Fuel pumps and the “Y2K8 crisis”: security feature gone awry

Crude oil at $100/barrel may have been the first psychological barrier for traders. Now long crossed and $150 looming on the horizon, it turns out there is an equivalent one for drivers: the $100 refueling at the friendly local gas station. New York Times reports in the article titled When a tank of gast costs $100 several large trucks and SUVs have enough capacity for hitting the three digits during a refueling stop.

But they often do not quite get there for two reasons. First one is the unwillingness to see the register ringing up that amount. The article cites owners who prefer to refuel long before they are running on fumes, to avoid seeing the full price– and possible wasting more fuel with more frequent visits to the gas station, as well as slightly higher  weight of the car on average from carrying more fuel.

The second one is a “security feature:” many pumps that accept credit cards will shut off at $75 to prevent overcharges as well as stolen cards from being used. It seems strange that a criminal in possession of someone else’s credit card would be going on a shopping spree for fuel. Electronics, jewelry and other high value goods that can pawned off appear as more likely candidates. (Never mind the cartoon strips– these measures have been in place since the times when fuel was relatively inexpensive.)

That’s not the worst limitation: in an echo of the Y2K crisis, it turns out that many older pumps are not capable of registering three digits at all. (No word on whether they simply roll back to $0.00 and start counting from there or getting stuck at $99.99.)

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Ford Motor Company and the long-anticipated rude awakening

According to CNN/Money, Ford Motor Company concedes that high gas prices are here to stay, and as a result the company will not be able to execute on its profitability plan by 2009 as forecasted earlier.  Readers maybe wondering why this is news. Detroit has been a single trick-pony for a long time. All three manufacturers had established businesses in light-to-heavy trucks and SUVs. These bet paid off handsomely through the 1990s and well into the first half of this decade with the exception of the brief recession following dot-com implosion. Meanwhile the passenger car market was ceded to foreign imports and there was virtually no interest in new fuel efficient alternatives. But such over-specialization is extremely dangerous: it is generally recognized that dependence on a single product line creates a major vulnerability. The technology parallel is MSFT, a perennial two-trick pony with operating systems and productivity software. The difference is MSFT has been very aggressively trying to diversity into online services, gaming consoles and automative computing, to name a few. Ford has been forging full speed ahead.

It’s not clear whether Ford management failed to see this coming or if the internal structure prevent action. A more charitable interpretation is that Ford did not hedge correctly on price of oil. The last decade of the 20th century showed a clear upward trend in price of crude and gasoline, with long periods when the price of the refined product seemingly “unhinged” from the price of the underlying commodity. Yet the fluctuations did not appreciably change lifestyles. There was no price elasticity, commentators argued, because the amount of fuel consumed is decided a long time in advance based on the commute and vehicle. Once individuals migrate to the exurbs and commit to 45 minutes of rush-hour driving with the 8000lb SUV, it’s difficult to respond to changes in pricing.

But the laws of economics were not permanently suspended. There is a price point where even existing owners may change their consumption pattern. More importantly before that point is reached another pressure appears: prospective car buyers will gravitate towards higher milage options. Ford CEO Alan Mulally says: “We saw a real change in the industry demand in pickups and SUV in the first two weeks of May. It seems to us we reached a tipping point.” This acknowledgment is an important first step but arrives about 5 years too late. Interesting enough Mulally was vice president at Boeing earlier, another company very vulnerable to oil prices and no easy way out: there is no such thing as a hybrid 747 although Virgin airlines grabbed headlines with a brief biodiesel experiment. Fortunately airlines unlike consumers have always factored efficiency into their purchasing decisions. Bringing this insight into Ford could be one of his main contributions. Meanwhile Ford remains unlikely to garner a “buy” recommendation any time soon.

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Throwing fuel on the fuel-economy debate

How often do GM and Toyota get into a public argument with a Pulitzer-prize winning author, using the blogosphere as their battle-ground? It all started when Thomas Friedman, author of the globalization classics Lexus and The Olive Tree and The World Is Flat, wrote an op-ed piece for the New York Times titled Et tu Toyota?, taking the company to task for its duplicity in joining the Detroit big-three for lobbying against higher fuel-economy standards in the US, while publicly cloaking itself in the language of eco-friendliness when it comes time to hawk hybrids on TV.

Toyota PR machinery kicked into high-hear and soon Irv Miller, group VP of communications had a response posted on the company’s external facing blog. General Motors also took offense at the allegations, and joined in the fray with a post of their own on the GM blog, appropriately borrowing Shakespearean title from Julius Ceasar: Beware the Ideas of Friedman. (Perhaps they could have waited until March in deference to the theme?) And there are just the “official” participants– bloggers have been actively writing about the problem.

Here is the quick run-down of the argument:

• Friedman questions why Toyota is fighting against fuel-economy standards in the US, since their fleet already complies with the higher ones in Europe and Japan. Detroit is in a different boat, as their primary market is US and their production is  heavily weighted towards light trucks. Precisely for that reason, higher CAFE standards place GM/Ford/Chrysler at a disadvantage while favoring the imports which do need to costly adjustments to the new regime. The puzzle is why sheer self-interest did not lead Toyota to lobby in favor of higher standards.
• The answer implied in the article: because that would leave significant revenue on the table since large-trucks and SUVs constitute a big slice of the US market. It’s not uncommon for a large company with diversified product lines to demonstrate schizophrenic behavior– one side going after the “green” niche while another seeks to capitalize on gas-guzzlers. No surprises there.
• Irv Miller counters that Toyota is pushing for higher standards but not the most aggressive version described in the senate bill because it is unrealistic:

“It’s because there’s a point at which the bar is set too high for all competitors.”

• Both the Toyota and GM responses counter that the reason large trucks are built is because the large trucks are bought by consumers- effectively a syllogism that amounts to “we sold them because they bought them.”

• Similarly this line makes no sense:

It’s why our full-size pickups are the fuel economy leaders. It’s why our new Chevy Tahoe and GMC Yukon Hybrids match the city fuel economy of a Toyota Camry.

The fact that one model can beat a competitor doesn’t give GM a “green heritage” anymore than the fact that the Viper can hang with a Ferrari give Chrysler a “Formula 1 heritage” across the line up. Existential proofs are useless because environmental impact is about total emissions across the board. The “A” in CAFE stands for average, not some best-case scenario achieved by prototypes in a controlled lab experiment or niche model driven by a few hundred people.

• There is a deeper concern raised by Friedman which is not answered in the GM retort. NYT article refers to Michigan reps’ attempt to lobby against CAFE standards on behalf of auto-manufacturers a case of “empty-barrel politics” and corporate euthanasia– effectively hastening the decline of the US industry. This is a far more damning and bold accusation. Putting on the McKinsey consultant hat, Friedman is dropping a hint that management has been clueless and their long-established strategy of abandoning the small car segment to imports has driven the industry into the ground. (The reasons for the decline may be debatable but its existence is certain. Last year Toyota quietly surpassed GM to become the world’s #1 manufacturer.)
• Finally the engineering creed of “doing more with less” is missing from the whole debate. There is undeniably a trade-off between vehicle size and fuel efficiency, but there is nothing that precludes improvements across the board. Even today wide difference exist in the fuel efficiency for vehicles in same size, weight and performance categories. In fact one could argue there is a greater burden to improve fuel economy in that segment. There is no reason that tricks applied to  optimize small cars today (multi-valve engines, variable timing, use of lighter metals in construction, aerodynamics, hybrid drive-trains etc.) could not be employed elsewhere.

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Reversing the flow– when cars power houses

“You don’t have to plug it in” Toyota keeps insisting in their commercials about the Prius. A conservative company confronted with the problem of marketing a disruptive technology  to a conservative audience, opted for doing the exact opposite of what every other automobile manufacturer is doing: convincing you that their product is just like any other car. While every one is spinning tales of personal liberation and spiritual enlightenment, Toyota says this is just another car. You drive it like any other car, never mind this “hybrid” mumbo-jumbo and there is no fussing with a power cord.

The problem is owners want to mess with power cords. Toyota management may want to brush up on their copy of Crossing the Chasm, because the people buying into the technology are still early-adopters at this stage and they are interested in pushing the limits of the technology. Already CalCars demonstrated plug-in conversions and Google has a fleet of converted Priuses drawing power from the solar panels lining the roof of the parking lot for buildings 45-46 in Mountain View campus.

The capability goes both ways: they can either draw power from the grid (or off the grid from renewable sources, in the case of Google) or they can supply the grid. The economic viability rests on a type of “price arbitrage”– charge at night when electricity is cheaper due to lower demand, then supply the grid during the day when it is more expensive with all those air-conditioning units whirring away.

But that vision is a few years out for a vehicle rolling off the assembly line in bone-stock condition. Without voiding the warranty or paying for a conversion that costs more than the car itself, there is no easy way to tap into this resource. Undeterred, a community of tinkerers continue to push the limits while holding on to the warranty. One of the more interesting projects is PriUPS, a pun on UPS for Uninterrupted Power Supply.

The standard answer to unreliable utilities and hurricane-prone regions is a portable generator. But a car is effectively a portable generator. When the engine is running, the alternator supplies current. (Nevermind the battery commercials showing sports cars equipped with their brand shredding rubber: the battery starts the engine but is largely out of the picture under normal driving.) Tapping into this with an off-the shelf inverter is standard. Up to ~200W can be drawn directly from the cigarette-lighter adapter– is that an anachronism now that few people use it for that purpose?– and upwards of 2000W by hooking up to the battery itself. This means that in an emergency or power-loss, a car could power basic house-hold appliances.

In principle the Prius is great for this application. First it is equipped with a large bank of batteries distinct from the ordinary one (called “traction battery” in Toyota language) that can supply more juice. More importantly, it has automatic power management to sense when the battery is running low and run the engine to recharge. This is a big improvement over running the engine constantly or manually stopping/starting. Ordinary car batteries are not designed for deep-cycles so they can’t handle being nearly discharged completely and come back to life. The Prius traction battery has no such problem.

But the engineering department had other ideas and drawing power from the traction battery was not high on their list of priorities for the car. (Besides– what would happen if potential buyers got wind of that capability? It’s no longer “just another car” and they would run away screaming, intimated by all this technological complexity, according to Toyota thinking.) PriUPS project details all the hoops to jump through to get this working. Detailed descriptions makes for good reading in their own right, but the short version is this gentleman managed to get 2400W while the engine was running 40% of the time in burts of 3 minutes. 5-6KW is the upper limit extrapolated from there, more than enough to keep a residence fully functional, minus air conditioning.

Interesting enough Honda, Toyota’s biggest competitor at home, has a healthy business in small, portable generators from home back-up power. Exactly the type that could be replaced with a Prius in the garage.

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Electric vehicle rally in Palo Alto today

Observations from the EV rally sponsored by the Silicon Valley chapter of the Electric Automobile Association:

• Required  background reading for the event is Plug-in Hybrids by Sherry Boschert. Mandatory movie is the documentary Who killed the electric car? which premiered last year.
• There were a couple dozen different EV cars, as well as random other eco-friendly conversion projects which appeared to have nothing to do with electric propulsion, including a diesel Benz converted to run on vegetable oil.
• The vehicles spanned the whole range from bicycles assisted by lightweight electric engines to fully electric scooters and motorcycles, a toy car modeled after a Hummer H3 chassis to several flat-bed trucks intended for hauling weight.
• Similarly the state of the EV technology ranged from brand new Camry hybrids off the dealer lot still carrying the stickers, to production spec Sparrows to home-brew projects with their guts spilled out, resembling a Rube-Goldberg contraption, high-voltage wires going all over the place etc. No fuel-cell vehicles in attendance as far as this blogger could see.
• CalCars had a significant presence with their plug-in hybrid conversions. There were two different examples, one a relatively “incremental” modification with additional lead-acid batteries and another with the all-out lithium-ion overhaul. Toyota being the conservative company it is, would likely view them as equally damning when it comes to voiding the warranty.
• On the one hand, it’s great to see the tinkerer spirit well-and alive. Modding cars is part of American tradition, and if the 50s were about muscle cars, the contemporary frontier is making electric vehicles a reality well ahead of the mainstream automobile producers.  (It turns out one of the plug-in conversions was done in ~2 days by a group of amateurs during Maker fair.)
• On the other hand, inquiring about what it takes to convert a Prius to plug-in shows that for the most part, EV still remains something of a hobbyist project. Most of the pure electric vehicles have serious limitations to their range, top speed or safety, by virtue of low curb weight in relation to the bloated SUVs they will be surrounded by on the road.
• Similarly the conversion projects remain beyond the realm of feasible even for those willing to void their warranty in creative ways. Two extreme ends of scale are represented by an “open-source” DIY additional battery kit under $6K or full-service replacement by the more advanced lithium-ion cells similar to those powering laptops  for >$25K. (NiMH is in between according to one of the reps.) That this latter number exceeds the cost of a new Prius ought to give anyone a pause for concern. Add to that rumors of plug-in Prius in the works from Toyota for 2011-2012, it’s difficult to justify being an early adopter on this front.

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Fuel prices and used cars

A growing number of articles are predicting that fuel prices will hit $4/gallon this summer. CNN/Money has recently joined the speculation with an article pointing out that according to one source a new nationwide record had been set last Sunday, exceeding previous $3.05 spike following Hurricane Katrina. It can only get worse from here: refining capacity is still  at historic lows. Meanwhile demand will increase over the summer as more families hit the road, in search of the perfect vacation.

It remains to be seen whether the higher prices will have any affect on the purchasing patterns in the automative industry. In the past, the price of gasoline defied economic theory: demand for driving and for that matter, gas-guzzling SUVs showed no elasticity based on oil prices. “People respond to incentives” goes the theory but during the late 1990s and early years of this decade, it was hard to see any evidence of that. That may be changing now. New York Times reported that in April GM sales are down 2% and Ford down 7%.

“Rick Wagoner, the chief executive of G.M., said during an interview on CNBC, the financial news cable network, citing gas prices that have topped $3 a gallon in many parts of the country as one reason.”

This excuse is slightly more credible than Krispy Kreme blaming Atkins diet for its lack-luster quarterly results. While Detroit can not control fuel prices directly, they should have felt free to adjust their own product line and manufacturing numbers based on projected trends. In the 1990s SUVs were the right business investment, as consumers paid hefty premium for the appearance of a vehicle ready to conquer the wilderness. But once global warming, talk of carbon taxes and higher fuel prices started, focus would have logically shifted to smaller, efficient passenger vehicles and disruptive technologies such as hybrids. (A well managed company is supposed to look ahead  and invest part of the SUV windfall in the next thing.)

A better indication of economic sanity restored to the markets may be in used cars. If fuel prices affect behavior, one would expect to see greater demand in efficient cars and by contrast, a shift away from the gas guzzlers. This is similar to the inverse correlation between interest rates and bond prices. Once hybrids start trading well above their blue-book price, there is an argument that cost of fuel is impacting purchasing decision.

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Hybrid car as generator-on-wheels

CNet News is running a photo-story titled Hybrids that give back to the grid. The article centers on heavily modded hybrids exhibited at the Alternative Energy Solutions Summit at AMD headquarters in Sunnyvale, CA. One of them is the well known PRIUS+, a plug-in hybrid project from CalCars. More intriguing is the concept car from Pacific Gas & Energy, where the car can feed power back to the grid. Intended application is to reduce the power drawn from the grid, or even profit by a type of electricity arbitrage over time. During the day when air-conditioners are running full blast and stores are open, power demand is higher– and so are prices– compared to evenings. Charging at night with mains power (or simply charging from normal driving) and selling the surplus back to the grid at peak pricing time has the potential to turn every driver into a micro power-plant operator.

But a more mundane application could turn out to be the prime driver: supplying emergency power in the case of an outage. Typically power can be drawn from a vehicle in a  variety of ways:

• From the cigarette-lighter adapter, for low consumption needs (<150 W) from charging a cell-phone to running a laptop. Unless the gadget has its own car adapter, this requires an inverter to convert DC from the battery into 110V AC that electronics in North America expect.
• Directly from the battery, using a beefier inverter. One popular manufacturer’s models go up to 3000W. This is good enough to run most appliances, including microwave, large TVs, PCs, vacuum and even power hungry dishwashers although running them all at once may be a challenge.  (This page from the Dept of Energy lists typical consumption of gadgets.)

Neither can cope with the demands of a water-heater or clothes dryer which can go up to 5000 watts. Enter hybrid vehicles. Batteries in a bone-stock Prius are rated at around 20 kilowatts, indicating that the bank of batteries is capable of supplying all the power required to run a house. Plug-in hybrids have even more powerful batteries since they are designed to be able to run ~40 miles without having to start the internal consumption engine. But the  those batteries may not have been designed to supply large amounts of power continuously. In ordinary driving the “electric assist” kicks in occasionally for heavy acceleration or low-power cruising. (The car can always fall back on the ICE to drive the alternator and generator more power for charging the batteries as needed.)

Either way serious mods are necessary before the Prius in the garage can replace the trusty generator during an outage, which is the vision that PG&E has advocated. It is a promising concept and may well become cost-effective for buyers, considering that a moderate size 5000W generator lists over $3K. This would be one more reason for increased hybrid sales in hurricane-prone areas such as coastal Florida.

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Winds of change for Prius demand

Interesting article from CNN/Money comments on the fact that after 3+ years of robust demand, it is now a buyer’s market for the Toyota Prius.

Prius was the second hybrid released in the US, second to Honda’s now discontinued and largely impractical 2-seater the Insight, although it was originally first in Japan. Apparently sales are now slowing right after Toyota committed to increasing inventory by 70%, no doubt prompted by the surge in interest last year as oil prices climbed out of control. Economists were vindicated: there is price elasticity after all, even when price fluctations in the late 1990s showed no signs of stemming the consumer fascination with SUVs. This time the spikes following 2005 hurrican season did lead to renewed focus on fuel economy– when GM Is advertising one of their trucks as “best fuel economy V8 full-size in its class” you know that expectations have been reset. (Is that akin to being the fastest unicorn?) Prius was there to capitalize on the demand. According to the statistic from the article, in its halcyon days the average Prius sat on the dealer lot for 5-11 days compared to 33 days for Toyota average across US and industry record of 66 days. As one who participated in a Prius search last fall, this blogger can attest that in metropolitan areas that figure was closer to zero-days: most vehicles were already spoken for by the time they were loaded on the 18-wheeler for transit.

What is different now? Part of it is the car became a victim of its own success, an arguemnt also rasied here. The tax incentive for hybrids is a function of the sales and after Sep 30 it was cut in half last year, because Toyota exceeded the target. It will go down another 50% again in April and October of 2007 based on projected sales volume. Other hybirds have not enjoyed nearly as robust sales and maintain the full credit. (Tying the amount to units moved does make sense: after all the incentive exists to motivate consumers to buy and healthy volumes indicate that consumers need little extra convincing.)

On the economics side, fuel prices retreated and the initial over-reaction corrected itself. On the other hand as critics pointed out, extra cost of purchasing hybrid technology is unlikely to be recouped in fuel savings, suggesting that for most consumers the decision was one of ecological statement– or a case of bad mathematics.

What does this mean Toyota? Advertising for one– that would be a first since 2000, as it never required much publicitiy for a niche vehicle aimed at buyers already in the know. There is also incentives, 0% financing and probably an end to price gouging by Toyota dealers who were capitalizing on demand last year. In short, shrinking profit margins across the board and more Priuses on the road. In this case what is bad for Toyota, is good for the environment.

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