Automotive Insights - Thoughts from the virtual car lot

Lease or Buy?

2009-04-01T09:33:00.000-07:00

The recent financial crisis may have reduced the availability of great new-car leasing programs, but some are still available. This weekend’s newspaper, for example, includes an advertisement for the hot Mazda3 5-door (with automatic transmission) for a lease payment of $219 per month for three years. This sounds like a very affordable payment for a new car.

I believe it’s fair to say, however, that there is still quite a bit of mystery around auto leasing. Many consumers are simply scared of such programs and I think a lot of this has to do with a lack of knowledge about how these programs work. Unlike traditional car loans, the detailed financial terms of an auto lease don’t have to be (and as a result often are not) disclosed. In order to decide whether a lease is good for you or not, let’s review some of the basics.
What is a lease?
In simple terms, when you lease a car you are paying to use the car for a certain amount of time rather than paying for the entire purchase of the vehicle. In the example above, Mazda is offering the car for three years for a payment of $219/month (plus a down-payment of $2,814). This means that aside from taxes and other state fees, the lessee of this car will pay a total of $10,698 to drive the car for 36 months and 36,000 miles.

The terms of the lease are determined by a few things. First is the price of the car. This is called the “capitalized cost” in leases versus “purchase price” in regular financing. In the case of the Mazda, the base MSRP of a Mazda3 5-door automatic is $19,945. Note, however, that the capitalized cost for your lease doesn’t need to be MSRP. While many buyers are lured by the advertised payment and don’t ask many questions, if you negotiate the purchase price of the car, trade-in a vehicle on which you have equity, or take advantage of other discounts, the capitalized cost can go down… and thus your payments will as well. Of course, payments will also rise if you choose a car with more options than the one used to advertise the program or trade in a car on which you owe more than it is worth.
The second item is the amount the car is worth (or more accurately, projected to be worth) at the end of the lease term which is called the “residual value.” The small print on this Mazda lease offer indicates that the residual value will be $11,169 or roughly 55% of the MSRP of this car new. This residual value should not change because you negotiated down the capitalized cost… it’s based on a percentage of the MSRP of the car you chose.
The third component is financing cost. Unlike a regular loan in which we are all familiar with the idea of the annual percentage rate (APR) the finance cost on a lease doesn’t have to be disclosed by law. To further complicate matters, even if you do ask you will be quoted a “money factor” rather than a straight APR. This will look like some bizarre number taken down to eight to ten decimal places (e.g. 0.00001625). If you want a full description of how this cost is calculated, check out this site: http://www.leaseguide.com/lease08.htm. If you aren’t as interested, simply know that you can multiply the money factor by 2,400 and you will have the approximate APR (the number above works out to 3.9%, for example). Also note that while you are making payments on the portion of the car you use you will be paying interest on the entire amount… after all, you are tying up the bank’s money for the full capitalized value for three years.
Your payment is then the value of the car lost during the time you drive it (capitalized cost – residual value) plus the financing fees.

Are there advantages to leasing?
In most states, there is an additional savings for lessees versus buyers - taxes. If you finance the car normally you will need to pay sales tax on the full value of the car up front. So buying a $20,000 car in a state with 6% sales tax will require you to add $1,200 to your cost up front (or included in your loan). On a lease one typically pays this sales tax only on the monthly payment… or in our example 6% of $219 or roughly $13/month or $473 over the term of the lease. If you don’t plan to keep the car for more than three years anyway, the additional taxes are purely a loss and that loss is larger if you live in a state like California with 9.75% sales tax.

Perhaps the biggest advantage to leasing is a lower monthly payment. For this example I am comparing this lease program to financing offered on the same car by Mazda at 3.9% over 5 years. I’m assuming that if you qualify for the lease you will also qualify for the best available finance rate. I’m also assuming, for calculations sake that sales tax is 6% in your state and I am ignoring registration and title fees which would need to be paid regardless of your purchase method. I’m keeping the cash down payment (called the “capitalized cost reduction” in leasing) equal between the two methods.

You can see that the monthly payment is about $79 higher for a traditional purchase (34% higher than the lease) even with the great financing APR.

Is leasing a good idea for me?
Whether leasing is a good idea for you depends on a number of factors.
First, do you plan to get a new car every few years anyway? If so, leasing may save you money in taxes and reduces your monthly payment. If you live in a state with higher taxes than my example the advantage is even greater. There is definitely something positive to be said for the idea of always driving a car with a factory warranty.

Can you live with the mileage limitations of the lease? The Mazda lease is limited to 36,000 miles during the lease period (12k miles per year is considered average for an American driver, by the way). Be sure to note the mileage allowance and the fee you must pay if you exceed this amount. In the old days, the overage fees could be exorbitant (25 to 50 cents per mile, for example). Mazda’s lease program charges 15 cents per mile over, so an extra 1,000 miles/year for three years would cost you $450… pretty fair. However, if you commute 100 miles each day or plan to take numerous cross-country road trips you would be advised to think twice about leasing or ask about a lease with more miles included… this will usually lower the residual value.

Are you comfortable knowing that you will need to make another car buying decision again in two or three years? When your lease is up you will need to turn the car back in and buy another or decide whether you want to buy the car you just leased. Typically you can purchase the car for the agreed-upon residual value. If you find that the residual value is lower than the cost of a comparable car on the used-car market this might be a good deal for you. If it’s higher, you can just turn it back in and let the leasing company take the hit. In fact, it’s this latter example which is partly responsible for the decline in available leasing programs. The banks and captive finance companies (like GMAC and Ford Motor Credit) used lease programs to move a lot of iron over the past decade. The recent sudden decline in the resale value of SUVs, as one example, means that they were left with a lot of lease returns worth considerably less than they planned for. Of course, if you were the lessee of a Chevy Tahoe this would seem like a blessing to you… the bank was left holding the risk, you met your obligations by making the monthly payments on the lease and now just walk away from the vehicle.

How important are monthly payments to your budget? In our example above for a moderately priced car with a very low 60-month finance rate the payments are lower for leasing... probably enough to cover the average monthly cable and telephone bill. Alternatively, some people choose to lease so they can drive a nicer car than they could otherwise afford for the same monthly payment.

In terms of long-term cost, however, leasing isn’t necessarily the most cost-effective choice. Assuming that you keep the car for a long time and make your payments for five years you will actually own the car. If you leased you don’t own a thing. No matter what the used Mazda will be worth in 5 years it’s safe to say that it won’t be zero. Cars do eventually wear out and get recycled, but even then there is some value to the raw materials! For comparison sake, the KBB private party value for a 2003 Mazda Protege5 (which was replaced by the Mazda3 Hatchback in Mazda’s lineup) with 60,000 miles is roughly $8,500. Assuming this Mazda 3 is worth around the same amount (though it does cost more new than the Protege5 did in its day) the cost to finance and drive the same car for 5 years then sell is only $1,800 higher than leasing it for only 3.

The outright least expensive way to own a car is to buy it and keep it until repair costs start to outweigh its value. Or, as many people prefer, to buy a car when it is already a couple of years old (perhaps being sold by the finance company after someone’s lease has ended) and it has already experienced its largest depreciation hit. However, many of us have limited budgets and lack the desire to deal with the inevitable inconveniences that come with older cars. If this describes you, leasing may provide a convenient and cost effect option now that you understand how they work. `

My Auto Bailout Rant

2008-12-10T12:56:00.000-08:00

I have terribly mixed feelings about the condition of the domestic auto industry.

Let's be honest, GM has been burning shareholder value and cash for decades. Even during the few good years they weren't nearly as profitable as they should have been. Internally, the company was a bureaucratic mess and career growth came to those who managed their careers better than the company's assets (check out the list of those at the top today). People with innovative ideas who were willing to stick their necks out found dead-end career paths and better jobs elsewhere.

On the other hand, the managers for the past 20 years were handed a whole host of issues which they were unable or perhaps unwilling to fix (legacy costs, health care, etc. which have been talked about ad nauseum).

When it comes to Washington, I'm also confused by politicians who suddenly find a pent-up desire to watch where our tax dollars are being spent after years of excess and no-strings cash handouts to banks. Similarly, I get a kick out of newly green-minded small-car proponents who have heretofore never proposed any sort of comprehensive energy policy. It's easy to point fingers at "Detroit" for making big SUVs but easy to forget that our federal government has had a policy of keeping oil cheap at the pump (by obfuscating other costs that we all bear). The DOT also passed confused fuel-economy regulations that helped encourage heavier vehicles by excluding trucks from CAFE measurements... and in some cases even rewarded consumers with tax credits for buying the heaviest and thirstiest of their kind.

As for their products, as a car enthusiast who came of driving age in the 1980s and who has never had a desire for an SUV I don't find anything to salivate over from GM, Ford, and certainly not Chrysler. Even niches they should dominate like minivans and family cars have been ceded through decades of complacency and aiming for the middle-ground (US Ford Focus, anyone?). Even new bright spots like the Malibu/Aura are hampered by GM's half-hearted efforts on the first year of 4-cylinder models (lacked the more fuel-efficient 6-speed automatic) and lack of manual transmissions (I know I'm in a small minority, but prefer a stick... part of my upbringing during the heyday of hot-hatches and compact cars). Same goes for the Pontiac G8. I recently spent time working for a charity at a car show and spent a lot of time checking out the various displays. The G8 really stood out as an attractive and interesting car for a very fair price. However, no manual transmission? Pontiac? And I don't need a V8.

Also, while quality appears high the list prices are also. It's simply impossible to justify buying a domestic car without serious discounts due to a lack of perceived long-term value (primarily due to historically terrible depreciation) and "initial quality surveys" aside, there is definitely a feeling that they just won't last as long... justified or not. For example, I spoke with a number of GM dealers who bemoaned sub-standard brakes and oppressive warranty requirements leading to customer satisfaction problems and increased cost (requiring multiple repairs attempts for known problems, for example).

So, yes, while I agree with the idea that we need to maintain a domestic manufacturing capability, I also know that many of the current problems have been around for a long time (particularly at GM about which I have personal experience). I also wonder about bailing out Chrysler when I don't believe Cerberus was ever planning to keep them operating in the first place. Ford may be in better financial shape today but they seriously don't have a single compelling car in their whole U.S. lineup (sans perhaps the Mustang but one niche product can't support the whole company).

I guess my final thought (and I apologize for the length of my rant) is that we should support our domestic manufacturers with loans if only because it's fair. We've given billions to the bankers but they still aren't loaning money. Either these loans need to come from our tax dollars or from banks as a condition of the next round of TARP. Additionally, a failure of GM will likely bring down the rest of the industry and I think it's simply a more efficient use of our tax dollars to keep them running than it is to absorb the cost and further destruction of our economy by the addition of hundreds of thousands of additional unemployed citizens. I also think about the supplier base and dealers, many of whom do make a profit and employ many people... perhaps GM and Ford's losses have simply been a subsidy for them?

CNG Cars – Once again, it ain’t easy being green

2008-10-01T00:55:00.000-07:00

This recent listing on Craigslist for a used Honda Civic GX, a rare model that only runs on Compressed Natural Gas (CNG), sparked Miss Motor Mouth to ask me for some more information. What’s with CNG cars? Are they clean? What are the advantages or disadvantages? Where does one purchase fuel for them?

Most of us are familiar with CNG vehicles primarily in mass-transit use, such as shuttle buses at airports or city buses. The low emissions of CNG vehicles (think about it, this is the same stuff many of us cook with inside our homes) allows them to meet the tough PZEV emissions levels make them good choices for mass-transit operations concerned with their fleet emissions. Fuel cost is also low… reportedly about half the cost of gasoline per mile. Natural gas is also plentiful here in the U.S. so CNG use potentially reduces reliance on imported fuel. There are definitely some exciting upsides to CNG. Fleet use also eliminates many of the challenges associated with the fuel that affects individual drivers.

Those CNG buses are often easily identifiable because of the large auxiliary gas tanks on their roofs. This is needed because CNG has a substantial disadvantage relative to gasoline in terms of energy density. It takes over 126 cubic feet of natural gas to provide the same energy equivalent (measured in BTUs) as one gallon of gasoline. So, while the fuel costs a lot less you simply cannot carry as much of it at a time so range is limited in a regular-sized vehicle. In the case of the new 2009 Civic GX, according to Honda one can carry the energy equivalent of 8 gallons of gasoline (compared to 13.2 gallons for a normal Civic sedan) but this is with an enlarged high-compression tank that reduces cargo capacity to 6 cubic feet (half of the regular Civic sedan’s 12 cu. Ft. trunk capacity). With a combined EPA fuel efficiency of 26 mpg, this provides a driving range of a bit over 200 miles.

Buses equipped with auxiliary tanks can make up for much of the range deficiency. Fleets also provide their own refueling stations since they can utilize a central location for maintenance every night. However, public refueling for CNG cars is limited. According to the U.S. Department of Energy, there are only 109 public CNG refueling stations in the state of California… the state with the most developed infrastructure. The state of New York offers 28 such stations, for comparison. To make matters worse, these aren’t exactly gas stations on convenient street corners or right off the freeway exit. They tend to be available because they also serve those aforementioned fleets, so drivers need to visit airports, municipal maintenance lots, or the local energy company’s headquarters.

Like electric cars, however, there is an alternative… home fueling. If you have gas coming into your home the cleverly-named Phill home CNG fueling station can be installed, allowing one to use this existing pipeline. However, again like electric cars this isn’t a fast process. Phill’s manufacturer says it takes about 4 hours to refill the gas used for about 50 miles of driving at an average of 30 mpg. That’s 2.4 hours per gallon equivalent, or in other words, that Honda GX will take 19.2 hours to fill from empty. This makes recharging a Tesla look like a NASCAR pit stop.

Phill also costs about $4,000 not including between $1,500 and $2,000 for installation… quickly wiping out the savings realized from the cheaper fuel and some available tax credits. Then again, in California you do get to drive in the HOV lane.

Minivan as a Corporate Symbol

2008-09-12T12:55:00.001-07:00

I recently helped a friend search for a new vehicle to carry his growing family of soon-to-be three kids… all in baby seats or boosters at the same time. We concluded (and he later purchased one) that a new Honda minivan met his needs the best. A van’s balance of roominess, ease of entry and exit, cargo loading ease, comfort, and relative fuel efficiency won the comparison.

This week, while traveling on business I found myself behind the wheel of a Chevrolet Uplander minivan. The brain trust at Chevrolet, however, seem somewhat embarrassed to just call it like it is and suggest that this should be called a “crossover sport van.” Forget that the only thing “crossover” about this vehicle compared to their previous effort is an added on ungainly snout and a slightly raised ride height. And the only thing even remotely sporty about it… well I give up.

My thoughts throughout my two-day drive kept coming back to the same thing: that General Motors wasn’t even trying hard when they designed this car. Were the people behind this project just so bummed at being reduced to working on a mere minivan rather than a new Hummer SUX6000 that they just phoned in the details? Was an assignment to the minivan design team the automotive equivalent of graduating from the police academy only to get assigned to traffic control at the local airport?

I always try to look at the positive side of every vehicle and this does have a few decent details. The dashboard materials appear to be high quality and are sufficiently elegant in appearance, the engine and road noise are muffled, and even though it matches nothing else on the car, the upper door panels have real (!) stitching on the faux leather that actually looks nicely finished.

But then you turn to the details that make other minivans so endearing to millions of American families and you just have to wonder what happened:

Fuel Economy… I averaged only about 15 mpg during my brief time with the car… vs. EPA ratings of 16/23 city/hwy which themselves are nearly identical to the ratings for the larger and heavier 2009 Traverse SUV that claims 24 mpg on the highway. What’s the point of driving an “unhip” minivan if you can’t even rationalize that you are saving money on gas?

Comfort… the front seats were fine, if nothing to write home a about, and the standard cloth upholstery was pleasant and looks durable. However, the middle seats were tiny… seemingly undersized for the car. I suppose that this lets them claim more legroom that actually exists. The rearmost seats were larger… a split bench, but again, compared to the multi-adjustable units in vans from competitors weren’t even a decent effort. The middle row seats were crammed all the way over to the sides near the doors which left them feeling cramped but did allow, I suppose, for a larger space in the middle to walk-through to the rearmost seats.

Flexibility… those rearmost seats again, unlike nearly every other van on the market, neither fold flat into the floor when not needed nor do any other neat tricks like turn into a rear facing bench. To utilize the full cargo capacity one needs to remove the heavy seats and find a place to leave them for the duration. The ONLY storage space for storing odds and ends like baby wipes, cell phones, and other detritus that usually fill up the family truckster was a Pep-Boys style bungee net strung between the front seats. There was no convenient enclosed storage areas for anything. The only place I found to rest my cell phone was inside the cupholder that extended from the dashboard. Seriously? You’ve had 25 years to try to copy features from nearly every family hauler on the market and you missed the most basic needs of families with small children? I won’t even go into the fact that nearly every other van out there also has second-row seats that slide, fold, retract, and will probably milk a cow.

I can’t imagine anyone in the market for a minivan test driving models from multiple manufacturers and deciding to buy an Uplander

So I end with the thought that GM’s half-hearted effort, if you can even call it that, at competing in this segment is a symbol of why the company is struggling so much. In the hypercompetitive vehicle business if you don’t even enter the game aiming for best-in-class you might as well just give up and go home.

Fortunately for GM, I believe that much has changed at the company and newer vehicles like the new Traverse, the Malibu, and some others represent more competitive offerings. I just hope that the attitudes that permitted a car like the Uplander from seeing the light of a dealer showroom have been exorcised as well.

Buying a car for commuting?

2008-08-05T20:39:00.000-07:00

So here is a fairly common situation: You have a truck or SUV and suddenly find yourself deeply affected by the rise in gas prices… but there is little you can do. You simply may need the utility offered by your truck (you have 4 kids to take to soccer games on weekends, you tow a trailer, you’re on a first-name basis with the staff at the local Home Depot, etc.). You also have to drive to your regular job every day, which is usually done alone or with one carpool partner, but you only have the one vehicle.

You may even have been tempted enough by fuel prices to try to sell or trade-in your truck for something more efficient for your commute. But, you find that nobody is buying large trucks and the value has dropped to the point that you owe much more than it’s worth.

What about keeping your truck for the times you need it and buying something else… a dedicated car just for your commute? After all, you don’t need that big utility all of the time, do you?

I’m not talking about going out and buying a new car, I’m talking about taking advantage of the improved quality and reliability of the automotive fleet over the past decade and buying a used car. I aim to show that you can find a good used for less than the first-year of depreciation on a new Camry.

I decided to take a look online to find some recent sales which fit this criteria: A purchase price of less than $7,000 (approximately one fourth of the average purchase price of a new car), less than 100,000 miles (still a mental barrier for me), model year 2000 or newer (I like driving classic cars, but in this case let’s be pragmatic and look for a car with working air conditioning, a CD player, and modern safety equipment). I’m using eBay Motors here because it’s one of the only places to see what cars have actually sold for as opposed to dealer asking prices. As you can see, appliance cars are out there if you keep an open mind. Some of them are even fun to drive.

Some recent finds:

A 2002 Saturn Vue with 67k miles for $6,300: http://cgi.ebay.com/ebaymotors/Cars-Trucks___02-VUE-4-CLY-GAS-SAVER-5-SPD-BEAUTY-NO-RESERVE_W0QQitemZ290247241823QQddnZCarsQ20Q26Q20TrucksQQddiZ2282QQcmdZViewItem?hash=item290247241823&_trkparms=39%3A1|65%3A13&_trksid=p4506.c0.m245.l1318
Yeah, it’s an SUV, but it foregoes all-wheel drive and a thirsty V6 engine (who needs a lot of speed when you’re stuck in rush-hour traffic anyway?). The manual transmission gives you a bit more oomph and it’s certainly large enough for kid hauling duty and occasional stops at the big-box store on the way home from work.

Red and sporty 2002 Saturn SC2 with 50k miles:

http://cgi.ebay.com/ebaymotors/Cars-Trucks___NO-RESERVE-2-OWNER-FL-CAR-POWER-ROOF-CLEAN-3rd-DOOR_W0QQitemZ190236857849QQddnZCarsQ20Q26Q20TrucksQQddiZ2282QQcmdZViewItem?hash=item190236857849&_trkparms=39%3A1|65%3A13&_trksid=p4506.c0.m245.l1318

Leather, automatic, sunroof, plastic fantastic Saturn sports coupe for $5,100.

Ah, you see a trend here… cars that lack the premium brand names but still offer reliable service are great buys used. You’re looking for an appliance, here, not something to impress your neighbors like a shiny new BMW (or a Honda, for that matter). Frankly, late model cars are almost all good and, in fact, better than even the best cars of 20 years ago. They are reliable, inexpensive to operate, and if maintained properly, if they do break it’s most often something minor like a window motor or radio.

Here are some more thoughts:

Hyundai XG300… never heard of it? Well, most people haven’t. It was Hyundai’s first big car and offered a ton of features. Here’s one loaded with features, less than 75k miles, and it was sold by a dealer for less than $5,800. http://cgi.ebay.com/ebaymotors/Cars-Trucks___Beautiful-in-Black-Great-Cond-full-Warranty-6MO-7500Mi_W0QQitemZ330255279474QQddnZCarsQ20Q26Q20TrucksQQddiZ2282QQcmdZViewItem?hash=item330255279474&_trkparms=39%3A1|65%3A13&_trksid=p4506.c0.m245.l1308

Ford Focus… one of the most popular cars in Europe never really got the respect here in the States that it deserved, despite positive reviews from journalists. Here’s a loaded sedan, complete with leather and low miles for $4,500! Personally, I like the looks of the old Focuses (Foci?), especially the hatchbacks, better than the new model. Yeah, the new integrated iPod stuff is great, but based on my Windows Vista experience I really don’t want anything from Microsoft running my car.

http://cgi.ebay.com/ebaymotors/Cars-Trucks___2001-FORD-FOCUS-ZTS-NICE-FAMILY-CAR-ONLY-4-CYLINDERS_W0QQitemZ120281569548QQddnZCarsQ20Q26Q20TrucksQQddiZ2282QQcmdZViewItem?hash=item120281569548&_trkparms=39%3A1|65%3A-1&_trksid=p4506.c0.m245.l1318

If you like the Focus, for a few thousand more but still under my price cap, is this rare Focus SVT… the factory hot rod sure to make your commute a bit more lively:

http://cgi.ebay.com/ebaymotors/Cars-Trucks___2003-Focus-SVT-6-Speed-Exhaust-Intake-6CD-2Tone-Leather_W0QQitemZ320275164273QQddnZCarsQ20Q26Q20TrucksQQddiZ2282QQcmdZViewItem?hash=item320275164273&_trkparms=39%3A1|65%3A-1&_trksid=p4506.c0.m245.l1308

Wow, $4,500 for a car with less than 30,000 miles on it. Kia Rio, just tint the windows and think how cheaply you’re driving!

http://cgi.ebay.com/ebaymotors/Cars-Trucks___2003-Kia-Rio-LOW-Miles-29K-Almost-40MPGs-WOW-RARE_W0QQitemZ270254863881QQddnZCarsQ20Q26Q20TrucksQQddiZ2282QQcmdZViewItem?hash=item270254863881&_trkparms=39%3A1|65%3A-1&_trksid=p4506.c0.m245.l1318

A Passat Wagon with the lively and efficient 1.8T motor with 43k miles for $6,200… Hmmm, stop me now.

http://cgi.ebay.com/ebaymotors/Cars-Trucks___2001-PASSAT-WAGON-AUTO-1-8T-SUNROOF-ASR-42K_W0QQitemZ310069327649QQddnZCarsQ20Q26Q20TrucksQQddiZ2282QQcmdZViewItem?hash=item310069327649&_trkparms=39%3A1|65%3A-1&_trksid=p4506.c0.m245.l1318

My point here is that there are a variety of great fuel-efficient used cars out there that can be had for less than ¼ the price of a new car. You’ll save on depreciation, save on gas, have a much lower insurance bill than you would on a new car (and might even realize a multi-car discount on the SUV you already have). Instead of taking a $6,000 charge to get out of your SUV, keep it and find a used commuter car instead. Happy shopping.

Staying Cool and Saving Gas: A/C or Open Windows?

2008-07-22T21:49:00.000-07:00

With American drivers suddenly looking for every way to save on the cost of driving, I thought I would revisit an old question, “which is more efficient, air conditioning or open windows?”

I first ran into this question while in college at the University of Michigan. I had a roommate who had heard that the refrigerant used in air conditioning systems was bad for the environment so he went the whole hot and humid summer without turning on his car’s air conditioner.

Of course, he didn’t realize that Freon (this was before it was replaced with R134a as a refrigerant in cars) isn’t actually released into the atmosphere when you run your A/C. Air conditioning runs in a closed loop and the environmental concern about the chemicals comes when some is accidentally released during servicing or if the system develops leaks… ironically most likely to occur after long periods of disuse. Running the A/C system distributes lubricating oils to the seals in the system so an unused air conditioner could develop leaks.

Of course, when faced with this information he changed the topic to say that it was more efficient to drive with the windows open because air conditioning makes the engine work harder. Ah, perhaps he had a point? Frankly, I didn’t have an answer.

Years later, I was working on the GM EV1 (electric car) program. If you didn’t know, this was the most aerodynamic production vehicle ever offered for sale with a coefficient of drag of 0.19. Since the car carried so little energy on board (the 1,200 lbs of lead-acid batteries provided the energy capacity of about ½ gallon of gasoline… providing about 60 miles of driving range) every step was taken to minimize the use of that energy. Besides weight savings to conserve energy when accelerating, air drag is the biggest, well, drag when driving at speed. As an example, I was once told that they didn’t use a mast-style radio antenna because it would have cost nearly a mile of range.

Anyway, we often had to drive the cars around Los Angeles and Phoenix for various events and the question arose whether we were better off using the A/C or opening the windows for maximizing range. There was no hesitation from the engineers: They said that we should make ourselves comfortable and use the A/C with closed windows when driving over 55 mph. I wish I had this information at hand when I was sweating in my roommate’s car on a 90 degree Michigan day!

Why is this the case? Well, while running the A/C does put a drag on your efficiency, running with the windows down does as well. It isn’t that simple, though. The aerodynamic drag varies with your speed. Air drag increases exponentially as speed increases, so driving 75 mph requires much more energy than driving 55 (sorry, Sammy Hagar).

At freeway speeds, this drag becomes greater than the cost of running the air conditioning compressor.

While perusing the Web, I came across a study by the Society of Automotive Engineers (http://www.sae.org/events/aars/presentations/2004-hill.pdf) that looked at this exact question. They found that at high temperatures the cost of running the A/C was between 5% and 10%. However, the drag caused by running with the windows down at 68 mph (110 Km/h) varied from 8% to 20%.

The lower number was for SUVs… basically, cars with bad aerodynamics in the first place suffer less from the effects of opening the windows. The 20% number was for a regular sedan. Though they didn’t disclose what type they used, they do indicate that it was a large sedan with a V8 engine. A really aerodynamic car like a Honda Insight or a sleek coupe would be affected even more.

So the bottom line is that around town you are better off with the windows open but once at speed you should close your windows even if it means turning on your air conditioner.

If you drive a Hummer or a Mercedes G-Wagon with the aerodynamics of a brick… well it doesn’t really matter. Just go buy Exxon stock.

Of course, driving while suffering from heat stroke isn’t good either, so here are some other hints about staying cooler if you must run your air conditioner around town:
• Try to park under cover or use a window shade. The cooler your car is when you get in the less you’ll need to run the A/C to cool it down.
• In the same vein, if your car is hotter inside than the outside air, open your windows before turning on your air conditioner.
• Max A/C (a.k.a. recirculated air) isn’t always the best way to cool down. Again, if the air inside of your car is hotter than the air outside, you’re just running super-heated air through your A/C system. Use the fresh air setting until the interior temperature is lower than the air outside.

Electric Porsche

2008-07-19T20:37:00.000-07:00

Check out a great eBay listing: eBay Listing

Electric vehicle conversions have been around for a long time but I can't recall ever seeing one of a clean low mileage narrow-bodied Porsche 911. This 1973 911T appears to be a long-abandoned project, the owner claiming he undertook the adventure after his car failed to pass a smog check. Of interest for those attempting their own conversion is his link to his project details here: http://www.ztac.net/porsche.htm. It's an interesting read in its own right.

As he realizes now, perhaps a Porsche 911 isn't the best candidate for an electric conversion. There is probably a reason that cars like VW Rabbits tend to be popular for projects like this. Besides being cheap to buy those square lines and ample storage space for batteries make them easier projects. I won't even mention the recent price trends for early Porsche 911s… with engines of course.

On the other hand, with over 30 bids from 11 unique bidders (and over 6,400 page views) in only the first couple of days of the auction, there appears to be a lot of interest in this car. It would be interesting to see if the interest is in the clean rust-free 911 body shell or in completing this environmentally conscious project? In any case, the idea of a fun sports car that runs on electricity alone has been around longer than Tesla.

2007-05-17T17:08:00.000-07:00

Who Killed The Electric Car?

2006-11-25T19:23:00.000-08:00

I wasn't able to see this movie in the brief time it was in theaters, but I was able to rent the DVD this weekend soon after the video was released. Since I knew Chelsea Sexton well while she worked on the EV1 program at Saturn and was involved in this program perhaps longer than anyone else on the sales and service side at Saturn I was pretty disappointed in the movie.

While I understand (and share) the enthusiasm for electric cars shown by Chelsea and the rest of the cast and crew of the movie, I think they lost a great deal of credibility by not providing a more balanced view of the issues at hand.

Additionally, the movie glossed over the facts that other manufacturers (including Honda, Toyota, Nissan, and Ford) had EVs available in California in the late 1990s, but really portrayed General Motors as the evil-doer among the manufactures. The fact is that GM made the largest effort by far of any of the manufacturers on EVs yet they get no credit at all for the effort. The movie just blames them for the end result of there being no OEM produced EVs for sale in the state.

Here are some facts that were glossed over by the movie makers:

1- GM spent over $1.5 Billion producing and marketing the EV1. With very few exceptions, the consumer marketing was limited to California and Arizona where the cars were available to lease. So, asking someone in Kansas or who didn't live in California between 1996 and 2000 if they were aware of the car is nothing more than a cheap stunt.

Yes, some of the ads portrayed in the film were a bit "dark" and I agree that some of the ads were pretty esoteric, but these were not used very much. The majority of the ads included billboards with a clear photo of the unique shape of the car with the statement "The Electric Car is Here." Newspaper ads also had a much more upbeat image and the PR efforts, the press coverage, the hands-on marketing efforts (in which Chelsea participated) put the cars in the hands of thousands of Californians and Arizonians for test drives during the time it was available.

Do the math: best case, GM was geared up to manufacture 600 or so EV1s per year. If the goal was to sell these cars, the best way to spend the money was to go directly to potential buyers, not to use expensive mass media. GM did both.

2- The state of California was talking out of both sides of their mouths with the mandate.

I was there in Sacramento. On two occasions, bills to open the HOV lanes to EVs with one driver were vetoed by then Gov. Pete Wilson. This law was later passed and now helps thousands of hybrid drivers enjoy these usually empty lanes during rush-hour traffic. This same incentive would have been essentially free to the state to provide to EV buyers during the critical period of the vehicles' birth. It was never passed until years later.

The state promised the manufacturers that they would support the sales under the mandate by purchasing or leasing EVs for use in state fleets. As far as I know, they only leased 8 EV1s and a few dozen S10 electric trucks... Not the hundreds they had promised. Even the state that imposed the mandate wouldn't lease the cars. They argued that they were too flashy for use by their employees.

When the first batch of EV1s were leased in late 1996, the California DMV dragged their heels for months before they issued license plates. They claimed that the cars couldn't be registered because they did not pass the state's tailpipe emissions test. Battery powered electric vehicles like the EV1 don't have tailpipes and they produce no on-board emissions. This resulted in the dealers needing to issue and reissue temporary paper tags to the leasees of the cars. So you had one arm of the state mandating the sale of the cars (as early as 1990) but the other not able to provide them with license plates nearly seven years later.

And then there was the issue of public charging. People who drove these cars realize that the vast majority of the charging took place in the owner's homes and garages but that public charging was a way of assuring the public that they could charge them while out and about if needed. I was at meetings of the CARB and the CA Energy Commission where the bureaucrats said "GM is going to make all the money selling these cars, they should pay for public charging." First, the horizon for profit on EVs was many years away and let's remind the state that they were the ones with the mandate for hundreds of thousands of these things on the road in a very short amount of time. Anyway, GM ended up floating the bill for the vast majority of the public chargers in California and Arizona. I think that around 1999 there were 500 such sites available to drivers in California. Additionally, partnerships with other companies like Costco, the Sacramento Municipal Utilities District, Southern CA Edison, Fry's Electronics, and others I can't remember now, resulted in a lot of the visible chargers. In fact, most Fry's and Costcos in the state set aside prime parking spots and split the bill to install publicly accessible and free 220v inductive and conductive chargers. This made sense, it could take a couple of hours to charge a NiMH EV1 so it made sense to have chargers in places you would want to spend time... or might be anyway. Other chargers were visible at LAX, the Sacramento airport, some parking structures in key areas, etc. But the state had little or nothing to do with most of these. In fact, they often stood in the way because regulations around permits and handicapped parking requirements made many of these installations much more painful than need be.

3- The CA Mandate in itself was part of the problem.

Now, this is greatly based on my opinion, but I base this on facts. GM demonstrated the Impact EV prototype and announced that they would pursue a consumer version before the state created their mandate. In fact, the movie even supports this and shows how the Impact emboldened the CARB regulators to create the mandate.

However, the mandate was so vague, so wrongheaded, and so impossible to meet (in my opinion) that GM and the other manufacturers were forced to both fight the mandate and market the cars at the same time... as portrayed in the movie. This wasn't a grand conspiracy but rather a simple question of them being backed into a corner.

I don't know if GM would have pursued the EV1 with the same gusto if the mandate hadn't been in place but they also could have moved more carefully and the market could have responded in a natural time if it hadn't been there. They may still be selling the cars if the mandate had been more reasonable. I believe that it wasn't the death of the mandate that was the last nail in the coffin of the EV1 but rather the mandate itself that set this course in motion.

The other problem not mentioned at all by the movie is that during this time, several Northeastern states including New York and Massachusetts decided to copy CARB's emissions rules for internal combustion engined cars. They did not omit the EV mandate from these rules. In other words, the mandate effected not just sales in California but also in the cold climates of these other states. The fact is that EVs, at least in the forms available in the late 1990s, would be barely usable in Northeastern winter conditions. Freezing temperatures would reduce the 60-80 mile range of a lead-acid EV1 to a fraction of this distance, perhaps by as much as 60-80%. NiMH batteries weren't that much better in sub-freezing temperatures as far as I know and they had a lot of other problems in hot and humid temperatures (like summers in Massachusetts).

Anyone who has tried to crank their frozen car over on a cold morning in Detroit knows all too well that chemical batteries lose energy in the cold. It's one thing to have to crank your car over... it's another to entirely rely on the batteries to get you to work. The other thing is that EVs lack an internal combustion engine... the source of the heat that warms the passenger compartment on cold days. The EV1 used a tiny heat pump for heating and cooling... this is fine in mild climates like Los Angeles but useless for heat if the ambient temperature is below 45 degrees or so. The S10-electric used a small gas-fired heater for cabin heat... but this wouldn't allow the EV1 to meet the mandate in this form would it? So, killing the mandate in California would also kill it in MA and NY and neither of these states was willing to back down on their own.

In other words, the regulators knew little of the science and consequences they were forcing.

The other issue was that the mandate had things all backwards. It forced the manufacturers to sell x% of their cars as electrics but did nothing to push adoption of the products or create a market. Tax breaks for leasing or buying EVs were complex to get and not very big (the movie capitulates on this point). Other incentives like simple HOV lane access were unavailable. EV leasees had to install a 220v charger in their home in order to use the car but the state and cities did nothing to ease the permitting process or the cost on these users. It could cost thousands just to install the charger and comply with city requirements. In fact, I recall that Southern California Edison worked tirelessly to help the Saturn EV specialists negotiate this process but it was still complex and expensive.

In fact, one of the reasons it was actually fairly difficult to qualify to lease an EV1 (as the movie shows) was not because GM had some dark hidden agenda, but rather they had to take the time to figure out which city, county, and state tax incentives the customer was eligible to receive (so a lease price could be calculated). Additionally, they needed to ensure that they owned or rented a home that could accommodate the charger installation and an estimated cost could be provided to the customer before they signed the contract.

The other thing about the mandate is that it was not really created in the interest of cleaning the air in California. Despite what the movie makers and activists believe, the mandate was likely the least efficient way to clean the air in California. In terms of dollars spent per pound of emissions removed, forcing the sale of EVs in California was a politically easy and high-profile move by the CARB, but was not a wise use of consumer money. Think about it. Big Diesel trucks in California are still unregulated. Unlike a lot of Eastern states, there are no regular safety tests of olders cars in California. Smog checks are easy to get around but full inspections are not (I've owned a lot of older cars... don't ask me how I know about this). Taking one beat up and ill-tuned Chrysler Cordoba off the street and replacing it with a brand new Chevy Cobalt will do more to clean the air than taking someone ready to buy a new BMW and getting them into an electric car instead. Heck, it would have been cheaper for GM to give poor drivers with substandard cars new Cobalts instead of building and marketing the EV1. They sure as heck aren't selling them for a profit anyway. If it costs GM about $8k to build a Cobalt, they could have given away 187,500 of them them to replace old smoky cars for the money they spend on the EV1. That's more Cobalts than they sold all of last year and these look like miracle cars compared to the technology of 1977.

No, CARB's regulators were not thinking rationally when they came up with the mandate. I think they did it for political reasons then backed themselves and GM into opposite corners where neither party could back down.

4- The EV1 wasn't the miracle car it's portrayed to be in the movie.

The movie claims that the cars were maintanance and trouble free miracle-cars. In fact, there were many many problems with the cars in consumer hands. Besides a recall for charging ports catching on fire, battery failures were common along with a rash of other issues. Some owners ended up driving Saturn loaner cars for months while waiting for parts or fixes for their EVs. These were essentially hand-built cars that used bleeding-edge technology of the time. They weren't so trouble-free that service departments feared losing their profits... rather they feared clogging up their service drives so that they were unable to service their regular cars!

Granted, some of these issues could have been prevented. GM's union contracts forced them to use A/C Delco lead-acid batteries for the first generation of the cars. After Delco was sold off to become Delphi (we all know now how well that has gone for them), GM immediately switched to Panasonic batteries which not only cured many of the warranty expense problems but also increased the nominal range of the cars immensely! In fact, I would argue that the car to have was the Panasonic-equipped lead-acid EV1 which had more than enough range for most commuters (70-80 miles on average) with much lower cost than the NiMH batteries of the series 2 EV1 which had a range of 120 miles or so, but had overheating problems, would create copious amounts of moisture while charging (to the degree that some owners saw gallons of water accumulate under their cars). With mass production, Pb batteries in the volume needed for the EV could cost less than an internal combustion engine. At the time, the NiMH batteries in that volume cost nearly $50,000... for a car with a capitalized least cost of $34k. It doesn't take a Harvard MBA to figure out that this isn't a money-making formula. Anyway, I digress.

I agree that EV1 drivers, for the most part, were highly enthusiastic about their cars as was I. However, this had nothing to do with their reliability and low maintenance needs but rather the styling, the performance when they were running, and the feeling of driving such a quiet and clean car.

5- GM knew they wouldn't make any money on EVs in the short term.

The movie makes a good point that GM made a lot more money selling Hummers than EV1s... in fact they bring in Ralph Nader to make this point. True, and gasoline cost about $1.25/gallon at the time and SUVs were selling like air conditioners in Texas. However, I think this point oversimplifies the point and attempts to make GM planners look like idiots that they were not.

The engineers and planners at GM knew that EVs were more easily compared to personal computers than to cars when it came to technology updates. Moore's Law certainly held true during the live of the EV1. The first generation car was highly advanced but very expensive to build. The second generation that came out in 1998 was already much further advanced, with control electronics (the brain of the car) half the size and half the cost of the original. Production of advanced batteries has also increased substantially with the advent of laptop computers, PDAs, cell phones, and digital cameras in the past decade. One of the reasons that the new Tesla electric car is able to drive the range it does is because they are able to use thousands of standard sized Lithium Ion computer batteries rather than the expensive purpose-built batteries of the EV1. GM knew that these changes were coming and that they could have a head-start on electric cars with the EV1.

However, the fact is that GM didn't make any money selling internal combustion engined cars either! GM hasn't made money selling and producing cars in North America in a long time. Their only profits this decade came from financing and their mortgage division. GM had a lot of bigger problems than figuring out how to make money selling a few thousand electric cars.

While Ralph Nader and the movie makers like to portray GM and its executives as big, rich, isolated, myopic, evil, and self-serving they had it wrong. GM is not rich. They lose billions of dollars a year selling cars. It's hard to believe, but they didn't have unlimited resources to make everything and given these problems, I think cutting the EV1 program (as much as it pains me) was the right thing for them to do in the short term. Corporations have to be self serving by law... the managers are held responsible for the financial interestes of the shareholders of the company. Mr. Nader may not understand this, but GM managers certainly did in this case.

Personally, I believe that GM's greatest failure with the EV1 was in not using it as an example of their environmental leadership and not moving on from there quickly with something else like hybrids.

Today, despite their sales of hundreds of thousands of gas guzzling trucks and SUVs, Toyota is regarded as the "greenest" auto maker. I agree, their hybrid cars are fantastic for the environment and very well engineered, but I believe that GM had a big opportunity to put themselves in this position and they blew it. Big Time. Hummer big.

Once again, GM is playing slow leader and trying to catch up. They almost act as if $3.00 per gallon gasoline came a total shock to them. It certainly caught their product line-up totally off-guard.

6- There was a deep waiting list for EV1s.

I agree with the movie on this point. In fact, the local event-focused marketing efforts worked and the Saturn EV specialist team indeed created a deep list of thousands of interested people. There was actually a good amount of momentum growing as friends, coworkers, and acquaintances of early drivers saw the cars in action and got to experience them. Large employers in Northern California like HP and Sun Microsystems invited us in for full-day ride and drives on their campuses and many of them began to install free chargers for use by their employees who leased the cars. It was a heady time.

The problem was that there were no cars available to deliver for over a year.

Between the first generation EV1 and the second, GM had huge unexpected delays. It wasn't a matter of simply taking out the lead-acid batteries and popping in Stan Ovshinsky's NiMH packs like the movie alleges. Rather the entire car had to be redesigned to accommodate special cooling requirements and drainage needs of these new cells. Special venting and cooling had to be designed to keep the batteries from overheating (remember, they also leased them in Arizona where ambient temperatures alone could kill a $50,000 battery pack). I think GM jumped into Ovonics without a full understanding of the engineering difficulties their batteries entailed. Even former GM CEO Bob Stempel went to work for Ovonics as their CEO after leaving GM (you can see him in one of the ads shown in the movie). Talk about an old-boy's club.

So, while I think that GM grossly overstates the point by claiming that only 50 people of the list of thousands turned out to be serious, they also ignore the issue that more than 12 months had passed since most of these people filled out paperwork to begin the leasing process and they were finally contacted to see if they wanted the car. Customers lose interest, buy other cars, and just distrust companies when this happens.

My final thoughts:

I like electric cars and I still believe that there is room in our marketplace for them. I personally wish I was driving one now and I wish it could be an EV1... despite the issues, I think was an outstanding product. I also know some of the folks working on the new Tesla and I wish them the greatest of luck.

However, to think that the dimwits running General Motors actually had the forethought or the power to pull off a "conspiracy" like the one portrayed in Who Killed the Electric Car? is just ridiculous. You think if these guys had the wherewithal to sway public opinion to the degree alleged in the movie that they wouldn't first use this power to get people to buy the cars and trucks they already make and to pay what they want for them? Heck, they can't even give these cars away in some cases!

I still live in Northern California and I swear that I don't even know a single person who owns a GM car (including me!). I see some driving SUVs, but can't name a single one who drives a passenger car made by GM (or Ford or Chrysler for that matter). The EV1 was unique for GM in many ways. It was the first time they branded a vehicle "GM" instead of as one of their divisions. It was the first time they put a small corporate team out in the field to handle the sales and service needs of customers directly. It was the first time they knowingly went out to sell a product they rationally knew they could not make money on for years or even decades. And it was the first real opportunity in more than 30 years for them to change public opinion in places like California about their technology, their products, and their company. But they failed.

They didn't fail because there isn't a market for electric vehicles. They didn't fail because they had some grand conspiracy to make it fail. I think the movie made some good points but in my opinion they failed because the regulators and bureaucrats making the rules were themselves shortsighted. They failed because the oil industry (that does have more political sway and money than the car manufacturers... certainly more sway with the recent federal administration) was concerned about the mandate and exercised their political and financial might. They failed because consumers, for the most part, are swayed by fashion and fleeting taste for things like huge SUVs and have short memories about things like oil shortages and high gas prices. They certainly failed because of their own corporate inertia. But in the end, Who Killed the Electric Car? is entertaining and passionate but not the whole story.

First Post

2006-10-18T23:16:00.000-07:00

Despite working in the Internet industry for the past four years, I haven't thought of starting my own blog until recently. I suppose I didn't think I had much to say, but let's just give this a chance and see what come out.

Most of my professional life has been spent working on the sales of cars. I started my career at Saturn 15 years ago. It's difficult to remember what an exciting company Saturn once was from the perspective of 2006, but we really thought we were changing the world back then. I moved from Saturn HQ in Tennessee to California in 1994. I began to hear talk that Saturn would be handling the sales and service of the EV1 electric car and thought it would be an interesting project on which to work. Of course, I was young and didn't realize that most people with career aspirations at GM were running away from this project as fast as possible. In hindsight, I believe raising my hand for this project was one of the best things I ever did. I had great experiences, learned a great deal, met interesting people, and gained exposure to things that people at my level at GM rarely get to experience.

I hope to elaborate on my experiences with electric vehicles in the future.

I left GM/Saturn in 1999 after it became clear that our company was being pulled back into the huge mothership that was GM and we would be losing our ability to experiment and to do things "differently." It also didn't help that the exposure that I received to future products left me extremely underwhelmed. Let's be honest, I have been a car nut for as long as I can remember and General Motors isn't a company that fosters this... with few exceptions. I also had an opportunity to return to graduate school full time and figured that if I didn't leave then I never would.

Long story short, I got my MBA in 2001 and intended to try consulting for a while, but the economy collapsed and the job offers I had through school evaporated. I fell back on my auto experience and went to work for Mazda for a year before an opportunity to go to work at eBay Motors became available. More on this later.

Anyway, I hope to document my rants, raves, and general thoughts on the auto industry, the Internet, classic cars, and whatever enters my stream of consciousness. I hope you enjoy it and share your thoughts with me.