Alternative Fuel for Lotus
ALTERNATIVE FUEL ASSESSMENT for LOTUS CAR RENTAL
In the past few decades, citizens, environmentalists and government officials alike have become increasingly aware of the threatening approach of the fuel shortage crisis in the United States. This shortage is illustrated by the steady increase in gasoline prices, the wars for oil fought in the Middle East, and increasing demand for alternative fuel vehicle designs. Each day, vehicles in the United States consume about 10 million barrels of petroleum fuels, primarily gasoline and diesel (United States General Accounting Office, 2001). According to projections made by the Energy Information Administration (EIA), this figure will rise to about 15 million barrels per day by 2010, much of which will be met by importing oil (United States General Accounting Office, 2001). As a result, law-makers and politicians have searched for new solutions to solve the looming transportation crisis. According to the United States General Accounting Office (2001), the transportation sector accounts for the bulk of the petroleum consumption in our nation, currently representing about two thirds of total petroleum use and roughly a quarter of our total energy consumption.
One possible solution lies in the use of alternative fuels, or fuels that are derived from resources other than petroleum. Some are produced domestically, reducing our dependence on imported oil, and some are derived from renewable sources. Environmentalists also support alternative fuels, since they produce less pollution than gasoline or diesel. In 1992, Congress passed the Energy Policy Act (EPACT) which, sought to replace at least 10% of the projected petroleum fuels consumed by Light Duty Vehicles in 2000 and 30% in 2010 with alternative fuels — such as ethanol, methanol, liquefied petroleum gas, compressed natural gas, liquefied natural gas, and electricity. To achieve these goals, Congress established federal tax deductions and credits aimed at encouraging the purchase of alternative fuel vehicles and use of alternative fuels (United States General Accounting Office, 2001). Federal agencies, state governments, and private consumers have purchased an increasing number of alternative fuel vehicles. This paper will analyze the potential offered by alternative fuel vehicles, and will provide an assessment of the feasibility of adding these vehicles to the Lotus Car Rental vehicle fleet. It will conclude with a brief summary of whether or not this would be a positive effort on the part of Lotus.
Analysis of the Factors review of the literature indicates that even with laws, regulations, and incentives in place, the use of alternative fuels in the transportation sector remains very small. But repeated attempts to introduce other technologies during the past century have nearly all failed. According to Science Daily (2007), the challenge is not just introducing an alternative fuel vehicle, but also includes other factors such as consumer acceptance, in addition to the fact that the fueling infrastructure and manufacturing capability all have to evolve at the same time. From the standpoint of a rental car company, the decision on whether or not to add alternative fuel vehicles to the fleet of rental cars includes an examination of their cost, convenience, place of manufacture, the availability of certain types of alternative fuels, and various incentives offered to purchasers of alternative fuel vehicles. The research available on the background of alternative fuel vehicles focuses a great deal on how they rate in comparison with conventional vehicles in the four categories mentioned above. It appears that, based on an analysis of the relevant factors above, that the feasibility of adding alternative fuel vehicles to the Lotus Car Rental fleet would not be a good option for the company.
Cost of Adding Alternative Fuel Vehicles review of the literature indicates that the cost of adding alternative fuel vehicles to a rental car fleet outweighs the benefits. Although the current gas prices are very high, they are not high enough to induce many people to give up conventional gasoline and diesel automobiles in favor of alternative fuel vehicles and fuels. According to reports released by the United States General Accounting Office (2001), even doubling the price for crude oil ($20/barrel at the time the report was generated) would not significantly increase the market share for alternative fuel vehicles. For a rental car fleet, obtaining alternative fuel vehicles is more expensive that purchasing traditional fuel vehicles. For example, a vehicle that runs on compressed natural gas generally costs from $3,000 to $5,000 more than the cost of conventionally powered vehicles of comparable make and model. A rental facility such as Lotus Car Rental, would not benefit from spending more money on such vehicles unless there was a high customer demand for them. Since these vehicles cost more, the rental fees associated with the vehicles would have to be higher than the fees associated with conventional vehicles in order to make a profit, after the car is purchased. Since most rental customers are only using the rental short-term, they would probably be interested in spending as less money as possible for the rental. Therefore, these cars would probably not be rented very frequently; only an individual that is extremely environmentally motivated would be interested in the option of renting an alternative fuel vehicle.
Convenience of Alternative Fuel Vehicles
In addition, adding alternative fuel vehicles to a rental fleet does not cause the rental company not the consumer any added convenience. Since the cost of purchase is higher, it would not be convenient for us to add these vehicles. As far as the customer is concerned, this type of rental would only be convenient to them if it was cheaper, and if alternative fuels were readily available virtually everywhere that regular gasoline is available, and at a significantly cheaper price than conventional fuels. The convenient factor is unlikely to be overcome in this manner. This option would be affected by the fact whether or not these vehicles are manufactured domestically, because if not, the associated costs of repair and maintenance of parts would also increase for our company. The research indicates that there are companies, such as Ford, that are building these cars domestically; however, since foreign companies also make these vehicles, any vehicles we purchase would have to be manufactured domestically. If Lotus Car Rental were to add these vehicles to their fleet, another problem would be the availability of fuel stations to re-fuel these vehicles. The limited number of refueling stations for alternative fuels, compared with gasoline and diesel stations, would be a major impediment to adding alternative fuel vehicles. This is further illustrated by the fact that in 1999, there existed only about 6,000 refueling stations for alternative fuels in the United States. In comparison, there are over 180,000 conventional fuel refueling stations.
As a result of the insufficient number of alternative fuel vehicles in the nation’s vehicle fleet, owners of gasoline refueling stations are reluctant to provide refueling facilities for them. This causes a problem for any rental car facility that wants to add alternative fuel vehicles to their fleet. The high cost of providing some alternative fuels at existing refueling gasoline stations reduces station owners’ willingness to provide the facilities. According to statistics released by the United States General Accounting Office (2001), the costs to build facilities that provide compressed natural gas cost about $300,000, significantly more than the cost of refueling stations for gasoline, ethanol, or methanol. In addition, the scarcity of alternative fuel refueling stations makes it less convenient to acquire alternative fuels, which in turn deters the general public from using alternative fuel vehicles. Consumers renting cars are more likely to want a rental car that is easy to re-fuel, and an alternative fuel vehicle does not appear to fall in this category.
Availability of Alternative Fuels
Another factor that Lotus Car Rental must take into consideration when assessing the feasibility of adding alternative fuel vehicles to its fleet is the types of alterative fuels available. For example, if alterative fuels are not readily available, there is no reason to even consider adding these vehicles to the rental fleet. Two examples of alternative fuels are propane and natural gas. Propane is distributed throughout the U.S. For use primarily as a home heating and cooking fuel. This fuel has the unique ability to be stored, distributed and handled as a liquid while typically being used in a vaporous state (California Energy Commission, 2005). The American Petroleum Institute reports that approximately 10% of the propane sold in California is to transportation markets – some 65 million gallons annually (California Energy Commission, 2005). A positive factor is that it is anticipated that adequate supplies of propane at competitive prices will be available to meet a predicted growth in transportation fuel demand. Natural gas supplies are abundant and pipelines for fuel transport and distribution are extensive and adequate, and the California Energy Commission (2005) estimates that the recoverable gas resources in the lower 48 states are sufficient to serve the current demand for gas for another 60 to 70 years.
The availability of alterative fuels from the consumer perspective has been studied widely. Concerns about the availability of fuel also slows adoption. In a simulation representing California, entrepreneurs opened alterative fuel stations in urban areas but not in less-populated rural areas where demand is initially lower. According to Science Daily (2007), urban alternative fuel drivers must then avoid the rural areas, reducing the appeal of alternative fuel vehicles and slowing their sales everywhere. In theory, the fuel efficiency of alternative fuel vehicles should attract more buyers; however, in reality, since drivers of alternative fuel vehicles need much less fuel, energy suppliers build fewer alternative fuel stations. This in turn lowers the appeal of these vehicles, and sales of alternative fuel vehicles may in reality decline. Thus, as indicated above, the positive factors associated with alternative fuel vehicles do not meet the burdens that a car rental facility would face with adding alternative fuel vehicles to their rental fleet.
Incentives for Adding Alternative Fuel Vehicles to the Fleet
There are many incentives offered to consumers and companies for adding and using alternative fuel vehicles. As a means of promoting the increased use of alternative fuels and vehicles in the transportation sector, Congress has supported and enacted certain tax incentives, including federal tax exemptions, credits and deductions. Based on U.S. Treasury Department’s estimates, since the late 1970s, these tax incentives have resulted in forgone tax revenues of about $13 billion for alcohol fuels and about $600 million for clean-burning fuels and electric vehicles (United States General Accounting Office, 2001). However, these amounts comprise only a small share of the total transportation tax incentives over the years, much of which has been devoted to conventional fuels. From the standpoint of a rental car company, such incentives are more beneficial if they relate to traditional fuel vehicles. A review of the literature indicates that other incentives that have not yet been addressed may be more worth while. Science Daily (2007) notes that the importance of vehicle lifetime, providing incentives to scrap current vehicles may be more effective than direct efforts to get more alternative fuel vehicles on the road. In addition, Science Daily (2007) proposes that providing subsidies for building alternative fuel stations will help, but giving bonuses for building and especially keeping them in remote areas may be critical. Finally, for markets to reach the tipping point, policy incentives may have to be kept in place for many decades, even through periods of declining fuel prices.
Conclusion review of the literature indicates that the feasibility of adding alternative fuel vehicles is not reasonable for Lotus Car Rental. The main reason for this assessment is the fact that these vehicles are used only for a short period of time by the consumer, who just needs a car for a short-time. These consumers do not want to drive all over the place in search of an alternative fuel re-charge station. Furthermore, they are not concerned about the long-term affect of the vehicle or the cost of the vehicle, because they are not purchasing it themselves. Lotus Car Rental will not benefit from adding these vehicles to their fleet because their business depends on the demand of consumers for short-term use cars. Even government incentives do not provide enough reasons for the car rental facility to move away from gasoline powered vehicles.
California Energy Commission. (2005). Resource Guide: Infrastructure of Alternative
Fuel Vehicles. Retrieved November 12, 2007 at http://www.energy.co.gov/reports/afuguide.html.
Garrett, D. (2007). Choosing Alternative Fuels. Retrieved November 19, 2007 at http://www.choosingalternativefuel.com/.
Science Daily. (2007). Alternative Fuel Vehicles will be Tough to Sell, but Policy
Incentives will widen Use. Retrieved November 19, 2007 at http://www.sciencedaily.com/releases/2007/05/070530114449.htm.
Science Daily. (2003). Plug-in Hybrid Vehicle can cut National Fuel Consumption in half. Retrieved November 19, 2007 at http://www.sciencedaily.com/releases/2003/10/031015031752.htm.
Thomsen, M. (2000). Auto Makers Driving to the Greener Side. Retrieved November 11, 2007 at http://www.socialfunds.com/news/print.cgi?sfArticleID=438.
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