesel’s greater suc cess is consistent with the head-to-head results presented above. Not surprisingly, more diesel vehicle makes, m odels and configurations turn

out to be available than hybrid versions (Figure 16).



### Technology Market Shares by Vehicle Type >2012 Diesel & Full Hybrid Scenario

0% 10% 20% 30% 40% 50%

Passenger

Cars Passenger

Trucks Pick-ups Luxury

Vehicles Sportcars Standard

VanShare of Light-Duty Market

Diesel

Hybrid

Gasoline

Figure 15. Technology Market Shares by Vehicle Type >2012 Diesel & Full Hybrid Scenario

The combined effect of both technologies is to raise overall light-duty vehicle fuel economy by almost 10% to 26.7 MPG. On average, hybrids get 31.3 MPG and diesels 31.0, in comparison to 24.3 for gasoline vehicles.37 Makes, Models, Configurations by Vehicle Type >2012 Diesel & Full Hybrid Scenario

0 50 100 150 200 250 300

Passenger

Cars Passenger

Trucks Pick-ups Luxury

Vehicles Sportcars Standard VanNumber Gasoline

Hybrid

Diesel

Figure 16. Makes, Models, Conf igurations by Vehicle Type >2012 Diesel & Full Hybrid Scenario

5.1.4 Diesels and ISAD Hybrids

Mild, ISAD hybrids offer only a 12.5% increase in fuel economy versus a 35-40% increase for a full hybrid design. ISADs also increase torque only 10% in comparison to 15-20% for a full hybrid. On the other hand, the ISAD system is considerably less expensive, $1,385 versus $3,920 for a midsize or large passenger car. The lower cost of the ISAD hybrid more than offsets its smaller benefits, with the result that ISAD hybrid s capture a larger share of the market (27%) than diesels (19%) in a three-way competiti on with conventional gasoline vehicles. The assumption that consumers count only the first th ree years of fuel savings, rather than the full discounted present value of fuel sa vings over the life of a vehicle ha s a great deal to do with the preference seen here for less expensiv e but less fuel efficient vehicles.

This is the first scenario in which more hybrid pa ssenger cars are sold th an hybrids or diesels in any other vehicle class (Figure 17). There are al so more makes, models and configurations of hybrids than diesels in every vehicle class (F igure 18). But ISAD hybrids achieve only 26.8 MPG in comparison to 24.3 MPG for conventional gasoline vehicles and 30.6 MPG for diesels. As a consequence, despite the greater combined market share of hybrids and diesels, overall light-duty vehicle MPG increa ses by only 7% to 26.0.

The result that hybrid market share would be higher for milder hybrid technology than for full hybrid technology is consistent with Santini’s (2004) findings that mild hybrids and stop/start hybrids are more cost-eff ective than full hybrids.38 

### Technology Market Shares by Vehicle Type >2012 Diesel & ISAD Hybrid Scenario

0% 10% 20% 30% 40% 50%

Passenger

Cars Passenger

Trucks Pick-ups Luxury

Vehicles Sportcars Standard

VanShare of Light-Duty Market

Diesel

Hybrid

Gasoline

Figure 17. Technology Market Shares by Vehicle Type >2012 Diesel & ISAD Hybrid Scenario

Makes, Models, Configurations by Vehicle Type >2012 Diesel & ISAD Hybrid Scenario

0 50 100 150 200 250 300

Passenger

Cars Passenger

Trucks Pick-ups Luxury

Vehicles Sportcars Standard VanNumber Gasoline

Hybrid

Diesel

Figure 18. Makes, Models, Conf igurations by Vehicle Type >2012 Diesel & ISAD Hybrid Scenario39 5.2 2008 SCENARIOS

The two 2008 scenarios produce diesel market shar es ranging from 2.4 % (0.4 million units) to 3.9% (0.6 million units) of light-duty vehicle sale s. The higher estimate is obtained under our “best guess” assumptions. The lower estimate is based on the assumption that the diesel will be similar to the average configuration for the make and model in question (i.e., an average intercept is used). Dies el sales are concentrated in the passenger truck, luxury truck, and pick-up truck market segments in 2008 (Figures 19 & 21).

The predicted market shares for hybrid vehicles are larger, ranging from 4.6% (750,000 units) assuming average intercepts to 7.1% (1.1 million units) when the best-guess configurations are assumed. In large part, the greater success of hybr ids can be attributed to the fact that more hybrid configurations are expected to be intr oduced (54 hybrids versus only 38 diesels in the best-guess scenario). Manufactur ers are planning to move more cautiously into the diesel market, most likely due to uncerta inties about the diesel’s abilit y to meet the Tier 2, bin 5 emissions standard. Hybrids are more concentrat ed in the passenger vehicle segments (Figures 19 & 21).

In the 2008 average scenario, 450,000 passenge r cars, 220,000 passenger trucks and 70,000 luxury vehicles are hybrids. Only 16,000 hybrid pick-ups are sold and there are no hybrid sportscars or standard vans. In the “best-gue ss” scenario, 640,000 passenge r cars are hybrids, as are 360,000 passenger trucks. Among hybrid technol ogies, full hybrids are the most prevalent, followed by stop-start and IMA, with ISAD capturi ng only a small share of the market (Figures 20 & 22).

Technology Market Shares by Vehicle Type 2008 Planned Introductions Average Scenario

0% 10% 20% 30% 40% 50%

Passenger

Cars Passenger

Trucks Pick-ups Luxury

Vehicles Sportcars Standard

Van Diesel

Hybrid

Gasoline

Figure 19. Diesel and Hybrid Vehicle Market Shares by Vehicle Type: 2008 Average Scenario40 Hybrid Vehicles by Degr ee of Hybridization: 2008 "Planned Introductions Average Scenario" (Total Hybrid Market Share = 4.6%)

Stop-Start, 1.6%

ISAD, 0.2%

IMA, 1.1% Full Hybrid, 1.7%

Figure 20. Distribution of Hybrid Vehicle Sales by Degree of Hybridization, 2008 Average Scenario

Technology Market Shares by Vehicle Type

2008 "Best Guess" Scenario

0% 10% 20% 30% 40% 50%

Passenger

Cars Passenger

Trucks Pick-ups Luxury

Vehicles Sportcars Standard

Van Diesel

Hybrid

Gasoline

Figure 21. Diesel and Hybrid Market Shares by Vehicle Class, “Best Guess” Scenario41 Hybrid Vehicles by Degree of Hybridization:

2008 "Best Guess" Scenario (Total Hybrid Market Share = 7.1%)

Stop-Start, 2.5%

ISAD, 0.2%

IMA, 1.8% Full Hybrid, 2.5%

Figure 22. Distribution of Hybrid Vehicle Sales by Degree of Hybridization,
2008 “Best Guess” Scenario

5.3 2012 SCENARIOS

In the 2012 scenarios, diesel’s market share ranges from 4.1% (680,000 units) in the average scenario (Figure 23) to 7.2% (1 .2 million units) in the “best gue ss” scenario (Figure 24). While light trucks still predominate, sales of diesel passenger trucks (small and large SUVs; no diesel minivans are assumed in the 2012 scenarios) ou tnumber diesel pick-ups. In both scenarios passenger cars are a small market for diesels (30, 000 units in the “best guess” scenario; 50,000 in the “average” scenario). Diesels also make inro ads in the luxury truck market with 170,000 to 180,000 luxury diesel trucks sold in the averag e and best guess 2012 scen arios, respectively.

Technology Market Shares by Vehicle Type 2012 Average Scenario

0% 10% 20% 30% 40% 50%

Passenger

Cars Passenger

Trucks Pick-ups Luxury

Vehicles Sportcars Standard

Van Diesel

Hybrid

Gasoline

Figure 23. Hybrid and Diesel Market Shares by Vehicle Class, 2012 “Average” Scenario42 The 2012 hybrid share ranges from 10% (1.7 million units) for the average s cenario to 15% (2.5 million units) in the “best guess” scenario (Figure 25). Passenger cars are still the largest hybrid market (0.86 to 1.25 million units), followed by pa ssenger trucks (0.56 to 0.92 million units), but hybrids also achieve some success among pick-u ps (60,000 to 70,000) and luxury vehicles (190,000 to 220,000 units).

In the 2012 “Average” scenario, fu ll hybrids still capture more than half of the hybrid market, followed by the inexpensive stop-start system, IMA and then ISAD systems (Figure 26). In the “best guess” scenario, stop-start and IMA system s take a larger share of the hybrid market (Figure 27). While this produces greater overall hybrid sales, it also diminishes their relative impact on fuel economy.



### Technology Market Shares by Vehicle Type

2012 Best Guess Scenario

0% 10% 20% 30% 40% 50%

Passenger

Cars Passenger

Trucks Pick-ups Luxury

Vehicles Sportcars Standard

Van Diesel

Hybrid

Gasoline

Table 24. Distribution of Hybrid Technology Types in the 2012 “Best Guess” Scenario43 Comparison of 2012 "Average" and "Best Guess"

Market Share Estimates

77.8%

14.9%

7.2% 85.4%

10.2% 4.4%


### 0% 20% 40% 60% 80% 100%

Gasoline Hybrid Diesel Best Guess

Average

Figure 25. Comparison of Market S uccess in “Average” and “Best Guess” Scenarios

Hybrid Vehicles by Degree of Hybridization: 2012 Average Scenario (Total Hybrid Market Share = 10.2%)

Stop-Start, 2.2%

ISAD, 0.5%

IMA, 1.7% Full Hybrid, 5.8%

Figure 26. Distribution of Hybrid Vehicle Sales by Degree of Hybridization, 2012 “Average” Scenario44 Hybrid Vehicles by Degree of Hybridization:

2012 "Best Guess Scenario" (Total Hybrid Market Share = 14.9%)

Stop-Start, 4.2%

ISAD, 0.7%

IMA, 2.9% Full Hybrid, 7.1%

Figure 27. Distribution of Hybrid Vehicle Sales by Degree of Hybridization,
2012 “Best Guess” Scenario

The difference in combined diesel and hybrid sales between the 2012 “av erage” and “best guess” scenarios is an indication of the uncertainty of future market success, even given the specific

makes and models assumed to be introduced: a combined 15% versus 22% of the market, respectively (Figure 25). This reflects the critical importance of the specific configurations on

which manufacturers choose to offer these technol ogies. If diesels and hybrids are available on the more popular body styles and trim lines, they will fare better than if they are available only in a single, average style. This boosts sales a nd helps makes and models get over the 10,000 units

sales threshold. In the “avera ge configuration” scenario, only 72 configurations of hybrids are available (Table 10) whereas in the best guess scenario there are 90 different hybrid configurations.

5.4 IMPACTS ON FUEL ECONOMY

The potential impacts of diesel and hybrid t echnology on new passenger ca r and light truck fuel economy are estimated by comparing the actual fuel economy of model year 2002 light-duty vehicles to the fuel economy of the hypotheti cal new vehicle fleets of the 2008, 2012 and >2012

scenarios. The scenario fleets contain all th e conventional gasoline makes and models of the model year 2002 fleet, plus the assumed introducti ons of diesel and hybrid vehicles of the scenario in question. Whereas new diesel a nd hybrid vehicles must meet the minimum sales thresholds described in the pr evious section, all conventiona l gasoline makes and models are retained, regardless of their sales volumes. The total number of light-duty vehicles sold is

assumed to remain constant but the sales distribu tion changes in response to the introductions of diesel and hybrid vehicles, as predicted by the NMNL model described in previous sections.45 Because low-selling gasoline makes and models ar e not culled from the set of choices available to consumers, the NMNL will always predict some degree of shift in sales in favor of those vehicles introducing new hybrid and diesel configur ations, simply because of the greater variety of choices they offer consumers. As will be s een below, this generally produces a modest shift

in the sales distribution in favor of lower fuel economy vehicle conf igurations. In part, this is a product of our assumptions about which makes and models will offer diesels and hybrids. In part, it is a result of the fact that these technologies produce greater fuel savings on the lowest fuel economy vehicles and therefore sell best in those applications.

Fuel economies are calculated as a sales-wei ghted harmonic mean of all make, model and configuration fuel economies. The fuel economie s of gasoline vehicles are assumed to remain constant at the 2002 levels. Diesel and hybrid fuel economies are estimated by multiplying the model year 2002 fuel economy of the corresponding gasoline versi on of the vehicle by one plus the fractional improvements in fuel economy given in tables 1 and 3. In the few cases where there is no comparable gasoline vehicle, we have estimated the fuel economy of the new product. With the exception of the increase in torque we assume will be provided with diesel and hybrid vehicles, we assume no changes in the size, weight or performance of vehicles relative to model year 2002. We make no attempt to determine whether manufacturers would change the designs and fuel economies of gasoline ve hicles as a result of increased sales of diesels and hybrids.

The moderate market successes of diesel and hybr id technologies raise average fuel economy by 1.5% to 2% in the 2008 scenario, 3% to 4% in the 2012 scenarios and up to 10% beyond 2012 (Table 11). These scenarios assume no signifi cant policy changes that would drive up fuel economy and no significant change in the price of motor fuel. In the 2008 and 2012 “best guess” scenarios, fuel economy increases from 24.3 MP G to 24.8 and 25.2, respectively (Figure 28). Fuel economy increases the most in the >2012 Di esel/Full Hybrid scenario, reaching 26.7 MPG.



### New Light-Duty Vehicle Fuel Economy by Scenario

24.3 24.6 24.8 24.9 25.2 26.7 26.0 26.1 25.9

0 5 10 15 20 25 30

20

02 Data Base

200 8 Avera ge 2008 Best Gue ss

201

2 A verage 2012 Best G ue

ss

D

ie

sel and Full H y brid Diesel and I SAD Hybrid

Die

sel on ly

H ybrid onlyMiles per Gallon

Figure 28. New Light-Duty Vehicle Average Fuel Economy by Scenario46Table 11. Summary of Results of Diesel Hybrid Market ScenariosScenario Shares (%) Sales (1,000s) Fuel Economy (MPG) MPG GainGasoline Hybrid Diesel Gasoline Hybrid Diesel Gasoline Hybrid Diesel Total Total (%)2002 Data Base 99.6% 0.1% 0.2% 24.3 58.4 43.4 24.32008 Average 93.0% 4.6% 2.4% 15,092 752 387 24.2 32.1 27.9 24.6 1.5%2008 Best Guess 89.1% 7.1% 3.9% 14,484 1,148 627 24.3 31.6 26.8 24.8 2.0%2012 Average 85.4% 10.2% 4.4% 14,041 1,675 722 24.2 31.5 26.5 24.9 2.8%2012 Best Guess 77.8% 14.9% 7.2% 12,791 2,457 1,189 24.2 31.8 26.1 25.2 4.3%>2012 Diesel and Full Hybrid 59.7% 16.5% 23.8% 9,643 2,658 3,847 24.3 31.3 31.0 26.7 9.6%>2012 Diesel and ISAD Hybrid 53.8% 27.0% 18.2% 8,692 4,362 3,094 24.3 26.8 30.6 26.0 7.0%>2012 Diesel only 69.2% 0.0% 30.8% 11,180 0 4,969 24.3 -- 31.3 26.1 7.4%>2012 Hybrid only 74.1% 25.9% 0.0% 11,959 4,189 0 24.3 32.0 -- 25.9 6.7%Total Vehicle Sales 16,14847 In the 2008 and 2012 scenarios light truck fuel economy gains are somewhat greater than the increases for passenger cars. For example, in the 2012 “best guess” case, light truck MPG is 6.3% higher than the 2002 base level of 21.0 MP G, while passenger car MPG increases by 3.2% over the 2002 base of 28.8 (Table 12).

Table 12. Average Fuel Economy of Passenger Cars and Light Trucks

2008

Best Guess 2008 Average 2012

Best Guess 2012 Average 2002

Base Passenger cars 29.4 29.2 29.7 29.4 28.8 Light trucks 21.7 21.4 22.3 21.8 21.0 All light-duty vehicles 24.9 24.7 25.2 24.9 24.3

These fuel economy impacts may seem small at firs t. How could technologies offering 30% to 40% better fuel economy and capturing 40% of th e market raise MPG by only about 10%? Part of the answer is harmonic averaging. Consider two types of vehicles with initially equal fuel economy. The harmonic mean of a 0% increase (1.0) with a share of 0.6 and a 35% increase (1.35) with a share of 0.4 is onl y 11.6%, not 0.35 x 0.40 x 100% = 14%.

% 6

. 11 116

. 1

35

. 1 4

. 0

0

. 1 6

. 0 1
⇒ = ⎟ ⎠ ⎞ ⎜ ⎝ ⎛

+

Equation 9

The difference between the value of 11.6% prod uced by this rough calculation and the model’s
calculation of 9.5% is the result of sales mix shif ts that mitigate against fuel economy increases. Hybrid and diesel technologies tend to sell better on vehicles with low fuel economy than on those with the highest fuel economy because the valu e of the fuel saved is greater relative to the cost of the technology. For example, in the Full Hybrid and Diesel scenar io in which any vehicle could be a hybrid or diesel providing it meets minimum sales requirements, 25 of 37 hybrid passenger car models turn out to be large cars, and 113 of 155 total hybrid models are trucks. For diesels, 143 models are trucks out of a tota l of 210. The success of the new technologies in those market segments increases their overall mark et share. In addition to raising fuel economy, this causes an overall sales mix shift towards lower fuel economy vehicles, which mitigates the technologies’ fuel economy benefit. To some de gree these sales shifts ar e an artifact of our methodology, as described above.

Deleting diesel and hybrid makes and models se lling under 25,000 units also has a significant effect on fuel economy. If all makes and m odels selling over 5,000 ar e included in the Full Hybrid and Diesel scenario, the average MPG of a hybrid increases from 31.3 (all <25,000 excluded) to 32.3. Including di esel makes and models with sa les in the interval 5,000-25,000 raises the average MPG of a diesel car from 31.1 to 31.5. Overall, had the lower limit on sales volume been 5,000 instead of 25,000 in the >20 12 diesel/full hybrid cas e, light-duty vehicle average MPG would have been 27.6, an increase of 14% instead of 9.5%. Diesels would capture 28% of the market instead of 24%, and hybrids w ould claim a 23% market share instead of 16%. When the higher sales limits are imposed, small and midsize cars are the greatest losers. The

number of small and midsize makes and models offered drops from 140 hybrids to only 12, and48 from 161 diesels to only 34. In the following sec tion the sensitivity of the model’s predictions to assumptions about scale economies is tested and measured.

5.5 SENSITIVITY ANALYSIS

The sensitivity of the choice model’s predictions to eight key factors was tested using Monte

Carlo simulation. In a Monte Ca rlo simulation inputs are treated as random variable s rather than fixed parameters. Samples are drawn from the di stributions of the rando m variables, the model is run, and the process is repeated (here 1,000 times), producing a distribution of output values rather than a single set of values. Given the re sulting data base of outputs, one can measure the sensitivity of outputs of interest (e.g., diesel or hybrid market shares) to the input variables by means of regression analysis.

The eight parameters are the incremental prices of (1) hybrid and (2) di esel vehicles, (3) the general sensitivity of vehicle choices to price, the prices of (4) gasoline and (5) diesel fuel (these are so highly correlated, about 0. 95, that they should count as only one variable), (6) the overall sensitivity of vehicle choice to price diesel fuel availability, (7) the minimum nameplate, and (8) configuration sales volumes, for hybrids or di esels to be viable on a particular make and

model. Table 13 lists the variables and describe s the assumed probability distributions. Most of

the distributions have the same or almost th e same means as the > 2012 scenarios described above. A notable exception is the minimum production volume, which has a mean of 15,000 units. This will result in considerably greater hybrid and diesel sales and higher fuel economy

than the other >2012 scenarios.

Table 13. Assumptions for Sensitivity Analysis of Hybrid and Diesel Choice

Input Variable Mean/Mode Di stribution Minimum Maximum Incremental Price of Hybrid Vehicle 1.0 (relative) Triangular -50% +50%

Incremental Price of Diesel Vehicle 1.0 (relative) Triangular -50% +50%

Price Sensitivity 1.0 (relative) Triangular -50% +100%

Price of

Gasoline /

Diesel Fuel $1.50 $1.50 Triangular $1.25 $1.25 $2.00 $2.00

Availability of Diesel Fu el 50% Triangular 20% 80%

Minimum Nameplate Sales 15,000 Triangular 5,000 25,000

Minimum Configuration Sales 1,500 Triangular 500 2,500

Of the inputs chosen, all are factors exogenous to the consumer’s choice except price sensitivity.

It would have been of interest to test the sensitivity of the model’s predictions to assumptions about the value of fuel savings, range, torque, et c., but these factors are interdependent with the price sensitivity of vehicle choi ce in ways that are too complex for the Monte Carlo simulation to handle easily.49 The sensitivity analysis was car ried out using the >2012, Diesel /Full Hybrid scenario. This scenario produced the greatest impact on fleet average fuel economy. Given the probability distributions shown in Table 13, the simulation produced a 90% confidence interval for diesel market share of 16% to 34%, with an expected valu e of 25% (Figure 29). Th is is higher than the original >2012 Diesel/Full Hybrid scenario partly because the mean minimum production threshold is lower, 15,000 versus 25,000 units. This allows a greater number of diesel and hybrid makes and models to be offered.

Cumulative Probability Distribution of Di esel Market Share >2012 Diesel/Full Hybrid Scenario

Mean = 0.252 X <=0.34

95% X <=0.16

5%

0 0.2 0.4 0.6 0.8

1

0.05 0.15 0.25 0.35 0.45

Market Share (fraction)Probability Share < X

Figure 29. Sensitivity Analysis of Diesel Market Share, >2012 Diesel/Full Hybrid Scenario

The tornado chart (Figure 30) s hows which variables have the gr eatest influence on diesel’s market share. Not surprisingly, the incremental price of the diesel vehi cle is the single most important factor, with a standard ized regression coefficient (similar to a partial correlation) of -0.9: the higher the diesel’s price, the lower its market share. Next in importance are the prices of gasoline and diesel fuel: higher gasoline prices boost diesel sales, highe r diesel prices lower sales. Gasoline and diesel prices are assumed to be highly correlated; a correlation coefficient of 0.95, which is based on historical data, is used. Thus, the two prices wi ll generally increase or decrease together. The tornado chart, however, shows the independent effects of these prices (i.e., the effect of an increase in the price of diesel fuel) assuming the price of gasoline stays constant. The positive effect of higher gasoline prices on diesel’s market share is greater than the negative effect of highe r diesel prices, so the overall effect of an increase in petroleum prices would be to boost diesel market share. The pr ice of hybrid vehicles is next in importance, followed by diesel fuel availability. Diesel and hybrid power trains compete to a limited degree, so that as the price of hybrids increases, sales of diesels incr ease somewhat. The greater the price elasticity of vehicle choice the smaller the dies el share will be. Since the price elasticity is an assumed parameter, it is comforting that its influence is not great despite varying -50%/+100% from its average value. The final two variables show that the higher the minimum production volume the lower diesel sales will be due to a reduction in diversity of choice.50 Regression Sensitivity for Diesel Market Share

-0.898

0.46

-0.32

0.319

-0.171

-0.165

-0.017

-1 -0.5 0 0.5 1 Price of Diesel Vehicle

Price of Gasoline

Price of Diesel

Price of Hybrid Vehicle

Price Elasticity

Minimum Nameplate Sales

Minimum Configuration Sales

Standardized Sensitivity Coefficients

Figure 30. Tornado Chart Showing Influence of Inputs on Diesel Market Share

Hybrid market shares have a similarly wide 90% confidence interval from 18% to 29%, with a mean of 19% (Figure 31). Again, the chief dete rminant of the hybrid’s market share is its own incremental price (Figure 32). The second most important determinant, however, is the assumed price elasticity of choice, indica ting that the hybrid forecasts are much more sensitive to this assumption than those for diesels. The mini mum production volume is a bout equally important for hybrids as for diesels. The fact that the pred icted hybrid market share is more sensitive to the assumed price sensitivity suggests that the hybrid forecasts should be considered somewhat more uncertain than the diesel forecasts. The hybrid sh are will increase when di esel prices increase, but it may be a surprise that the hybrid share de creases when gasoline prices increase. This

indicates that in the Di esel/Full Hybrid scenar io, hybrids compete more directly with diesel vehicles than with conventional gasoline vehicl es. In addition, because gasoline and diesel prices are highly correlated, in most cases they wi ll rise together and the net effect will be an increase in hybrid’s market share.51 Cumulative Probability Distribution of Hybrid Market Share

Mean = 0.188 X <=0.29

95% X <=0.08

5%

0 0.2 0.4 0.6 0.8

1

0 0.1 0.2 0.3 0.4

Market Share (fraction)Probability Share < X

Figure 31. Sensitivity Analysis of Hybrid Market Share, >2012 Diesel/Full Hybrid Scenario

Regression Sensitivity for Hybrid Market Share

0.223

-0.175

0.11

-0.067

-0.015 -0.486 -0.785

-1 -0.5 0 0.5 1 Price of Hybrid Vehicle

Price Elasticity

Price of Diesel Vehicle

Minimum Nameplate Sales

Price of Diesel

Price of Gasoline

Minimum Configuration Sales

Standardized Sensitivity Coefficients

Figure 32. Tornado Chart Showing Influence of Inputs on Hybrid Market Share52 The average fuel economy of ne w light-duty vehicles has a conf idence interval ranging from 26.1 to 27.8 MPG, with a mean value of 27 (Figur e 33). This is higher than the mean value of 26.6 for the original >2012 Diesel/Full Hybrid scenario partly because the mean minimum production value of the sensitivity an alysis is 15,000 rather than 25,000.

Cumulative Probability Distribution for New Light-Duty Vehicle Fleet Average Fuel Economy

Mean = 26.97 X <=27.77

95% X <=26.06

5%

0 0.2 0.4 0.6 0.8

1

25.0 25.9 26.8 27.6 28.5

Miles per GallonProbability MPG < X

Figure 33. Sensitivity Analysis of LDV Fuel Economy, >2012 Diesel/Full Hybrid Scenario

The most important determinants of the average MPG of new light-duty vehicles are the assumed price elasticities of ve hicle choice and the incremental pric es of hybrid and diesel vehicles (Figure 34). If consumers are much more sensitiv ity to price than assumed in this analysis, the MPG impacts of diesels and hybrid s could be considerably lower. Next in importance are the incremental prices of diesels a nd hybrids, hardly a surprise. Also, if the range of choices available to consumers as influenced by the minimum nameplate sales requirement are much more limited, again the MPG impact will be reduced. Finally, an increase in the price of gasoline will tend to raise MP G as consumers shift to hybrid s and to conventional gasoline vehicles with higher fuel economy. An increase in diesel price, the price of gasoline held constant, tends to discourage diesels sales which have a net negative impact on fleet average fuel economy. Greater diesel fuel avai lability has no significant impact.53 Regression Sensitivity for Light-Duty Vehicle MPG

0.21

-0.102

-0.025 -0.31 -0.423 -0.461 -0.643

-1 -0.5 0 0.5 1 Price Elasticity

Price of Hybrid Vehicle

Price of Diesel Vehicle

Minimum Nameplate Sales

Price of Gasoline

Price of Diesel

Minimum Configuration Sales

Standardized Sensitivity Coefficients

Figure 34. Tornado Chart Showing Influence of Inputs on LDV Fuel Economy55 

### 6. CONCLUSIONS

This analysis indicates that if diesels and hybrids can achieve the technology goals we expect they will, they will have a future as mainstream drivetrain technologies for light-duty vehicles in
the United States. Diesels must meet Tier 2 bin 5 emissions standards, an achievement that is almost but not quite within reac h at the present. Hybrids must reduce costs to roughly half the cost increment of the first generation hybrids, a go al they are well on their way to reaching. If they can achieve these goals, diesels and hybrids should be able to capture 7-10% of the U.S. light-duty vehicle market by 2008, and 15-20% by 2012 (Figure 35).

Comparison of 2012 and 2008 "Best Guess"

Market Share Estimates

77.8%

14.9%

7.2% 89.1%

7.1% 3.9%

0% 20% 40% 60% 80% 100%

Gasoline Hybrid Diesel 2012 2008

Figure 35. Comparison of Market Success in 2008 and 2012 under
“Best Guess” Scenarios

Because of their higher costs, the combined mark et share of diesels and hybrids is likely to be

limited to half or less than half of all light-duty vehicles even in the long-run, unless policy and market conditions change significantly in thei r favor. Such changes are not unlikely, given continuing concerns about energy security and gl obal climate change. Th e long-run impact of these technologies on fuel econom y is likely to be about a 10 % increase in the absence of additional policy initiatives to boost fuel econom y or further technological advances. It is certainly possible, and indeed likely that increa sed sales of diesels and hybrids could raise new light duty vehicle fleet fuel economy by 1% to 3% by 2008, and by 3% to 5% by 2012, without new policies, assuming no reduction in the fuel economy of conventi onal gasoline vehicles.

The market success of diesels and hybrids is hi ghly dependent on manufac turers’ decisions to introduce a diverse array of makes and models in different vehi cle classes. In 2008, when diesel and hybrid offerings are assumed to be very lim ited, diesels capture only 2-4% and hybrids only 4-7% of the light-duty market. In >2012, when the number of di esel configurations is much56 greater either can claim 15-30% of the market . Manufacturers face considerable risk in introducing diesel and hybrid vehi cles due to their higher costs and the possibility that diesels may be unable to meet Tier 2, bin 5 standa rds. Thus, the timing of diesel and hybrid

introductions and therefore their market success is uncertain, despite an nounced product plans.57 

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Nicholas, M.A., S.L. Handy and D. Sperling. 2 004. “Siting and Network Analysis Methods for Hydrogen Stations Using Geographical In formation Systems,” presented at the 83 rd Annual Meeting of the Transportation Research Board , January 11-15, 2004, Washington, DC.

Opinion Research Corporation. 2004. ORC Study #713218, Caravan Fuel Efficient Vehicles

, Question V14A, May 20, 2004, Princeton, New Jersey.

Patterson, P. 2004. Personal communication, U.S. Department of Energy, Office of Energy Efficiency and Renewable Ener gy, Washington, DC, July 16.59 Qualters, C. 2004. “Diesel Market Discussi on,” private briefing, Bosch, GmbH, Farmington Hills, MI, February 5.

Santini, D. 2004. “Customer Benefits and Attributes of Diesels and Hybrids: Market Competitors or Complements?” presentation slides dated April 14, 2004, Center for Transportation Research, Argonne Na tional Laboratory, Argonne, IL.

Schmidt’s Auto Publications. 2004. “Diesel S till Sizzling,” AID Newsletter no. 0401, Warwick, England.

Schmidt’s Auto Publications. 2003. “Diesels at 40% and Climbing,” AID Newsletter, no. 0302, Warwick, England, and on-line update, “Die sel Car Prospects to 2009,” May 17, 2003, www.eagleaid.com/dsltxt.htm

.

Toyota Motor Sales, U.S.A., Inc. 2004. “The 2004 Prius – A Wildly Successful Launch!”

PRIUS View , Issue 5, Spring 2004, p. 1.

Toyota Motor Sales, U.S.A., Inc. 2003. “T oyota Prius Hybrid Production Increased by 31 Percent for U.S. Market,” www.toyota.com/about/news/product/2003/12/08-1-PriusProduction.html , December 10.

### APPENDIX A

CALCULATION OF CONFIGURAT ION AND CLAS S CONSTANTS63 

### APPENDIX A

CALCULATION OF CONFIGURATION AND CLASS CONSTANTS

Given the base year market shares for every configuration, the measured attributes of configurations, and the calculated attribute weight s, an intercept term can be estimated for each configuration that causes the NM NL model predictions to exactly match base year sales. These intercept terms reflect the averag e value of all unmeasured attributes. The same can be done to
insure that the NMNL mode l exactly predicts base year vehicle class shares.

Let p
o be the base year sales share of an arbitr arily chosen reference configuration. The logarithm of the ratio of any conf iguration’s market share to the reference market share is equal to the difference in the utility indices of the two vehicles.

i o i o i U U

o i U A A U U

e e

p p

o i ∆ +

− =

− = ⎟ ⎟ ⎠ ⎞ ⎜ ⎜ ⎝ ⎛

= ⎟ ⎟ ⎠ ⎞ ⎜ ⎜ ⎝ ⎛ ln ln

Equation A-1

In equation A-2, ∆ U i is the difference of the measured util ity indices of configuration i and the reference configuration. Solving for A i , and summing over all conf igurations, i=1, n, and imposing the additional condition that ∑ A i = 0, gives an equation that can be solved for A

o .

⎟ ⎟ ⎠ ⎞ ⎜ ⎜ ⎝ ⎛ ⎟ ⎟ ⎠ ⎞ ⎜ ⎜ ⎝ ⎛ ⎟ ⎟ ⎠ ⎞ ⎜ ⎜ ⎝ ⎛

− ∆ = 

## ∑

= n

i o i

i o p p U

n A

1 ln 1

Equation A-2

Inserting this value for A

o back into equation A-1 yields the equation for estimating all remaining A i ‘s.

i

o i

o i U
p p A A ∆

− ⎟ ⎟ ⎠ ⎞ ⎜ ⎜ ⎝ ⎛

+ = ln

Equation A-3

Estimation of vehicle class constants follows th e same method; the difference of the expected class utilities are used in place of ∆ U i

.

CALCULATION OF AVERAGE CONSTANT TERMS

The average configuration is intended to be a vehicl e that is typical of (o r the average of) all the configurations of a make and mode l with respect to all attributes not explicitly included in the vehicle choice model (i.e., other than price, fuel economy, range, fuel availability and torque).64 The average nameplate constant was defined as follows. Let the average share for the i=1,n i configurations of nameplate i be S i

.

i i K

k ik k i i n

i n

j U U

i i Y A x b A U and

e e

n i

i
j i + = + = = 

## ∑ ∑ ∑ =

=

= 1

1

1 1 S

Equation A-4

We wish to find an average constant term, A , such that if every confi guration of nameplate i had a constant term equal to A , nameplate i would have exact ly the same average share, S i

.

⎥ ⎥ ⎥ ⎥

⎦ ⎤

⎢ ⎢ ⎢ ⎢

⎣ ⎡

= =



# ∑ ∑ ∑ ∑

= = + = = +

i

i i

i i i

i i

i i

n

i Y n

i Y A n

i Y A n

i Y A

e e

A e e e

1 1 1 1

ln

Equation A-5

A is the average unobserved value of the configurati ons of nameplate i. It is not the constant term that would give a vehicle with the average observed characteristics of the configurations of nameplate i the average market share of those configurations.

### APPENDIX B

ASSUMED PRODUCT INTRODUCTIONS67 

### APPENDIX B

ASSUMED PRODUCT INTRODUCTIONS

Makes, Models, Configurations of Hy brid and Diesel Light-Duty Vehicles

Assumed to Be Available in 2008 “Best Guess Scenario”

2008 Hybrid Cars

Manufacturer Division Name 2002
Sales 2002
Price Hybrid Type DCC Mer-Benz A-Class 24,000 $22,500 ISAD GMC Chevy Cavalier 210,244 $15,890 SS Honda Honda Civic FIT 20,000 $14,860 IMA Honda Honda Civic FIT 10,000 $13,860 IMA Toyota Toyota Echo 9,229 $11,780 SS Toyota Toyota Echo 23,266 $11,385 SS VWA VWA Jetta 47,846 $18,775 ISAD VWA VWA Jetta Wagon 5,605 $19,575 ISAD GMC Pontiac Grand Am 2,059 $18,465 SS GMC Pontiac Grand Am 67,168 $19,290 SS GMC Saturn L100/200 63,071 $19,065 SS GMC Saturn LW200 5,552 $20,130 SS GMC Saturn LW200 364 $19,270 SS Honda Acura Acura 3.2TL 60,860 $28,880 IMA Honda Honda Civic dx 4Dr 107,863 $14,060 IMA Toyota Lexus ES 300 70,517 $33,065 FULL Toyota Toyota Prius 22,737 $19,995 FULL FMC Ford Taurus 54,537 $22,445 FULL FMC Ford Taurus Wagon 9,942 $21,495 FULL FMC Mazda 626 35,363 $19,525 FULL FMC Mazda 626 12,787 $22,425 FULL FMC Mercury Sable 59,858 $20,020 FULL FMC Mercury Sable Wagon 4,201 $23,560 FULL GMC Chevy Malibu 144,946 $19,855 SS Honda Honda Accord 122,800 $25,300 IMA Nissan Nissan Altima 146,503 $18,849 FULL Toyota Toyota Camry 93,460 $23,700 FULL

2008 Hybrid Trucks

Manufacturer Division Name 2002
Sales 2002
Price Hybrid Type Honda Honda Odyssey 148,857 $26,750 IMA Toyota Toyota Sienna 85,417 $28,012 FULL FMC Ford Escape 4x2 67,376 $22,075 FULL GMC Chevrolet Blazer 2WD 1,394 $25,005 SS GMC Chevrolet Blazer 2WD 36,159 $26,005 SS GMC Chevrolet Blazer 4WD 437 $27,005 SS GMC Chevrolet Blazer 4WD 65,351 $28,005 SS GMC Saturn Vue AWD 1,052 $18,860 SS GMC Saturn Vue FWD 717 $17,265 SS68 Manufacturer Division Name Sales Price Hybrid Type Honda Honda CR-V 29,053 $19,050 IMA Honda Honda CR-V 99,884 $20,250 IMA TKM Mazda Tribute 4x2 22,249 $21,485 FULL TKM Mazda Tribute 4x4 24,854 $22,685 FULL Toyota Toyota Highlander 2WD 42,567 $25,460 FULL Toyota Toyota Rav4 2WD 48,231 $17,575 FULL Toyota Toyota Rav4 4WD 39,291 $18,975 FULL GMC Chevrolet C1500 Tahoe 2WD 61,519 $33,409 FULL GMC GMC C1500 Yukon 2WD 7,193 $33,596 FULL GMC GMC K1500 Yukon 4WD 1,746 $34,996 FULL GMC Chevrolet C1500 Suburban 2WD 49,314 $36,143 FULL GMC Chevrolet K1500 Suburban 4WD 71,668 $38,209 FULL GMC Chevrolet K1500 Tahoe 4WD 5,017 $35,475 FULL GMC GMC C1500 Yukon XL 2WD 16,472 $36,501 FULL GMC GMC K1500 Yukon XL 4WD 22,731 $39,034 FULL

2008 Diesel Cars

Manufacturer Division Name 2002
Sales 2002
Price DCC Mer-Benz A-Class 24,000 $22,500 VWA VWA Golf 3,255 $15,250 VWA VWA Golf TDI 1,655 $17,420 VWA VWA Golf TDI 6,025 $16,545 VWA VWA Jetta 7,133 $18,950 VWA VWA Jetta 11,326 $20,135 VWA VWA Jetta 1,102 $24,700 VWA VWA Jetta Wagon 340 $21,000 VWA VWA New Beetle 4,766 $18,775 VWA Audi Audi A4 1,174 $33,190 VWA VWA Passat 8,167 $21,750 VWA VWA Passat Wagon 8,379 $23,625 VWA VWA Passat Wagon 695 $25,050 BMW BMW 525i 12,579 $38,275 DCC Mer-Benz C320 12,483 $38,135 DCC Mer-Benz E 320 14,749 $48,450 DCC Mer-Benz S 430 14,919 $71,850 VWA Audi Audi A6 2,529 $36,400 VWA Audi Audi A6 1,412 $50,650 VWA Audi Audi A6 Avant 2,148 $39,350

2008 Diesel Trucks

Manufacturer Division Name 2002
Sales 2002
Price DCC Jeep Liberty 2WD 46,124 $22,994 DCC Jeep Liberty 4WD 157,615 $24,479 DCC Jeep Wrangler 25,831 $19,860 Isuzu Isuzu Trooper 7,917 $29,405 FMC Ford Expedition 4x2 32,851 $30,43069 Manufacturer Division Name 2002
Sales 2002
Price FMC Ford Expedition 4x4 4,096 $33,300 GMC Chevrolet C1500 Tahoe 2WD 14,214 $32,709 GMC Chevrolet K1500 Tahoe 4WD 97,036 $27,857 GMC GMC C1500 Yukon 2WD 16,240 $34,296 GMC GMC K1500 Yukon 4WD 24,313 $34,996 DCC Dodge Dakota 2WD 43,412 $19,625 DCC Dodge Dakota 4WD 16,789 $22,835 FMC Ford F150 4x2 108,687 $22,520 FMC Ford F150 4x4 35,368 $25,935 GMC Chevrolet C1500 Silverado 2WD 72,250 $24,184 GMC Chevrolet K1500 Silverado 4WD 150,295 $27,134 GMC GMC C1500 Sierra 2WD 22,782 $21,868 GMC GMC K1500 Sierra 4WD 44,469 $26,435 Nissan Nissan Titan 4x2 40,000 $24,000 Nissan Nissan Titan 4x4 22,000 $26,500 Toyota Toyota Toyota Tundra 2WD 42,344 $22,975 DCC Mer-Benz ML 320 30,686 $37,595 Toyota Toyota Land Cruiser Wagon 4 6,331 $52,595 VWA Audi Allroad Quattro 4,463 $40,950

Makes, Models, Configurations of Hy brid and Diesel Light-Duty Vehicles

Assumed to be Available in 2012 “Best Guess” Scenario

2012 Hybrid Cars and Trucks

Manufacturer Division Name 2002
Sales 2002
Price Hybrid Type DCC Mer-Benz A-Class 24,000 $22,500 ISAD FMC Ford Escort 40,921 $15,015 SS GMC Chevy Cavalier 210,244 $15,890 SS Honda Acura RSX 16,507 $21,850 IMA Honda Honda Civic ex 540 $14,860 IMA Honda Honda Civic ex 960 $13,860 IMA Nissan Nissan New Model 12,000 $11,750 SS Nissan Nissan New Model 28,000 $12,650 SS Toyota Toyota Echo 9,229 $11,780 SS Toyota Toyota Echo 23,266 $11,385 SS VWA VWA Jetta 47,846 $18,775 ISAD VWA VWA Jetta Wagon 5,605 $19,575 ISAD BMW BMW 325i 30,738 $29,425 ISAD DCC Dodge Neon 103,205 $15,090 ISAD DCC Dodge Neon 16,048 $15,915 ISAD FMC Ford Focus 83,424 $16,050 SS FMC Ford Focus 95,367 $16,050 SS FMC Ford Focus Wagon 33,265 $17,565 SS FMC Volvo S60 20,570 $27,125 FULL GMC Pontiac Grand Am 2,059 $18,465 SS GMC Pontiac Grand Am 67,168 $19,290 SS GMC Saturn L100/200 63,071 $19,065 SS GMC Saturn LW200 5,552 $20,130 SS GMC Saturn LW200 364 $19,270 SS Honda Acura Acura 3.2TL 60,860 $28,880 IMA70 Manufacturer Division Name Sales Price Hybrid Type Honda Honda Civic dx 4Dr 107,863 $14,060 IMA Suzuki Suzuki Aerio 7,529 $14,491 SS Suzuki Suzuki Aerio 1,652 $13,571 SS Suzuki Suzuki Aerio SX 1,229 $13,847 SS Suzuki Suzuki Aerio SX 3,256 $14,767 SS Toyota Lexus ES 300 70,517 $33,055 FULL Toyota Toyota Camry Solara 12,719 $22,485 FULL Toyota Toyota Prius 22,737 $19,995 FULL VWA Audi Audi A4 1,174 $33,190 ISAD DCC Chrysler 300 M 36,663 $28,415 FULL DCC Chrysler Concorde 14,548 $22,510 FULL DCC Dodge Intrepid 91,428 $20,520 FULL FMC Ford Taurus 54,537 $22,445 FULL FMC Ford Taurus Wagon 9,942 $21,495 FULL FMC Lincoln Lincoln LS 12,363 $33,220 FULL FMC Mazda 626 35,363 $19,525 FULL FMC Mazda 626 12,787 $22,425 FULL FMC Mercury Sable 59,858 $20,020 FULL FMC Mercury Sable Wagon 4,201 $23,560 FULL GMC Buick LaSabre 137,737 $24,495 FULL GMC Chevy Impala 118,204 $20,540 FULL GMC Chevy Malibu 144,946 $19,855 SS GMC Pontiac Bonneville 37,343 $28,890 FULL Honda Honda Accord 122,800 $25,300 IMA Hyundai Hyundai Sonata 49,666 $18,824 FULL Mitsubishi Mitsubishi Galant 80,656 $18,517 Y Nissan Nissan Altima 146,503 $18,849 FULL Nissan Nissan Maxima 79,206 $25,449 FULL Toyota Toyota Camry 93,460 $23,700 FULL VWA VWA Passat 8,167 $21,750 ISAD VWA VWA Passat 14,544 $25,325 ISAD VWA VWA Passat Wagon 8,379 $23,625 ISAD BMW BMW 525i 12,579 $38,275 ISAD DCC Mer-Benz C320 12,483 $38,135 FULL DCC Mer-Benz E 320 14,749 $48,450 FULL DCC Mer-Benz S 430 14,919 $71,850 FULL FMC Volvo S80 10,790 $38,450 FULL GMC Cadillac Seville 25,128 $44,039 FULL Toyota Lexus LS 430 27,162 $54,405 FULL VWA Audi Audi A6 2,529 $36,400 ISAD VWA Audi Audi A6 Avant 2,148 $39,350 ISAD DCC Chrysler Town & Country 2WD 69,325 $26,240 FULL DCC Dodge Grand Caravan 2WD 23,583 $24,950 FULL FMC Ford Windstar Van 18,364 $20,250 FULL FMC Ford Windstar Wagon 4,232 $28,625 FULL FMC Mercury Villager Wagon 142,042 $24,340 FULL Honda Honda Odyssey 148,857 $26,750 IMA Nissan Nissan Quest 21,099 $27,194 FULL Toyota Toyota Sienna 85,417 $28,012 FULL DCC Chrysler PT Cruiser 22,197 $17,990 SS DCC Chrysler PT Cruiser 147,362 $18,815 SS DCC Chrysler Pacifica 40,000 $28,845 FULL DCC Chrysler Pacifica 20,000 $32,300 FULL DCC Jeep Grand Cherokee 2WD 39,048 $25,425 FULL DCC Jeep Grand Cherokee 4WD 91,965 $27,395 FULL FMC Ford Escape 4x2 67,376 $22,075 FULL71 Manufacturer Division Name 2002
Sales 2002
Price Hybrid Type GMC Chevrolet Blazer 2WD 1,394 $25,005 SS GMC Chevrolet Blazer 2WD 36,159 $26,005 SS GMC Chevrolet Blazer 4WD 437 $27,005 SS GMC Chevrolet Blazer 4WD 65,351 $28,005 SS GMC Chevrolet Trailblazer 2WD 87,430 $28,840 FULL GMC Chevrolet Trailblazer 4WD 165,819 $31,065 FULL GMC GMC Envoy 2WD 30,715 $31,935 FULL GMC GMC Envoy 4WD 77,935 $34,160 FULL GMC Saturn Vue AWD 1,052 $18,860 SS GMC Saturn Vue FWD 717 $17,265 SS Honda Honda Pilot 80,000 $29,470 IMA Honda Honda CR-V 29,053 $19,050 IMA Honda Honda CR-V 99,884 $20,250 IMA TKM Mazda Tribute 4x2 22,249 $21,485 FULL TKM Mazda Tribute 4x4 24,854 $22,685 FULL Toyota Toyota Highlander 2WD 42,567 $25,460 FULL Toyota Toyota Rav4 2WD 48,231 $17,575 FULL Toyota Toyota Rav4 4WD 39,291 $18,975 FULL GMC Chevrolet C1500 Tahoe 2WD 61,519 $33,409 FULL GMC GMC C1500 Yukon 2WD 7,193 $33,596 FULL GMC GMC K1500 Yukon 4WD 1,746 $34,996 FULL TKM Mazda Mazda B3000 4x2 7,231 $18,070 FULL FMC Ford EX SP Trac 4x2 40,864 $23,880 FULL FMC Ford EX SP Trac 4x4 30,725 $26,650 FULL GMC Chevrolet C1500 Silverado 2WD 85,182 $22,689 FULL
GMC Chevrolet K1500 Silv erado 4WD 35,847 $25,639 FULL GMC GMC C1500 Sierra 2WD 27,113 $21,068 FULL GMC GMC K1500 Sierra 4WD 9,917 $25,635 FULL BMW BMW X5 3.0 30,564 $41,225 FULL Honda Acura MDX 48,998 $37,300 IMA GMC Cadillac Escalade 2WD 10,692 $48,735 FULL GMC Cadillac Escalade AWD 43,311 $52,230 FULL GMC Chevrolet C1500Suburban 2WD 49,314 $36,143 FULL GMC Chevrolet K1500 Suburban 4WD 71,668 $38,209 FULL GMC Chevrolet K1500 Tahoe 4WD 5,017 $35,475 FULL GMC GMC C1500 Yukon XL 2WD 16,472 $36,501 FULL GMC GMC K1500 Yukon XL 4WD 22,731 $39,034 FULL

2012 Diesel Cars and Trucks

Manufacturer Division Name 2002
Sales 2002
Price DCC Mer-Benz A-Class 24,000 $22,500 VWA VWA Golf 3,255 $15,250 VWA VWA Golf TDI 1,655 $17,420 VWA VWA Golf TDI 6,025 $16,545 VWA VWA Jetta 7,133 $18,950 VWA VWA Jetta 11,326 $20,135 VWA VWA Jetta 1,102 $24,700 VWA VWA Jetta Wagon 340 $21,000 VWA VWA New Beetle 4,766 $18,775 DCC Mer-Benz C240 33,611 $31,735 VWA Audi Audi A4 1,174 $33,19072 Manufacturer Division Name 2002
Sales 2002
Price VWA VWA Passat 8,167 $21,750 VWA VWA Passat Wagon 8,379 $23,625 VWA VWA Passat Wagon 695 $25,050 BMW BMW 525i 12,579 $38,275 BMW BMW 745i 10,575 $67,850 DCC Mer-Benz C320 12,483 $38,135 DCC Mer-Benz E 320 14,749 $48,450 DCC Mer-Benz S 430 14,919 $71,850 FMC Jaguar Jaguar S-Type 6 8,033 $43,675 VWA Audi Audi A6 2,529 $36,400 VWA Audi Audi A6 1,412 $50,650 VWA Audi Audi A6 Avant 2,148 $39,350 DCC Dodge Durango 2WD 16,800 $29,320 DCC Dodge Durango 4WD 33,133 $31,440 DCC Jeep Liberty 2WD 46,124 $22,994 DCC Jeep Liberty 4WD 157,615 $24,479 DCC Jeep Wrangler 25,831 $19,860 FMC Ford Explorer 4x2 125,415 $29,190 FMC Ford Explorer 4x4 217,575 $31,155 FMC Mercury Mountaineer 4x2 7,070 $29,645 FMC Mercury Mountaineer 4x4 27,422 $31,645 Isuzu Isuzu Trooper 7,917 $29,405 Nissan Nissan Pathfinder 2WD 15,861 $28,999 Nissan Nissan Pathfinder 4WD 38,712 $32,499 Nissan Nissan Xterra V6 2WD 40,628 $24,199 Nissan Nissan Xterra V6 4WD 1,684 $26,449 Nissan Nissan Xterra V6 4WD 34,714 $26,199 FMC Ford Expedition 4x2 32,851 $30,430 FMC Ford Expedition 4x4 4,096 $33,300 GMC Chevrolet C1500 Tahoe 2WD 14,214 $32,709 GMC Chevrolet K1500 Tahoe 4WD 97,036 $27,857 GMC GMC C1500 Yukon 2WD 16,240 $34,296 GMC GMC K1500 Yukon 4WD 24,313 $34,996 DCC Dodge Dakota 2WD 43,412 $19,625 DCC Dodge Dakota 4WD 16,789 $22,835 DCC Dodge Ram 1500 2WD 114,196 $19,990 DCC Dodge Ram 1500 4WD 55,866 $22,730 FMC Ford F150 4x2 108,687 $22,520 FMC Ford F150 4x4 35,368 $25,935 GMC Chevrolet C1500 Silverado 2WD 72,250 $24,184 GMC Chevrolet K1500 Silverado 4WD 150,295 27,134 GMC GMC C1500 Sierra 2WD 22,782 $21,868 GMC GMC K1500 Sierra 4WD 44,469 $26,435 Nissan Nissan Titan 40,000 Nissan Nissan Titan 22,000 Toyota Toyota Toyota Tundra 2WD 42,344 $22,975 BMW BMW X5 4.4 8,246 $50,420 DCC Mer-Benz ML 320 30,686 $37,595 FMC Lincoln Navigator 4x2 9,367 $44,590 FMC Lincoln Navigator 4x4 8,517 $48,340 FMC Rover Range Rover 4.6 3,927 $68,000 GMC Chevrolet C1500 Suburban 2WD 49,314 $36,143 GMC Chevrolet K1500 Suburban 4WD 71,668 $38,209 GMC GMC K1500 Yukon XL 4WD 22,731 $39,034 Mitsubishi Mitsubishi Montero 17,461 $35,897 Nissan Infiniti Infiniti QX4 2WD 4,018 $35,15073 Manufacturer Division Name 2002
Sales 2002
Price Nissan Infiniti Infiniti QX4 4WD 11,925 $36,550 Nissan Nissan Armada 15,000 $36,450 Nissan Nissan Armada 25,000 $39,250 Toyota Toyota Land Cruiser Wagon 4 6,331 $52,595 Toyota Toyota Sequoia 2WD 41,737 $39,405 Toyota Toyota Sequoia 4WD 38,158 $42,752 VWA Audi Allroad Quattro 4,463 $40,950 FMC Ford E150 Van 20,688 $21,430

### APPENDIX C

CHARACTERISTICS OF DIESEL AND HYBRID PROD UCT LINES FOR
WHICH THERE IS NO MODE L YEAR 2002 COUNTERPART77Table C1. Characteristics of Diesel and Hybrid Product Lines for which there is No Model Year 2002 CounterpartYear ofIntroductionManufacturerDivisionNameClassSalesPrice(2002$)CompositeMPGTorqueNmTankSize(gals.)HybridTypeHybridDieselDCC Mer-Benz A-Class Mini & subcompact 24,000 $22,500 34.8 205.0 14.0 2008 2008Nissan Nissan New Mini& subcompact 12,000 $11,750 37.8 175.0 13.2 Stop-start 2012Nissan Nissan New Mini & subcompact 28,000 $12,650 37.0 175.0 13.2 Stop-start 2012DCC Chrysler Pacifica Small SUV 40,000 $28,845 340.0 20.0 Full 2012DCC Chrysler Pacifica Small SUV 20,000 $32,300 340.0 20.0 Full 2012Honda Honda Pilot Small SUV 80,000 $29,470 22.5 332.2 19.2 IMA 2012Nissan Nissan Titan 4 x 2 Large Pickup 40,000 $24,000 18.4 500.0 24.0 2008Nissan Nissan Titan 4 x 4 Large Pickup 22,000 $26,500 18.0 500.0 24.0 2008Nissan Nissan Armada Luxury Truck 15,000 $36,450 18.4 500.0 24.0 2012Nissan Nissan Armada Luxury Truck 25,000 $39,250 18.0 500.0 24.0 2012