Low Speed Vehicles Catch on with Strong Growth Likely

Low Speed Vehicles Catch on with Strong Growth Likely

By Mark Cesare, Senior Associate, International Market Solutions, LLC. and
Stephen Metzger, Sr. Editorial Advisor, IUV Magazine and IMS Director

Low-speed vehicles (LSVs) comprise a niche in the broad spectrum of small, task-oriented vehicle markets.  While the numbers are still small, the market has been in place for over ten years, and for a number of reasons analyzed in this article, the growth prospects are quite positive.  LSVs fill a need on the transportation and utility vehicle continuum where full size vehicles or pickup trucks are overkill but where smaller, motorized vehicles can provide a high level of efficiency.  Whether it is for travel around a sprawling gated community, personnel transport on a corporate campus or resort grounds, or maintenance work at a park, these vehicles provide a cost-efficient and green alternative. 

Material for this article is based on market research undertaken by the authors for their upcoming study on the small, task-oriented vehicle market:  The Market for Small, Task-Oriented Vehicles in the United States:  Trends from 2003; Outlook to 2014.

An overview of the history of LSV product and market development is useful to understand where the market is going and to overcome some of the usual negative biases that plague all new products.

In the beginning the government said…

Government regulation at federal, state and local levels has had a significant role in shaping the LSV market starting with their very establishment as a vehicle class. LSVs are clearly defined by and must conform to a federally established standard, the National Highway Transportation and Safety Agency’s (NHTSA) Rule 500.  The following is a portion of that rule which established universal guidelines for the product attributes of low-speed vehicles:

As low-speed vehicles, these 20 to 25 mile-per-hour vehicles are subject to a new Federal Motor Vehicle Safety Standard No. 500 (49 CFR 571.500) established by this final rule. …. The standard requires low-speed vehicles to be equipped with headlamps, stop lamps, turn signal lamps, tail lamps, reflex reflectors, parking brakes, rearview mirrors, windshields, seat belts, and vehicle identification numbers. The agency believes that these requirements appropriately address the safety of low-speed vehicle occupants and other roadway users, given the sub-25 mph speed capability of these vehicles and the controlled environments in which they operate.

Originally these vehicles were referred to as neighborhood electric vehicles or NEVs, but NHTSA has switched to the term low speed vehicle or LSV.  LSVs can be powered by a variety of electric or non-electric fuel sources but continue to be predominantly electric vehicles.

GEM Emerges As Dominant Early Manufacturer
Bombardier and Global Electric Motorcars (GEM) were the two major manufacturers at the beginning of the LSV market in the mid to late nineties.  At the time these manufacturer’s main target market for the vehicles was the master planned or gated community market.  With the retirement of a large number of Baby Boomers approaching in the future and the increasing development of master planned communities to serve these retirees and others, a burgeoning market was envisioned.  Unfortunately, this market failed to develop as fully as expected.  The price points for LSVs meant they were typically twice as costly as new golf cars and even more so compared to used golf cars already serving the market.  The 2001 recession further dampened demand for these pricier vehicles. 

However, a commercial market did develop for these vehicles as these small electric powered vehicles provided both a cost efficient and environmentally friendly option for government and private sector purchasers.  This market had a greater demand for features such as flat bed configurations for carrying cargo and work tools, and multiple passenger configurations for shuttling passengers. The flexibility of GEM’s vehicle design allowed the company to develop a range of utility vehicle models based upon their original personal transportation design. 

On the other hand, Bombardier, married to the NEV concept, lacked the flexibility to adapt to the market.  In addition, despite being acquired by Chrysler in 2000, GEM remained more of a standalone company.  Bombardier’s NEV business unit was an integral part of a conglomerate and likely had a more ambitious set of goals for revenue, profits and ROI.  Where GEM could be a successful subsidiary selling thousands of vehicles, Bombardier would need to sell tens of thousands of NEVs to influence their bottom line.  This market volume never materialized and as a result Bombardier exited the market leaving GEM as the dominant manufacturer.

Key Market Segments:  Commercial

The commercial sector has traditionally accounted for the largest share of LSV sales.  In 2008 IMS estimates that between 60% and 65% of LSV sales were for commercial applications and the remaining 35% to 40% for personal transportation. In 2009 these percentages likely reversed and even slanted slightly more towards consumers because of the impact of federal tax credits and state tax credits in the Oklahoma market in particular.  However, this reversal is likely to be only temporary and the commercial sector will be dominant again moving forward.

LSVs are used for numerous commercial applications from general maintenance and hauling duties to people moving to even marketing.  Some of the specific applications include campus maintenance, refuse collection, mail delivery, passenger shuttles, personnel transport, parking enforcement and meter reading, security, grounds keeping and mobile marketing campaigns just to name a few.  Commercial purchasers include national, state and local parks. police departments, the US military, taxi services, corporations and resorts.

Consumer segments:  Varying user environments

While originally envisioned as a vehicle for gated communities, LSVs now appeal to the needs of a variety of private transportation segments.  One is the use of LSVs primarily for playing golf.  LSVs in this segment can be found in gated communities, active adult communities, and other forms of master planned communities built around, or featuring golf courses.  Typically, the owner will drive to the golf course from his home in the development.  In most instances this type of use does not require an LSV-qualified vehicle, so LSVs are in competition with golf cars and golf cars equipped with lights.

If transportation, rather than recreation, becomes a major use factor, then the LSV qualification can become more important. In this case a mix of transportation and golfing may be prevalent. Typically, a diverse use of this sort are usually found only in the closed, active adult, or golf-related residential communities where driving golf car-type vehicles within the community boundaries is permitted.  For example, Peach-tree City in Georgia, has over 70 miles of golf-car usable paths, which are used by over 10,000 golf cars. There are over 10,000 housing units in the development.   The Villages in Florida is even larger.  Here, individual communities may specify an LSV standard.

A third segment are LSVs used exclusively for transportation.  This use option includes closed community owners who use their vehicles for transportation within the community or on roads outside the community, as permitted. Outside closed communities, owners use their vehicles for short distance traveling in municipalities that have passed laws to allow LSVs on local roads.

A fourth and relatively new segment are LSV-certified utility vehicles used for work and transportation. This segment has become more prevalent just recently, particularly in more rural environments where a farmer or property owner might use their vehicle off-road for work around the property, recreation or hunting, but then use it on-road to go to town and other reasons. 

In part, this segment arose in response to the LSV market in Oklahoma. The combination of the state and the federal tax credit for LSVs drastically reduced the costs of LSVs.  The state’s rural environment, significant agriculture market, and affinity for hunting provides a fertile ground for utility vehicle usage.  The result was a veritable stampede to dealer showrooms in the state.

Identifying a sales opportunity in LSV tax credits, manufacturers of electric hunting vehicles such as Bad Boy Enterprises, Stealth 4x4 Manufacturing, and the HuntVe modified their utility vehicles to qualify as LSVs.  This segment is not, however, just a quirk of federal and state tax codes.  Discussions with dealers confirm that the customer need is real and is likely to see significant growth.

LSV Vehicle characteristics

Beyond the basic safety related requirements that a LSV must  have to meet the NHTSA standard, features have evolved as different applications and market segments have developed.  The first evolution was changing the vehicle from strictly a transportation configuration to a utility vehicle configuration with a variety of utility beds on the back to meet different needs. LSVs also feature a range of body types and styles including:

• Door-less designs that look similar to golf cars;
• Futuristic bubble-shaped vehicles such as the GEM which is door-less but has optional door enclosures;
• Traditional car-like styling like the Zenn and Wheego Whip;
• More distinctive car-like styles like the Tomberlin Anvil and Korean made CT&T;
• LSV emulations of popular full-size vehicles such as the Hummer and Escalade LSVs from companies such as American Custom Golf Cars;
• Off-road utility vehicles
• Mini-trucks

Most LSVs are electric vehicles and powered by systems that are 48, 72 or 96 volts.  Battery packs typically feature flooded lead acid batteries but sealed lead acid or gel batteries are often available as an option as in the GEM or sometimes come standard as in the Wheego Whip.  Most LSVs feature an on-board 110 volt charger and have a range of 30 to 40 miles per charge. Regenerative braking systems are a common feature.

Other characteristics that can differ from model to model include the motor type, which can be AC or DC and passenger capacity which can range from two to six.  The use of AC powered vehicles is a major new feature in LSVs and is likely to become standard in power trains of the future. 

Comfort features like radio/CD/mp3 systems, air conditioning, power steering, power windows and doors, and four-wheel hydraulic disk brakes are available, depending on the manufacturer and the model.  Not surprisingly the trend has been to move towards features and options similar to conventional on-road vehicles with packages that focus on performance, styling, and comfort.  Most LSVs fall within the price range of $7,000 to $18,000. 

Recent Market Developments

The LSV market has been developing on several fronts.  Legislation at the state and local level has opened up market opportunities and the industry has seen a rising number of new entrants.  In addition, tax benefits continue to play a role in lifting the market.

More states and municipalities open public streets to LSVs

In the last few years an increasing number of states and municipalities passing laws to allow LSVs on public roads.  Currently, 46 states require registration and licensing of LSVs and most allow LSVs on roadways that have posted speed limits of 35 m.p.h. or less. Nearly all the state laws require their  local municipalities to specifically pass ordinances to allow LSVs on their streets, which has led to a patchwork of local ordinances across the country.  An exception is the state of Illinois, which passed legislation that allows LSVs on any public roads in the state with a speed limit of 30 mph and under, unless specifically prohibited by local ordinances.  Were other states to follow the lead of Illinois, it would greatly facilitate the use of LSVs.

Some states pass MSV laws, but NHTSA resists

A related road use development at the state level was the passage in 2007 of regulations by the states of Montana and Washington to allow for the use of what they describe as “medium speed vehicles”, which can travel at speeds up to 35 mph instead of 25 mph for LSVs. Since then seven other states have passed MSV laws including Colorado, Kentucky, Minnesota, Oklahoma, Oregon, Tennessee, and Texas. There is some variation between the state laws in terms of the top speed of MSVs and the speed limit of the roads they can use, but in all instances these limits fall within the range of 35 mph to 45 mph. 

There is no federal standard or classification for MSVs, however.  Some manufacturers and states have lobbied NHTSA to create a MSV standard.  NHTSA has, so far, rejected these requests and in their denial of petition for rulemaking noted that ”… without the full complement of safety features required for other light vehicles such as passenger cars would result in significantly greater risk of deaths and serious injuries.”  It is unclear how the state ordinances and lack of MSV standards or classification at the federal level will be reconciled.

More manufactures enter the LSV market

There has been an increasing number of new market entrants in the past few years.  Some of the entrants are new electric vehicle companies, while others are golf car or utility vehicle manufacturers  expanding into the LSV market.  In the commercial segment companies such as Miles Automotive, Columbia Parcar and mini-truck producer Vantage Vehicle International, have put new models in the market.  There are also entrants targeting the urban/suburban commuter segments such as Tomberlin, Wheego, EcoV, and Kandi Technologies. Tomberlin in particular appears to have gained significant traction in the market.

Not surprisingly, golf car manufacturers have joined the fray.  Club Car introduced its Villager LSV in 2009. The company offers a utility model and a model for personal transportation.  Fairplay also introduced their EVE line of two and four passenger LSVs in 2009.  Later this year E-Z-GO is expected to launch their own LSV.  There are also LSVs from high end golf car manufactures such as American Custom Golfcars, Western Golf Car and recent European-based entrant Garia.

Another trend you are seeing among LSV manufacturers is the presence of Asian brands and models such as the Kandi Coco, CT&T e-Zone, and models under the Star Electric Vehicles brand.  While Asian manufacturers have been a source for parts and complete or nearly complete LSVs in the past, these companies were content to be just suppliers or contract manufacturers. Newer entrants are interested in establishing their own brands and distribution networks in the U.S. market.

An important development in the market in 2009 was the entrance of Polaris Industries with their Polaris Breeze LSV.  The significance of this is not so much the vehicle itself, but the fact that a large and well-established company in the recreation and off-road vehicle market, sees opportunity for LSVs. Polaris could add some significant marketing muscle to the product category and help expand the market further. 

As noted earlier, last year also witnessed the entrance of electric, hunting/utility vehicle manufacturers into the LSV market. These companies have made existing versions of their utility vehicles LSV compliant. In addition, in January, 2010, Polaris Industries Defense division introduced their new Ranger EV LSV based on their Ranger EV utility vehicle. While primarily targeting the military market and government agencies, this vehicle will be introduced to consumers as well.

Tax credits impact 2009 sales

Federal and state tax credits drove LSV sales to an unprecedented level in 2009 as annual production in the LSV market jumped from roughly 5,000 vehicles to over 20,000. Federal and state tax credits lowered the costs of these vehicles by 50% or more.

Two federal tax credits applied to electric powered LSVs. One tax credit passed under the Emergency Economic Stabilization Act (EESA) in 2008 applied only to LSVs purchased in 2009.  The other, part of the American Recovery and Reinvestment Act (ARRA) passed in 2009, applies to LSVs purchased from 2009 to 2011. The EESA tax credit, based upon the size of the vehicle’s battery pack, is a significantly larger tax credit, while the ARRA tax credit is limited to 10% of the vehicle’s purchase price.  Under EESA, tax credits ranged in value from $4,000 to $6,000 depending on the vehicle, while under ARRA the typical tax credit is worth $700 to $2,500. Dealers reported sales were double, triple or even more than what they had been prior to the EESA federal tax credit.  However, what really drove demand in 2009 was the Oklahoma state tax credit for electric vehicles in combination with the EESA tax credit.

In the mid-nineties Oklahoma passed an electric vehicle tax credit that, while aimed at full-size vehicles, has come to apply to electric powered low speed vehicles as well.  Purchasers could claim 50% of the vehicle purchase price as a tax credit.  For most years this tax credit had minimal impact on the market, but in 2009 the combination of the federal and state tax credits reduced the net cost of vehicles to a few hundred dollars or less.  This pushed sales in the state into the thousands, on par with what sales had been in 2008 for the entire U.S.

Seeing a potentially large loss in tax revenue, the Oklahoma Tax Commission tried to limit the amount of qualifying tax credits by limiting which vehicles qualify for the tax credit.  Their actions and the resulting legal battle involving the Commission, dealers and manufacturers created confusion in the market over which vehicles qualified and put the brakes on sales. In 2010 changes will likely be made to Oklahoma’s tax credit provision to the detriment of LSVs.  The Oklahoma phenomenon is unlikely to be a significant factor in the LSV market in the future.

Market Trends Driving Future Growth

While the issue of tax credits were the major factor for the LSV market in 2009, there are a number of other factors that helped produce double digit growth rates in previous years.  These factors are expected to influence the market moving forward and be reinforced by new factors as well.  Although the current recession will hurt the market, in the long term there are more positive than negative factors.

The recession drove down sales in the latter part of 2008 and the early part of 2009 before the tax credits boosted the market.  An important issue is how fast consumer spending will recover and whether the recent experience will make consumers permanently more thrifty, or will they return to previous spending levels.

Despite the downturn in the economy, one of the underlying drivers of the LSV market remains, the aging Baby Boomer population moving to planned communities with golf cars and LSVs as the main mode of transportation.  While the housing market has been hit hard, the fact remains that the Baby Boomers continue to get older and many will continue to look towards retirement and active adult communities as an option.

The poor economy has helped the commercial LSV market to the extent that LSVs can be a cost-effective replacement for other vehicles. Facing budgetary pressures federal, state and local agencies are turning towards LSVs for savings. For example, the city of Hoboken, NJ recently purchased LSVs to replace pickup trucks in their parking department.  Another example is the U.S. Army, which has committed to purchasing 4,000 LSVs over three years to replace full-size vehicles used for maintenance and transport around bases.  Besides the lower capital costs, the Army reports an annual energy savings of $740 for each vehicle compared to a gas powered vehicle.  Other branches of the Armed Services are also looking towards LSVs for savings.  In the next 5 to 10 years upwards of 30,000 vehicles could be purchased, making the military segment a significant portion of the market.

Often intertwined with buyer’s efforts to save costs is a desire to produce more sustainable or green operations. For example, while Hoboken primarily looked at cost-savings they also saw advantages to being “green” with electric vehicles.  For other purchasers, like universities trying to create sustainable operations, the priority is green first and cost-savings as the added bonus.

The green movement is likely to continue to be a factor in the personal transportation market as well. The green customer is willing to spend the additional money on an LSV versus a golf car, or to purchase one to make a personal statement. These purchasers were early adopters of the LSV and this customer segment is likely to expand as the green movement expands.

Rising fuel prices may boost the market

Another market factor has been fuel prices. Gas prices rose significantly in the first half of 2008 in the United States before the recession and drove interest and sales in the LSV market.  Manufacturers such as GEM reported a large jump in inquiries and increased production to meet higher demand. While predicting gas prices will be left to others, any recovery by the economy is likely to create more fuel demand and thereby drive up fuel prices.  Recent history has shown that if prices rise enough they can positively impact the LSV market.

As noted previously, states and municipalities continue to pass LSV ordinances.  This trend is likely to continue and each new ordinance increases the potential market for LSVs.  It should be noted that while many municipalities are in favor of allowing LSVs on their streets, some have passed ordinances prohibiting them, as well as golf cars, over safety concerns of the vehicles mixing with full-size vehicles.

Increasing awareness of LSVs is another positive factor in the market. The numerous stories about the tax credits for the vehicles, whether positive, negative or neutral, helped increase consumer awareness of the vehicles.  Additionally, new manufacturers entering the market boost awareness as the number of dealers and the marketing dollars increases.

More competition in the market should improve the quality and the features available on LSVs. The wider adoption of AC induction drive motors and improvements in batteries should help increase vehicle performance. While not currently cost-effective, in three to five years, advanced battery technology driven by full-speed electric vehicle development could become affordable and trickle down to the LSV market.

As noted before­­, manufactures are now making LSV compliant utility vehicles.  This opens up a whole new personal transportation segment and increases the vehicle versatility in the commercial segment as well.  LSVs are now applicable to a complete continuum of environs.  First there were gated communities, then urban and suburban environs and now more rural areas.

In conclusion, while currently weathering the economic storm, the LSV market is poised for strong growth moving forward.

About Stephen Metzger:

Stephen Metzger, PhD, is Managing Director of International Market Solutions, LLC, an internationally-based market research firm.

He is also Principal of International Competitive Assessments, the market research arm of IMS. ICA has produced four major studies of the small, task-oriented vehicle market since 2000. Mr. Metzger is Senior Editorial Advisor for Industrial Utility Vehicle & Mobile Equipment Magazine.

About Marc Cesare:
Marc Cesare is a Senior Associate with International Marketing Solutions (IMS), a management consulting firm, which helps clients cost-effectively enter and expand international operations and markets.

He has an extensive background in market research and for the last 10 years has covered the small, task-oriented vehicle market (LSVs, golf cars and utility vehicles) producing syndicated and proprietary market studies. He also blogs about the market at smallvehicles.wordpress.com. Marc received an MBA from Columbia Business School and a BA from the University of Pennsylvania with a concentration in Chemistry and Philosophy.