Read Part 2, Part 3, Part 4, Part 5 and Part 6 of this series.
Imagine stepping into a casino, but instead of picking numbers on a roulette wheel or rolling a pair of dice, you're an automaker putting down billions of dollars' worth of chips on expensive vehicle technologies, some of them untried.
You don't have enough money to evenly spread your bets across the table, so you have to take some big risks. You will face competition from automotive manufacturers around the world and then the unknowns of consumer acceptance, cost and government policy changes.
"That's scary," said Mark Perry, director of product planning and strategy at Nissan North America. But that's how he sees the situation automakers face in meeting the White House's historic 54.5 mpg corporate average fuel economy, or CAFE, standards for light-duty vehicles by 2025.
The analogy also applies on a global level, as car companies race to make products that meet a patchwork of new international policies -- some more aggressive than the United States' -- and meet consumer demands as the auto market rapidly expands.
"You place your bets where you have a competitive advantage, or you believe you have intellectual property advantages, or where you have partnerships and alliances," Perry said. "But the key is you can't eliminate your risk."
He added, "You can't know for sure how the dice are going to roll."
Depending on what the world looks like, American garages could be filled with any number of automobile types, from hybrids to electric vehicles to cars and trucks with various types of internal combustion engines, and even natural gas and fuel cell vehicles. With so many possible technology pathways to pursue, automakers must decide where to put their money to meet the government's progressive fuel economy standard in the most competitive way.
"The challenge will be, can we develop technology that consumers are willing to pay for that still meets their needs?" said Tom Stricker, vice president of technical and regulatory affairs for Toyota Motor North America.
"The best environmental technology in the world does nothing if nobody buys it," he said.
Regulator sees 'fundamental transformation'
The Obama administration says its new CAFE standards will bring massive benefits to the economy and society at large. The 54.5 mpg target is projected to double average fuel economy, save consumers $1.7 trillion in fuel costs and reduce U.S. oil consumption by 12 billion barrels by 2025.
The combined fuel economy programs for 2012-2016 and 2017-2025 are also expected to cut carbon emissions by 6 billion metric tons -- or one year's worth of U.S. emissions -- by the end of the quarter-century. The regulation is widely considered the most significant single step the United States has ever taken to address global warming.
The ambitious standards are designed to encourage innovation, spur job growth and keep U.S. automakers competitive in a fast-changing international market. That progress will build on the U.S. auto industry's recovery from the 2009 bailout.
"The automobile industry is not only enjoying a rebirth," said Margo Oge, director of the U.S. EPA Office of Transportation and Air Quality, who announced she's retiring at the end of the month with the work standards completed. "It's about to undergo a fundamental transformation being driven by changing consumer impacts, energy security demands, societal needs and a need to protect our planet."
Speaking last week at the Fifth International Environmentally Friendly Vehicle Conference in Baltimore, she said she is optimistic that automakers "will innovate their way to far more sustainable transportation and a better world to all of us, and history will show that."
In a graphic demonstration of the risks involved, nearly every major automaker is gearing up to make electric vehicles. By 2017, 55 electric vehicles (EVs) are expected to be on the global market. But so far, consumers have been sitting on their wallets. In the United States today, EVs make up less than 1 percent of sales, which has prompted automakers to make higher bets in the near term on incremental improvements to familiar technologies.
Tweaking a century-old technology
The internal combustion engine has been around for 100 years, and it's not going away anytime soon. Gone are the days of the chugging, rattling Ford Model T, but automotive engineers have found there's still plenty of room for improvement in the basic gasoline- or diesel-powered engine.
A typical internal combustion engine loses 70 percent of the energy in its gas tank due to thermodynamic, friction and pumping losses that occur during the combustion process, according to research by the International Council on Clean Transportation (ICCT). Add in the energy demands of power steering, air conditioning, electronics and idling, and only 15 percent of the fuel's energy arrives at the wheels.
By comparison, coal-fired plants are about 25 percent efficient.
To boost efficiency, automakers are quickly rolling out more advanced technologies. One option is adding gears to a transmission to create a better match between the engine's torque and speed at their highest efficiency.
Chrysler Corp. introduced eight-speed automatic transmissions on the 2012 Chrysler 300 and Dodge Charger sedans -- the first domestic-brand cars to feature this technology. It gives them a 10 percent advantage in fuel economy over their five-speed counterparts. The company plans to unveil a nine-speed automatic transmission next year.
Sophisticated valve trains are also being adopted to optimize air and fuel flow into and out of the cylinders. And a major emphasis has been put on downsizing, turbocharging and adding direct injection to gasoline engines, which allows them to use less fuel without changing their performance.
Ford Motor Co. paved the way in popularizing turbocharged, direct-injected gasoline engines in the U.S. market with its EcoBoost lineup. EcoBoost engines deliver up to 20 percent better fuel economy and 15 percent less carbon dioxide emissions compared with larger displacement engines for about $1,000 more.
The Ford F-150 EcoBoost surpassed expectations and is a top-selling powertrain in the United States. Ford will offer newer EcoBoost vehicles by the end of the year that deliver at least 40 mpg on the highway and aims to unveil other models in 2013.
Turbochargers have been available on diesel engines in Europe for decades but are a relatively new concept in the U.S. market, where gasoline dominates. Tony Schultz, vice president of Honeywell Turbo Technologies, said the company expects turbocharger penetration in the U.S. light-duty vehicle sector to move from about 10 percent today to more than 20 percent by 2016, fueled by the increasingly stringent CAFE standards.
Honeywell, the first to pioneer an automotive turbocharger nearly 60 years ago, will launch products with more than a dozen vehicle brands over the next few years, including Ford, General Motors Co., Chrysler, Fiat, Volkswagen AG and Nissan Motor Co.
Is the horsepower race over?
These types of technologies aren't so much new to the United States as they are being repurposed, said Anup Bandivadekar, vehicle expert with ICCT.
"Between late 1980s and early 2000s ... pretty much all benefits of improved technology were being used to make vehicles bigger, faster, with more power and even more amenities than in the past," Bandivadekar said of developments in the United States. "In some ways, the [CAFE] rules are helping steer most of the gains of improved technologies towards reducing fuel consumption as opposed to mere making horsepower go up."
But even with the best engines, automakers can only squeeze so much fuel efficiency out of an internal combustion engine before they need to turn to hybrid technology. Here the spotlight falls on start-stop systems, or micro-hybrids, that turn off the engine to save power while the vehicle is idling.
According to Kevin See, an analyst with Lux Research, "micro-hybrids will take over the automotive market."
Because start-stop technology puts a battery through far more charge and discharge cycles over its lifetime, automakers will have to invest in upgrades, like valve-regulated lead-acid batteries or even lithium-ion batteries. But the bet on this technology is still relatively cheap compared with more abrupt changes such as moving to alternative fuels, plug-in vehicles and fuel cell vehicles.
The 2013 Ford Fusion, for example, offers the Auto Start-Stop technology for $295, whereas a Ford Fusion Hybrid costs $5,500 more than its gasoline counterpart.
Start-stop technology also offers the 10 percent increase in fuel savings automakers may need to meet the new rules.
Growth expected in Europe and China first
Lux Research predicts micro-hybrid penetration will grow by 36 percent, reaching 22.2 million vehicles worldwide in 2017. According to the research firm, growth will be driven largely by the European market and automakers like Volkswagen.
The United States will continue to lag both Europe and China in adopting start-stop technology through 2017. But start-stop technology qualifies for off-cycle credits under the CAFE rule, and some experts predict nearly all new vehicles could be micro-hybrids by 2025.
"I think it's safe to say at some point there will be so many vehicles that have stop-start technology ... that the term micro-hybrid will not have any value anymore," said Nicholas Lutsey, program director at ICCT.
Just as automakers will make noticeable changes to internal combustion vehicles, from turbochargers to start-stop systems, they will also make tweaks that help reduce weight and friction, from specially designed ball bearings to lighter speaker systems. Often these minor upgrades improve efficiency by mere points of a percent, but collectively they provide significant gains and are a safe bet in getting automakers to the 54.5 mpg target and beyond.
"Generally speaking, [incremental technologies] are the primary thrust of a lot of powertrain engineering at auto companies," Lutsey said. "But in many ways it's the least sexy thing to talk about compared to all the alternative technologies that are the long-term solutions to energy and global warming problems."
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