However, hybrids are expensive, selling for at least $3,000 more than comparable conventionally powered cars. The extra engineering required to “hybridize” a regular power train ranges from moderate to gigantic (sophisticated power train controllers, a million lines of software code, and “power electronics” in the black box). The cost of this will only come down with economies of scale. Consequently, even with fuel prices as high as $3.50 per gallon, only the highest-mileage consumers would be expected to switch to hybrids. This will limit U.S. hybrid penetration to less than 10 percent over the next decade. For the short term, at least, diesels seem to be a better value for most U.S. consumers, whereas hybrids seem to be a better value in some European markets, particularly because of the congested, stop-and-go driving in such large cities as Paris, Rome, and London.
Currently, Japanese and European manufacturers are best prepared to meet this changing auto environment. They have the lead on hybrid and diesel power trains; they also have more rapid design cycles and are more capable of rolling out new fuel-efficient designs as needed. Meanwhile, some lesser-known companies could benefit from changes in market demand. For instance, smaller car manufacturers, such as France’s PSA Peugeot Citroën, might enter the North American market with diesel technologies and small and medium-sized cars. Market shifts could also allow for the emergence of another creditable set of auto manufacturers from nations like China or India.
Over the next couple of years, automakers and their hundreds of suppliers will make sizable expenditures to meet these expected shifts in vehicle sizes, types, and power trains — whether the shifts are to diesel production and development of hybrid technologies or more exotic alternatives. Manufacturers will need a nimble and rigorous view of the marketplace to make these expenditures pay off.
Often, executive instincts are off the mark during changing times. Executives must shift from a progressive strategic-planning process to a more economically rigorous plan that outlines clear behaviors for anticipating the unexpected, both to seize opportunities and to fend off unforeseen threats. We already see the shift occurring from high gas prices. Are you ready to make the right bets, moment by moment, during this dynamic time?
Bill Jackson (firstname.lastname@example.org) is a senior vice president with Booz Allen Hamilton in Chicago. He works on major organizational change programs, including restructurings, post-merger integrations, and growth, for a variety of industrial clients, especially in the global automotive industry.
John Loehr (email@example.com) is a senior associate with Booz Allen Hamilton in Chicago. He specializes in product strategy and innovation for automotive, aerospace, and other manufacturing companies.
Natasa Azman (firstname.lastname@example.org) is an associate with Booz Allen Hamilton in Chicago. She works with automotive, consumer, and media clients on organizational strategies, business process redesign, and various strategic issues involving financial modeling.