What's With the US Market? Bosch's Trendspotting

We didn't make it to Bosch's annual technology colloquia and pot-luck luncheon this year, but that didn't stop the Boxberg proceedings from proceeding as scheduled. Our absence means we missed a symposium to suss out changes in the US market car companies must manage to make it into the post-SUV age. Major talking points included usual suspects rising gas prices and an entrenchment of the environmental movement against C02 emissions, as well as projections that the US government will indeed enforce conservation in the name of national security. Following are the key points, presumably based on Bosch's own market bets:

· Gasoline direct injection or clean diesel technology
· Limited but enduring demand for hybrids
· Biofuels to reduce foreign oil dependence incrementally, but not ethanol — biodiesel.

Thus, in Bosch's world, the car of the near future will be a common-rail turbodiesel hybrid running on vegetable oil. Here's hoping Audi and Toyota can get along well. That V12 TDI Synergy Drive would be perfect for a new Supra. (Press release / speechification after the jump.)

Press Release:

Christopher Qualters
Director of Diesel Sales and Marketing
Bosch USA

Speech for the 58th International Automotive Press Briefing
June 2007 in Boxberg
Ladies and Gentlemen,

America is becoming more focused about saving energy. There are several reasons for this increased focus:

· Gasoline and diesel prices have more than doubled since the early 1990's. Consumers are therefore becoming seriously concerned about rising fuel costs.

· The government is very aware how dependent America has become on imported oil - particularly now that U.S. oil extraction is not enough to satisfy demand. Energy-saving has therefore become an issue of national security.

· In addition, various organizations are trying to raise people's awareness of environmental issues, such as global warming due to greenhouse gas emissions.

Perhaps the most striking example of the new environmental awareness is the '20-in-10' plan announced by President George W. Bush, which aims to reduce fuel consumption by 20 percent over the next ten years. It's an ambitious target when you consider America's love affair with SUVs and other large V8-powered vehicles. There are currently over 230 million registered vehicles in the U.S., including more than 95 million light trucks. But if the U.S. does succeed in meeting this target, it could reduce its current imports of Middle Eastern oil by 75 percent.

Government backing for efficient engine designs
Accordingly, President Bush's plan focuses on more efficient engines for cars and light commercial vehicles and greater use of alternative fuels. The facts are clear: the fastest and most effective way to achieve meaningful fuel savings is through optimized internal combustion engines with gasoline direct injection or clean diesel technology.

But to anticipate what you're all thinking, the possibilities for hybrid vehicles are still limited. Last year approximately 16.5 million cars and light trucks were sold in the U.S., and around 240,000 of them were hybrids. That's just 1.5 percent of all new vehicle registrations in the United States. By 2010, global production capacities for hybrid vehicles are expected to reach a million units. But that will only cover six percent of demand in the U.S. market and around two percent of global demand for new vehicles.

Gasoline direct injection can have an immediate effect on fuel consumption when combined with downsized engines. A turbocharged 6-cylinder direct fuel injection engine uses 10 to 15 percent less fuel than a larger 8-cylinder engine - with the same performance. For this reason, the U.S. is already witnessing the same trend toward downsizing that has been seen in Europe. We anticipate that in the year 2015, more than 14 percent of cars and light commercial vehicles manufactured in the U.S. will have gasoline direct injection.

We also anticipate significant growth in clean diesel, which is undergoing an image makeover in the United States. In October 2006, we saw the launch of clean diesel fuel with a sulfur content of just 15 ppm. This ultra-low sulfur diesel is now available across the U.S. at 42 percent of the country's 76,000 fueling stations.

Gone too are the days when diesel cars and light trucks could not be registered in all states. Modern diesel vehicles aren't just efficient and powerful, they are also clean enough to comply with very strict U.S. thresholds for diesel engines. The last obstacle was NOx emissions, which manufacturers are now keeping in check with the help of the latest clean exhaust technologies like Bluetec. The first series-production car to feature this technology, the Mercedes E 320 BLUETEC with Bosch fuel injection technology, was named World Green Car in New York at the beginning of April.

Diesel projects for the U.S. market
With all these new developments coming on line, clean diesel is becoming a hot topic in the United States. Bosch is working with all the major U.S. vehicle manufacturers on diesel projects. The popular Chevrolet Silverado/Sierra and the Dodge Ram pick-ups are already on the market complete with modern diesel technology from Bosch.

A recent Harris Interactive survey found that 31 percent of informed buyers of new vehicles would select a clean diesel engine for their next vehicle over other available powertrains, including hybrids.

Bosch is reinforcing the favorable perception of clean diesel through its fact-based marketing campaign. We are working together closely with our customers in the automotive industry, with state and federal government, as well as with other suppliers and leading industry organizations. Our shared goal is to educate Americans about the continuous improvements taking place in diesel technology in terms of fuel consumption, performance and environmental compatibility.

Our activities have included our own "Diesel Day" events in Detroit and California, a promotional fleet of clean diesel cars and SUVs, and a Diesel Learning Center exhibit. In 2006 alone, Bosch was involved in promotional and educational activities that reached more than two million people.

The number of new diesel registrations in the U.S. has risen by 80 percent since 2000 to almost 560,000 units in 2006 - more than double the figure for hybrids.

Seen in this light, it is realistic to expect a noticeable growth in diesel's share of the U.S. market. We are assuming that the proportion of newly-registered passenger cars, light-duty trucks and light commercial vehicles in the U.S. will grow to 15 percent by 2015. That's three times the current level of around 5 percent.

Biofuels - beneficial on a number of levels
The U.S. will also be investing more in the production of renewable energies. One of the favorite candidates is ethanol, because the basic feedstock - corn - can be grown domestically. The U.S. expects to benefit from this in several ways. Domestic farmers will have a guaranteed market, and at the same time, dependence on foreign oil will decrease. From a U.S. perspective, the result is better national security. Thanks to federal and state incentives, ethanol is slightly less expensive than gasoline at the pump.

However, ethanol has 27 percent less energy content than gasoline, resulting in up to 21 percent more fuel consumption and offsetting the price advantage. Added to this is the fact that the U.S. does not yet have a nationwide delivery system for the fuel: ethanol is currently only available at approximately one percent of U.S. fueling stations.

This is why some states such as California are working to ensure the long-term success of biodiesel, which does not require any additional infrastructure.

There are limitations on the resources available for alternative fuels. The amount of biodiesel produced today is just enough for a maximum 5 percent blend (or B5) with conventional mineral oil diesel - far from the U.S. goal of 20 percent (B20).

In addition, current quality standards for biodiesel are not adequately established, and extended storage can lead to ageing of the product and damage to fuel systems. This is not acceptable to consumers. Legislation is urgently needed to establish binding standards.

Only when these and other challenges are overcome will alternative fuels become a truly viable, widescale option. An increase is also expected in the number of Flex Fuel vehicles, which can run on different combinations of fuel. There are currently six million of these vehicles on U.S. roads. The Big Three of the U.S. car industry - General Motors, Ford and Chrysler - are expected to double production of these models by 2010.

Stricter emission limits require new engine designs
Stricter exhaust gas requirements to be introduced in 2009 will play an essential part in progressing modern engine technologies and alternative fuels to the series production stage.

Hybrids stand the best chance in states with tough environmental legislation, such as California, and urban areas. But tax incentives have been an important ingredient of their success so far. Bosch anticipates that these vehicles will account for around six percent of U.S. automotive production by 2015.

The reasons for this cautious prediction are the comparatively slow growth of production capacities, but also the uncertainties regarding the residual value of the vehicles, which might influence their resale.

Ladies and Gentlemen,
in summary, a combination of alternative fuels, including ethanol and biodiesel, are emerging in the U.S., as well as a variety of propulsion systems. Clean diesel, gasoline direct injection, and hybrid technology have the best prospects. For its part, hybrid technology requires a clean, efficient combustion engine at its core. In the foreseeable future, the optimized internal combustion engine will continue to grow and assert its position as the technology of choice for the American market.

Thank you for your attention!

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