Power Corrupts

About a month ago, Lincoln announced that it will be introducing a new hybrid electric version of the MKZ model with a price tag of $35,180. On its own this is nothing earthshattering, as many automakers have joined, or will soon join, Honda and Toyota in mass-marketing hybrids. But what makes Lincoln’s announcement exciting is that their hybrid will be coming at a price you won’t be able to refuse. Or will you?

Until now, hybrids have sold at a steep premium. For example, the Ford Fusion hybrid, on which the MKZ is based, sells for $28,825. The Fusion with a conventional gasoline engine will set you back only $20,420. Depending on factors like how much you drive, the price of gas, how long you keep the car, and your choice of discount rate (needed to calculate the present value of future savings), hybrids may or may not be a good deal.

However, the MKZ is a first in that both models – the hybrid and the one that runs on a traditional gasoline engine – have an identical price.

Why has this happened? Generally, the price and performance of a new technology drops, sometimes dramatically, over time. Think of computers, mobile phones or, in the automotive sector, airbags. Falling costs are mostly due to two phenomena: 1) what economists call “economies of scale” (costs drop as production runs rise, thanks to things like investing in equipment whose cost wouldn’t make sense if you were only producing a few units) and 2) “learning effects,” as companies improve their knowledge of the technology and how to produce it.

So have hybrids reached the point where price parity is here to stay? And can we thus glimpse the day when all of us will know the joys of regenerative braking?

Maybe. But rumors of internal combustion’s death may prove to be greatly exaggerated. First, hybrids may not really be reaching the point of cost-competitiveness. The MKZ is a fairly luxurious car, with fatter profit margins than more humble models like the Fusion. Lincoln may be masking the MKZ hybrid engine’s higher cost by accepting less profit on them. This wouldn’t make sense for more inexpensive cars.

Moreover, there is reason to believe that many consumers will stick with conventional engines, even if hybrid technology is essentially free.

There is a considerable difference in engine power between the two Lincoln models. With the 3.5-liter V-6 gas engine, the regular MKZ produces 263 horsepower (and gets 18/27 mpg). The hybrid’s 2.5-liter Atkinson-cycle 4-cylinder engine produces only 191 horsepower (but gets 41/36 mpg).

Why is this troubling? Nicholas Lutsey and Daniel Sperling have written on historical trends in energy efficiency, vehicle size, pickup and fuel economy. From 1987 to 2005, autos’ efficiency improved 54 percent thanks to things like better aerodynamics, improved engine and drive train efficiency, and less tire rolling resistance.

But most of the added efficiency was eaten up by increased car size, as autos went from 3000 pounds to 3500 pounds. And automakers applied most of the remainder to improving pickup as opposed to better mileage. Cars’ 0-60 acceleration time saw a drop from an average of about 14.5 seconds to under 10, while mileage rose only 0.6 mpg.

Note that fuel economy is now rising, but this is due more to regulation than changing consumer tastes. At least through 2005, car companies judged that their customers were willing to pay at the pump for that added punch.

Frankly, I find this a bit puzzling. Granted, you might sometimes floor it from 0-60 if you are a Domino’s delivery guy or have 00 status in the British Secret Service. But neither of these are particularly common situations in urban driving. As far as I can think of, virtually the only time really quick acceleration is even marginally important is when you’re merging onto the freeway, and even in a car as underpowered as my first one (a beloved Toyota Tercel), I always seemed to make in onto the road. Then again, I may have found merging easy because in L.A. highway traffic is never moving at more than 20mph anyway.

Two theories about why people care so much about pickup. First, a centerpiece of a test drive of a new vehicle involves flooring it and seeing what she can do. You take the feel of that surge of acceleration back onto the showroom floor with you. Second, quick acceleration probably plays into some deep instinctual need for power and control. But neither of these have much to do with getting you to your destination any quicker.

In any event, with an IC power train and a hybrid one selling in the same model for the same price, we’ll soon find out what people really want. This decision strikes me as a no-brainer, but Ford’s research, which indicates that 40 percent of current MKZ owners “would consider” buying a hybrid as their next car, doesn’t fill me with confidence. Nor do past consumer tastes. Until hybrids have improved to the point where their performance matches that of traditional engines (which they almost certainly eventually will), let’s hope that Ford doesn’t decide to ditch the hybrid and add oil slick and rocket launchers to the MKZ instead.


Amy Alkon

You're right about the reality of needing pickup. I drive a 2004 Honda Insight (around Los Angeles) and get 65/66mpg when there's no traffic, and 45-50 mpg when there's traffic. My car is 1900 pounds of very little pickup, and I have to be a little careful when merging from a stopped position into fast-moving freeway traffic, but otherwise, it's really no big deal.

Gladwyn d'Souza

You note price, driving etc as the reason to drive a hybrid. What about pollution, cancer, health, etc?

Andrew Swift

As the owner of a 45-mpg Golf station wagon, I can tell you that extra power (which I willingly gave up for mileage) is necessary for passing. I regularly have to follow slow trucks for more than a half hour while waiting for a downhill passing zone.

Drill-Baby-Drill Drill Team

The Auto Makers have conditioned us well to believe that a normal priced new car should be naturally priced at $25,000-35,000. One generation ago you could purchase a new car for under $3,000. And today Tata of Indian can produce a $2000 car AND still make a profit.

China is knocking on the door of Detroit, and they WILL undercut Detroit ruthlessly like they did the Flat Screen TV market and everything else. If you can make a state of the art CAD computer, smart iPhone and HD Video cameras, do you think they can make a car? The Japanese beat Detroit in 30 years. The Koreans in 20 years. The Chinese are gearing up for price war. An MKZ knock off luxury Chinese 4 dour Coupe will be happily priced at half the cost.

Tom Passin

The pattern of increasing weight has been with us for a long time. Over several decades, I have examined the weight changes of numerous car models over time. In every case I looked at, the car weight would increase by a constant percentage per year over time - about the same percentage for most car models, by the way - until the car got too heavy (I suppose this meant too sluggish). Then either the car would get a larger engine as standard, or the model would get remodeled with a lower weight (and the weight creep would begin again).

As for wanting a lot of power, another reason would be that if you live at a high altitude, you need a larger engine because engine power decreases at higher altitudes. When I moved from Virginia to New Mexico, I bought a V-6 model instead of a 4-cylinder model for that reason. I knew that I would be driving at 6000 feet and up (perhaps to 11,000 feet or higher), and I wanted to make sure I'd have adequate power for hills and passing.

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Eric

If your criteria is pickup, you are really talking about the torque applied to the wheels when you punch it. Depending on how a hybrid is calibrated and controlled, the battery and electric motor can actually give consumers the 'pickup they are looking for and supplement the IC engine off the line.

Electrical motors, unlike IC can deliver their torque at basically zero RPMs and hold that torque longer. Diesels are the same (more torque earlier, relative to the top line horsepower number) though not as good as electrics.

I'd like to make the counter argument that consumers might enjoy a hybrid they can place into sport mode for additional power and normally have in ECO mode running around town. Different driving modes give the best of both worlds.

And if price is no longer a discriminator as the store indicates, many people might pick a hybrid and enjoy the added MPGs and enjoy the performance benefits of an electric motor too. Both the Volt and Tesla have such modes which allow the user to trade battery charge for g-forces.

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Ian Kemmish

Presumably future 00's will drive pure electric Lotus's (who already build cars for Tesla, remember) equipped with fearsome Tasers....

jonathan

My 2010 Prius has plenty of pickup. I just drove about 1400 miles on a trip at highway speeds of 70-80 MPH and got 50 MPG. My driving of the Insight is that it is, indeed, underpowered but the Prius is no longer that way.

Tumbolian

The phrasing of the power numbers is misleading; it seems like you're excluding the power of the electric motor, when 191 hp is the combined power of the Atkinson+electric.

question

Andrew, maybe that's because station wagons are whales of vehicles.

Mike B

Acceleration is highly important to being able to take advantage of economic values on the highway. It's like having a seat on the NYSE vs conducting your trades based on week reruns of Mad Money. If you are presented with an opportunity to pass traffic or find a hole in a faster moving lane you need to be able to react very quickly. Without pickup you will be left to settle for other drivers' sloppy seconds.

I hate having to gun my engine and waste fuel, but a couple of times per drive I have to rev the engine a bit to seize an opportunity that will save me time and frustration. Now of course the best way to get acceleration is to simply have a lighter vehicle so fuel economy and performance are not mutually exclusive.

Gary

"Acceleration is highly important to being able to take advantage of economic values on the highway. It's like having a seat on the NYSE vs conducting your trades based on week reruns of Mad Money."

But as with seats on the NYSE, you reach a point of diminishing returns. My college roommate had a Geo Prism. That car couldn't get out of its own way. He upgraded to a V6 Ford Mustang. The V6 Mustang has sufficient power where moving to a V8 Mustang would provide little additional benefit in terms of passing or accelerating away from danger.

Phil Birnbaum

Lots of things don't get you to your destination faster: leather seats, a CD player, alloy wheels ... people like acceleration because it's fun, and makes for a more comfortable drive.

The size of a house has increased quite a bit in the last 40 years, even though a bigger house doesn't keep you any warmer or dryer. Houses are more than just shelter, and cars are more than just transportation.

BTW, I thought the way economists think was to explicitly deny the need to to delve into the reasons for specific consumer tastes ...

B

Some people just like driving. They don't NEED a car that accelerates quickly, but they enjoy letting her rip nonetheless. Anyone who has ever entered a tight-cornered highway on-ramp at 40 and exited at 80 will understand what I'm talking about.

dlc

Terrible.

Up front, the author says that the Fusion hybrid sells at a premium, comparing it to the 4-cylinder base model. Then he says the Lincoln doesn't sell at a premium, comparing it to the 3.5 liter V6 base model. What kind of fool does he take his readers for? Why didn't he choose to compare the Fusion Hybrid ($27,950 MSRP) against the 3.5 liter V6 Fusion (MSRP $26,655)? Most of the difference between the Ford and Lincoln offerings goes away when you set up the comparison fairly.

Then: "fuel economy is now rising... due more to regulation than changing consumer tastes. At least through 2005, car companies judged that their customers were willing to pay at the pump for that added punch."

The author claims regulatory changes to be more important to recent increases in fuel efficiency than changes in consumer demand. But there has been no change in efficiency regulations (CAFE standards) since 1990. In 2007, a law was passed that will increase CAFE standards next year from 27.5 to 30.2 MPG, the first increase since 1990. While this change provides some impetus for manufactures to start increasing mileage in advance of the 2011 model year, if consumer demand for gas sippers wasn't increasing manufacturers would likely be inclined to sell them the cars they wanted for as long as possible.

What's most puzzling is why the author cites as proof of consumer's inelastic demand for fuel efficiency statistics only through 2005. Why not use later data, which is available? Because those data don't support the conclusion. In 2005, gas prices spiked from $1.75 at the beginning of the year to more than $3.00 by October. Stories of people trading in their SUVs for hybrids abounded.

In the 15 years leading to the 2006 model year (which was already being released when the 2005 gas spike occurred), average passenger car mileage increased from 28.4 to 30.1 MPG, or less than 0.4% per year. During this time, gas prices were for the most part stable and increasing at about the same rate as overall inflation.

Following the 2005 gas price spike, average mileage has increased 2.7% per year, including 3.6% between the 2006 and 2007 models years -- before the hike in CAFE standards was passed in 2007. While one can make an argument that CAFE has caused a preemptive shift in manufacturers' products, the case is much harder to make for the time before the 2007 change in CAFE.

Seems clear to me that shifting demand was more important than regulatory changes.

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Scott R.

We could solve this problem to a great degree by buying smaller cars. I cannot count the number of people I know who own midsize and fullsize sedans and SUVs, but drive them passenger-less 95% or more of the time. Some of these folks do not even have the number of people in their family to justify the size of the car (think a family of four that drives a Suburban).

I was part of this problem. I used to drive a large SUV. One day I realized that this massive car and huge V8 engine were, 95% or more of the time, ferrying around only 180lbs of me and whatever groceries or other light cargo I had with me. Even when I had my wife and kids (2) in the car, we most often had only light cargo.

When it came time to buy a new car, I got a Honda Fit. The tiny engine is fine because the car is tiny, so the power to weight ratio is decent and I can merge and pass without feeling like the tortoise in a rabbit race. And if we need a bigger vehicle for a trip or other purpose (which happens maybe once or twice per year), we can rent it for the day or week. Based on the difference in purchase price, gas, maintenance and other costs of ownership of the Fit versus any midsize or large SUV, we still save money even if we have to rent occasionally.

Unfortunately, I feel like I'm in a very small minority who is willing to make this kind of "sacrifice." (Only in America would we call buying and owning a new, four-door car with every modern amenity you could need, a "sacrifice.")

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njkayaker

question@11 "Andrew, maybe that's because station wagons are whales of vehicles."

Huh?

The Golf "Station Wagon" is a small car. It doesn't weigh that much more than the hatchback Golf.

Jonathan

Umm.. the hybrid version has "two" engines, so comparing the horsepower of only the gasoline engines isn't really a fair comparison.

Also, horsepower is a maximum, and only reached at a specific RPM, and since your presumably accelerating, you won't be at that RPM for long with a normal automatic transmission. The hybrid, with its continuously variable transmission, can maintain peak horsepower.

-Jonathan

njkayaker

[quote=article]There is a considerable difference in engine power between the two Lincoln models. With the 3.5-liter V-6 gas engine, the regular MKZ produces 263 horsepower (and gets 18/27 mpg). The hybrid's 2.5-liter Atkinson-cycle 4-cylinder engine produces only 191 horsepower (but gets 41/36 mpg).[/quote]

This shows a rather disappointing lack of understanding of hybrids.

Hybrids get "pickup" from the electric motor, which provides the torque needed for acceleration. It appears the 0-60mph numbers for both the cars is the same (7.1sec).

As it turns out, the Atkinson engines produce less torque than normal gas engines but the electric motor fixes that.

It's not uncommon for "luxury" hybrids to have better acceleration numbers than their non-hybrid versions.

Larry

I am 62 and typically have bought and or leased a new car every three years . own a 2007 Lincoln MKZ and have no intention of getting another one in the next 12 months. If I was I would not consider a hybrid as I believe the V^ is still underpowered and the loss of more torque and HPs would not make for comfortable Hwy driving in my view. Having said that MKZ is one hell of a great car I