Innovation Times: Whither the LSV? A Concept in Search of a Wider Market

Innovation Times: Whither the LSV? A Concept in Search of a Wider Market

By Stephen Metzger, Ph.D., Managing Director, International Market Solutions

Talk of electric and hybrid/electric vehicles has reached something of a crescendo as gas prices galloped past the $4.00/gallon threshold.  The recent receding of this energy cost tidal wave, most agree, is but a prelude to the next price surge against the levees of our wallets and pocketbooks.  In the context of this and a slowing economy, Innovation Times would like to explore the future of what has been called the low-speed vehicle.  It is especially pertinent as the LSV is on the verge of a significant extension with regard to its functional definition, operational scope, and an expanded market. 

The extensions alluded to, most significantly, will encompass small utility vehicles, both electric and gas powered.  Initially, however, this column will look to the consumer side of the market (transportation and utility), and follow this up with a close examination of the commercial market in the next column.

Consumers walk away from the guzzlers

The rise in gasoline prices, which was totally predictable since at least three years ago—predictions laid out in my keynote speech to the IUV Technology Conference 2006, has finally reached a threshold where consumers have made major changes in their buying habits in the automotive market.  It is almost amusing to watch the continuing commercials featuring fuel-burning beauties churning up the pavement, whipping along the highway, and the voice-over touting the wonders of 287 horses (on up) under the hood.  In the meantime consumers may view such promotions with a bit of nostalgia for days gone by, but are doing the right (i.e. rational) thing by buying smaller, high mileage alternatives. 

Unfortunately for the auto manufacturers (even Toyota) nostalgia has little impact on the bottom line.  Month-by-month the decline in sales is dutifully recorded by a worried business and financial press.  August sales, for example, showed  Ford down by 26%; GM a 20% decline.  Toyota sales declined by 9%, and even Honda, which has fared better than its competitors, took a 7% drop.  Chrysler, on its way to oblivion,  was down 34%.

The future is rapidly becoming the now, with virtually all auto makers announcing imminent introductions of hybrids, plug-in hybrids, and pure electrics.  These are, of course, on road vehicles, and, roughly, by 2009 we should be seeing the new models flow forth from chastened factories both here and abroad.

Utility vehicles steer a less precipitous course

While pick-ups have been very hard hit by high gas prices, most of the damage has been done in the consumer market.  In the commercial/industrial market, trucks are still a capital investment, subject to replacement and return-on-investment calculations—and are still needed despite fuel costs, some of which can be passed on to customers.  This market, however, has been hit by the slowdown in the economy and higher risk expectations attached to market trends and profits—especially when one of the presidential candidates will almost assuredly raise taxes on corporate profits.

As noted, a full discussion of the market for small utility vehicles will be featured in a future column.  For the moment lets keep a focus on the consumer side of things.  It should be noted that this does not neglect the utility market entirely.  Why?  Because at this point there are so many crossovers with respect to vehicle use, and much of the basic construction of small vehicles is applicable to both markets, thus enhancing volume production of the frame and drive train.

What should be included in the category of small, task-oriented LSVs?

All indications are that consumers are turning to the low-speed vehicle (LSV) in its variety of forms.  What is included in the category of LSV?  Neighborhood electric vehicles (NEVs) are definitely included, and the best known of these vehicles in the U.S. market is the vehicle line from Global Electric Motors (GEM).   In addition, upgraded used golf cars and soon to be (in my estimation) LSV-equipped and qualified new golf car models from the three major manufacturers need to be included.  Further, however, from the recreational manufacturers’ camp, the so-called UTV, off-road 4X4, whether gas or electric, will also join the LSV category.

Institutional barriers discourage market development

What do I mean by “institutional” barriers.  These are, largely, governmental regulations which impose limits on LSV use and operating capabilities.  The biggest detriment to market growth is the outdated NHTSA Rule 500, which limits speeds to 25 m.p.h.  (Of course, other aspects of Rule 500, particularly those pertaining to the safe operation, are quite legitimate.)   The low rate of speed in turn limits the roads on which LSVs can safely operate and states and local governments have correctly responded by limiting use on roads with speed limits of no more than 35 m.p.h. (that is, for the most part, with some states and localities even more restrictive).

In their enabling legislation most states give local governments the right to further restrict LSV use—even prohibit such use on any public road—and unfortunately many local governments have taken advantage of this to impose tighter requirements.  The result is that, nationally, LSV use faces a hodgepodge of rules and regulations.

Legislative trends more favorable toward LSV use on public roads

At latest count 40 states have specific legislation allowing the use of LSVs on public roads.  Most of this legislation denotes LSVs as NEVs.  Illinois, however, appears to be in the vanguard of states modifying their legislation to include gasoline-powered vehicles in the LSV definition.

In other developments, Kentucky’s governor, Steve Beshear, has signed an executive order permitting the use of LSVs on Kentucky highways with a posted speed limit of 45 m.p.h.  The legislature is moving forward with a more formal piece of legislation to this effect.  The impetus for this has been the prospect of a new manufacturing plant for low speed vehicles, a joint venture between ZAP Motors and Integrity Manufacturing.

In the neighboring state of Tennessee, as of July 1, 2008, “medium-speed” electric- or gas-powered vehicles with four wheels can travel up to 35 m.p.h. and can be used on roads with posted speed limit of 40 m.p.h. or less.  Tennessee thus joins Montana in creating a new vehicle classification called MSV, or medium speed vehicle.  These states, and there may be others, are skirting the speed limitations of  federal Rule 500.

Pennsylvania, one of the few major states that has yet to endorse LSV use on public roads, is reportedly considering legislation that would put them in the majority state bracket.  Colorado State Representative, Don Marostica, has proposed a bill that would allow golf carts and other small vehicles to travel on some public roads and highways.  It should be noted that not all the usage trends are favorable to LSVs.  Certain states like Connecticut and numerous local governments continue to discourage market development via restrictive legislation and ordinances.

Meanwhile, state-based incentives for LSV ownership continue to grow.  The California Air Quality Board, for instance, is proposing increased credits for NEVs from 0.15 to 0.3 (i.e. an NEV would be worth 30% of a conventional vehicle per vehicle) in the agency’s Zero Emission Vehicle program.  Tax credits in the state now range almost $1,000 per vehicle.

Market Trends:  Building the niche market(s)

Will there be a niche market between the traditional golf car and the “fully capable” on-road electric (hybrid, plug-in hybrid, and pure electric).  I believe there will be, and we will see it develop in following context:

Institutional barriers at the national, state, and local level will disappear, or at least be reduced—albeit on a piecemeal basis;

Among those barriers coming down we will see more states and local governments allowing travel of LSVs on higher speed roads and, at the same time, doing an end run around NHTSA’s speed limit of 25 m.p.h., creating the MSV or medium speed vehicle;

A vigorous supply response from a number of the major small vehicle manufacturers, as well as from a host of entrepreneurial efforts.

Now, is this sheer speculation, or is there current evidence to support the notion of an emerging small, low or medium speed vehicle market?  And, what are the indications, if any, that the supply will be forthcoming?  Points one and two above I have already alluded to.  As far as a vigorous supply response to point three is concerned, the facts will be detailed in our next column.

About the Author:

Stephen Metzger PhD, Managing Director, International Market Solutions, a management consulting firm, whose prime focus is putting companies into the international market arena on a cost-efficient basis. Mr. Metzger is also Principal of International Competitive Assessments (ICA), the market research arm of IMS. ICA has undertaken extensive market research and consulting assignments covering a broad range of products and markets. Mr. Metzger and his staff and associates have produced three ground-breaking studies of small, task-oriented vehicle market in the United States since 2000. Mr. Metzger, an economist by background, is also an adjunct professor of business and economics at Iona College and Mercy College.