Monday, September 1, 2014

Diesel cars cost efficient and reliable than Hybrid cars

Diesel cars cost efficient and reliable than Hybrid cars

Even with Tesla Motors tasting success with its Model S luxury electric car by outselling its petrol-powered equivalents since its launch in 2012, the prospects for battery-powered vehicles generally may never shine quite as bright as expected with the adaptation of newly designed diesel powered cars. With all major companies like Mazda, Mercedes, Toyota, Mitsubishi and Audi entering into diesel cars production line, Americans at last will have the opportunity to experience what a really advanced diesel car is like and why Europeans opt for diesels over hybrids, plug-in electrics and even petrol-powered cars. Part of hesitancy stems from a general lack of understanding among American consumers about the benefits of modern clean diesel versus the old (loud and dirty) variety. So what makes diesel cars very attractive that automobile industry forecasts them competing equally with electric hybrids. The truth is that while there is a price premium associated with the initial purchase cost of diesel vehicles, they typically get 30% better gas mileage and flaunt superior torque numbers and reliability ratings. The automotive analysis firm Vincentric estimates that driving a diesel car will save $2,117 in fuel costs over one year assuming annual rate of 15,000 miles and that is not including the lower ownership costs with diesel cars than their conventional counterparts. GM with its model Chevrolet Cruze diesel will be the latest entrant into the race for many of diesel-powered cars.

Diesel car registration is raising by 30% since 2010 and GM forecasts that diesel cars and light trucks is likely to capture 10% of the US automobile market by 2020. GM, like any other automobile company, believes that this is the right time to enter and capture a growing market in diesel cars.  GM will be facing huge competition from hybrid cars. While both, diesel and hybrid cars are economic in terms of fuel efficiency but each has its own merits and demerits. Fuel efficiency has a causal relationship in increasing the demand for the hybrid car registration, which went up by 65% from 2010 to 2013, a similar trend can be expected for diesel cars as they have shown equivalent miles-per-gallon basis as many of the electric vehicles available today.

According to me, GM must take into consideration of 5 key concepts listed in Prater & Whitehead’s article on forecasting, before entering into this huge race on diesel car industry.
1)   Impact of technology: Whether the technology of diesel powered engines is better than petrol powered or hybrid car engines in terms of torque, fuel efficiency? Is there any choice and difference between auto & manual gears?
2)   Social Issues: Where does the ownership cost of diesel-powered engines fall compared to other two models? How easily accessible are diesel gas stations?
3)   Political Issue: What is the government policy on diesel as fuel availability and natural resources to support it? Are there any subsidies promoted by government to adopt cleaner –greener fuel driven cars, and is diesel car is one among them?
4)   Environmental Issues: What its value on air pollution control and how the government policies view them? How much of the population really concerned about driving the cleaner fuel driven cars?
5)   Legal Issue: Is there any legal issue such as patency, safety etc involved with the production of such vehicles?

Accounting all the above concepts, GM should forecast the demand for the diesel-powered cars using Quantitative, Causal, Time Series and Simulation methodologies.

While forecasting about the diesel car’s future, I compared the article on Apple’s failure to keep up the sales forecast for IPhones even with their adequately supported supply chain management. Similar situation may arise with GM, if it just believes in the fuel efficiency stand of the diesel cars and neglect the legal and political issues. The very fact that diesel cars have been a big hit with customers in Europe and Asian countries for a long time but never adopted in US shows there are many other political and legal issues that needs to be factored in. With many big companies, like BMW, Toyota, Mercedes backing up and lobbying the government to promote diesel cars, GM needs to follow the quantitative, qualitative and causal approach for an efficient supply chain management to meet customers demand with adequate tools & resources. The era of diesel cars is not far away and with their big advantage will be that they will come with none of the range anxiety and recharging difficulties to worry about.

This GM venture poses some of the questions such as :
1)   How will GM handle the competition with hybrid vehicles market demands?
2)   How will GM able to keep the supply chain efficient while also keeping their prices low in order to capture the market of price sensitive customers?
3)   How will GM able to cope with impact of technology in near future with better passenger vehicle options?
4)   How will it able to capture the market while also increase their revenues with diesel powered engines?
5)   What are the strategies to reduce the price for diesel powered engines while keeping up with the quality?

My Sources:

Article by Edmund Prater and Kim Whitehead on Forecasting, HBS, Feb 2013.

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