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theWatt Podcast 53

In this show: Art Spinella, President of CNW Marketing Research explains how he came to the conclusion that hybrid vehicles consume more energy over their entire life than some SUVs. Transcript available below..

Also in the show, Arnold Schwarzenegger's climate change plans, a Cape Wind update (forget about Young, now it's Stevens, also from Alaska), first fuel cell powered train, U.S. to overtake Germany in solar power and San Fransisco officially recognizes peak oil.

These are some pics of Art Spinella's old electric vehicle that he mentions in the interview:

Ben Kenney: It turns out that environmentalists could be wrong after all. The results of a two-year long study comparing the overall lifetime energy cost of certain vehicles was released recently and a full report should be available soon. The results published by CNW Marketing Research indicate that the total lifetime dust-to-dust energy cost of a Toyota Prius is $3.25 per mile compared to the total lifetime dust-to-dust energy cost of a Hummer H3 which is $1.95 per mile. So, this means that over its entire lifetime, even though the Toyota Prius has an average fuel economy that is about three times higher than the Hummer H3, the Hummer H3 uses less energy over its lifetime. So, more results can be found on the website and here to explain these results with me is Art Spinella, the President of CNW Marketing Research. Thank you so much for coming on the show, Art. I’m glad that you could make it.

Art Spinella: Thanks for the invitation.

Ben Kenney: These results are very surprising and they are amazing to me to say the least and we'll discuss them shortly, but could you just start off quickly by telling us about your company and who your clients are?

Art Spinella: Yeah, sure. The company was started in 1984. We do market research for any number of organizations in about eight countries right now. What we do is we track up consumer who spent the money that they have available to them. That’s our primary focus and interest. Some of the clients include government agencies, others who are oil companies, financial institutions, brokerage houses, just about anybody. None of our research is done specifically for anybody. In other words, we do all of the research first and then you basically cross your fingers and hope somebody is interested enough to be a subscriber.

Ben Kenney: Okay. So, basically, you fund the research and then sell the reports afterwards.

Art Spinella: Yes, normally. In most cases, we only sell the reports. Actually, we have a subscriber base.

Ben Kenney: Okay.

Art Spinella: What they do is much like a newspaper or a magazine. We do all the editorial and the editorial costs, in our case, it's research and then they are subscribers to it and they get whatever we put on our various websites.

Ben Kenney: Okay. So, let’s start discussing this dust-to-dust energy cost setting. What is the definition of dust-to-dust energy cost?

Art Spinella: We look at everything from initial concept, the development design, development engineering until through the prototype stages, through manufacturing, all of the cost of the tools, guys, manufacturing plant cost related to each model, and then we move on to the distribution costs including things like transportation from, example, Japan to the United States. We've looked at all of the distribution costs within the United States as well as distributions through the dealerships. We looked at all the energy costs that were related to the ownership cycle, repair and maintenance of those vehicles, the used car end of the business after the thing is sold in distribution of multiple owners, and finally the recycling or the scrappage of those vehicles including recycling and non-recycled parts and the energy required to dispose of that vehicle. Basically, from dust to dust.

Ben Kenney: So, this includes the energy cost of actually doing the research as well?

Art Spinella: Oh sure, yeah. One of the things that we find for example is of -- any new model has, obviously, higher energy costs because the cycle of design and development is pretty intense, so we obviously include that as well.

Ben Kenney: Does it include things like the development of the internal combustion engine which happened many years ago?

Art Spinella: Well, yeah, it happened many years ago. There’s always constantly additional research that’s done on developmental stages, modifications, and all of that. Clearly, that’s not anywhere near as the chance of developing a hybrid power plant.

Ben Kenney: Okay. So, have there been any other studies like this that you’re aware of?

Art Spinella: There have been a lot of attempts, Oregon has been doing it, UCD has been doing it, and a number of universities have transportation and they call it life cycle studies for the most part. This is the first time that we actually went further than just the life cycle of the vehicle. Most of the time, it's measured from manufacture through the ownership stages and very little has ever measured at the end, the disposition and disposal of those vehicles.

Ben Kenney: Okay, I see. I know that life cycle analysis studies, they are notoriously difficult. Could you walk us through how you did these studies? For instance, how did you find the amount of energy that Toyota is using to make their cars?

Art Spinella: Well, there have been a lot of studies that have looked at the manufacturing. You get into things like gigajoules, so things like that and it can be pretty tedious obviously. We spent a year just planning on all the data points that we needed in order to cover the dust to dust aspect of this [unintelligible] about 4000 per model. Some of the records were fairly simple to get, others were more difficult, others were extrapolations obviously; but in a lot of the industries you can get to a lot of that information, for example, the amount of energy necessary to make a pound of steel, for example, or plastic. There are SAE papers that have been written extensively on what it takes to make transmissions, for example, and the content of vehicles, Quiet Steel, which is something that’s relatively new started by Lexus, which is basically sound-dampening steel. Then we had to go through all of the disposition stages so everything from separating out all the different components and what it takes. A lot of those records like you said are public. They’re just tedious to get to.

Ben Kenney: So, it would be just a pretty big review of all the literature out there?

Art Spinella: Correct. That is part of it, the other part of it included things like, for example, surveys of employees, distance traveled, use of mass transit versus use of private vehicles, types of vehicles that are used for the most part for our transportation back and forth. A good example of that is in Japan. Most of the workers at plants like Zumar and some of the other ones for the most part take mass transit, so the mass transit or the energy cost to get employees back and forth to work is very low. You look at Ohio where the average distance to work is something around 25 miles to get to the plant and most of the vehicles that are used tend to be lower fuel economy or less fuel efficient vehicles, pick-up trucks.

Ben Kenney: So, when you're talking about the amount of energy required to get the workers to and from the plant, that is something that would go into the manufacturing energy cost?

Art Spinella: It goes into one of those data points, yeah, then it goes into the manufacture -- if you're looking at that, yeah, we go from the manufacturing...

Ben Kenney: Okay, I see. So, you actually have like the actual gigajoule values for the manufacturing process?

Art Spinella: Oh yeah.

Ben Kenney: Okay.

Art Spinella: More than I care to think about.

Ben Kenney: Is that going to be in the full report once it's published?

Art Spinella: We may or may not. It depends. It will probably be in the full study or data when it gets released, but there is so much proprietary stuff that’s in there, but we’re not exactly sure how much we can release. We'll have to talk to the lawyers.

Ben Kenney: What type of proprietary stuff?

Art Spinella: Oh geez. The cost of energy, for example, for one of the plants, some of that stuff is not public record.

Ben Kenney: Okay.

Art Spinella: It's controlled by government agencies.

Ben Kenney: Oh okay, I see. How were you able to get that information?

Art Spinella: We've been doing this for so long.

Ben Kenney: Okay. So, it's just through experience?

Art Spinella: Yeah, experience and through contacts that we have.

Ben Kenney: Okay. So, let’s go over some of the results.

Art Spinella: Sure.

Ben Kenney: On your website, we can download the breakdown for the Honda Civic compared to the Honda Civic Hybrid.

Art Spinella: Correct.

Ben Kenney: The Honda Civic Hybrid has dust-to-dust energy cost of $3.23 per mile compared to the normal version of the Honda Civic which has a dust to dust energy cost of $2.42 per mile.

Art Spinella: Right. Can I clarify something on that as well?

Ben Kenney: Yeah.

Art Spinella: We translated it into dollars simply because it becomes easier for consumers to understand. That is really, if you look at all of it, it's really the cost to society in general in terms of energy use.

Ben Kenney: Yeah.

Art Spinella: I used to do this kind of studies back in the day when I actually drove an electric car in Los Angeles back and forth to work on LA freeways. I was a publisher of an electric vehicle newsletter at the time and we used to do those kinds of analysis, not only what it cost and a lot of folks that were heavily into use at the time like to talk about cost per mile.

Ben Kenney: Yeah.

Art Spinella: I'm driving, but we used to try and do analysis that was a whole greater than that looking at energy costs in terms of support industries, what it would take because that was really the key is what it would take to have the infrastructure that was available to support a million electric vehicles, for example. So, we translated this and we used to always talk for a lot of hours, all that kind of stuff, and the reality was that we totally lose a lot of the focus of consumers as they don’t get a sense of something that they can deal with in terms of -- especially data and in this particular case, we decided to translate development to dollars per mile.

Ben Kenney: Okay. So, since it is in dollars per mile, did you have to assume that the cars were being driven for X amount of miles on average?

Art Spinella: Every model based on historical scrappage for each type of vehicles and market segment, the lifetime of vehicles, for example, Toyota, at least in the Japanese press and in Australian press has admitted or at least stated that they don’t think that the Prius is more than a 100,000 mile vehicle. So, obviously, if you have a vehicle like most pick-up trucks, the average life expectancy is around 280,000 miles before it gets totally scrapped.

Ben Kenney: I see. So, that could influence the results significantly though, right?

Art Spinella: Oh, of course.

Ben Kenney: I mean if you could drive a Prius 200,000 miles…

Art Spinella: If you could drive a Prius 200,000 miles and do the same level and cost of repairs, sure, the cost per mile obviously comes down dramatically.

Ben Kenney: Okay. Another question that I had was what cost of energy did you assume? I mean some cars are built in Japan, others are in North America.

Art Spinella: Yeah. We used local plant and supplier plant energy costs that were averaged out according to the local market and we translated it all into US dollars.

Ben Kenney: Okay, I see, and all of these cars were assumed to be driven in the US and shipped…?

Art Spinella: Yeah. These are all vehicles that are driven in the US. We did all of the US versions of all of those vehicles.

Ben Kenney: Yeah, but that doesn’t mean that they are necessarily built in the US though, right?

Art Spinella: Correct. In some cases, there are as many as six countries that are involved.

Ben Kenney: Okay. What about things like the price of gasoline? I mean it’s gone up quite significantly lately and this was a two-year-old study so…

Art Spinella: Well, it’s not a two-year-old study.

Ben Kenney: Oh okay.

Art Spinella: The study took a year of development, two years to do, yeah. The figures are all as of January of this year.

Ben Kenney: Okay, January of this year. So, let’s get back to the Honda Civic.

Art Spinella: Sure.

Ben Kenney: Why is the hybrid version so much more expensive than the non-hybrid version?

Art Spinella: Complexity more than anything else, a heavy investment in terms of energy initially because of the design and development phase of it, manufacturing complexity. We’re looking at repair complexity. I’ll use the Prius as an example. A simple front-end crash in a Corolla that would cost around $1500 to repair costs roughly $6000 on a Prius primarily because of the complexity of the components.

Ben Kenney: But is that the actual energy cost or the cost…?

Art Spinella: That's the actual cost and then obviously at some point translates into the energy necessary to make those repairs.

Ben Kenney: Okay.

Art Spinella: Back to the Civic, one of the reasons they cost more is because of disposal. If you look at the graphs, clearly, the Civic Hybrid is far superior than the conventional Civic. In the driver stage or ownership stage, costs are significantly less or as a share of energy that's used for those vehicles, but the cost at the beginning from design development and manufacture because of the complexity and the manufacture of things like motors and ancillary electronics is also part of the problem. At that the end, disposal of those is extremely difficult, some of those components are extremely difficult. Standard repair costs similarly are higher during the center stages. If you go look just at fuel, the fuel costs would make an even more dramatic difference between the two vehicles, but for the most part, based on Honda's own expectations in terms of repair cycles and such, replacement cycles in battery, for example, what you see basically is a high energy cost simply because of the necessity of repair and replacement.

Ben Kenney: Okay, I see. So, just say that I bought a Honda Civic Hybrid and I drive the car for a 100,000 miles before I disposed of it, the dust-to-dust energy cost is $3.24 per mile, so that would make the total cost $324,000.

Art Spinella: Right.

Ben Kenney: Yet I only paid…

Art Spinella: The society; you didn’t pay.

Ben Kenney: The society, yeah.

Art Spinella: The society paid it, yeah.

Ben Kenney: So, I only paid $25,000 for the brand new car.

Art Spinella: Correct. Yeah, two things to that. Number one, it's similar to taking the rapid transit or mass transit in San Francisco. The BART customer, the guy who gets on the BART train and pays the toll a couple of bucks, even BART says that, clearly, passengers don’t pay for that system, society or San Francisco in general.

Ben Kenney: Yes, it’s subsidized.

Art Spinella: Exactly. So, for the most part, while the subsidy -- there are some subsidies related to car ownership as well. Some of those just winds up becoming profit, for example, the disposal end of the project. Your car, first of all, while you paid $25,000 or $30,000 for it, the second buyer if you sell it on used car market which most people do, that person may be paying $10,000 or $12,000 additional dollars for it and on down the line until it's finally disposed of. At the disposal end, you may sell it for basically nothing to a scrap yard or to a junkyard. The junkyard, however, turns a profit on it as well because they can either crush it or separate out components and sell those individual parts as parts of vehicle or for parts, so there’s that as well. The total cost, that $300,000 somewhat isn’t falling only on the first who buys the vehicle.

Ben Kenney: But, again, this is energy cost, right? So, it doesn’t really include profits or anything.

Art Spinella: No, it doesn’t include the profits, correct, but you see that while it cost that much, not the total cost is borne by the driver or the owner.

Ben Kenney: Yeah, but in general if a hybrid vehicle costs $25,000, nobody would really be subsidizing the many manufacturing cost because that way, say, Toyota wouldn’t be able to make any money if they weren’t subsidizing.

Art Spinella: Yeah, but they’re also doing a lot of it if you look at their research and development budgets, for example, and then what's coming out. Some of the research and development went into the Prius I. Quite honestly, it's going to be scrapped. They know it. The current Prius, for all intents and purposes, in three years can be a model to you.

Benn Kenney: Okay. I see.

Art Spinella: The new ones that I've seen, Prius III and Prius IV are some of the things that they're doing with that. I mean they’re lightening the motors. They’re bringing the controller systems down to a manageable production size. They've taken a lot of complexity out of all of the systems and clearly the energy costs are going to be significantly less. They obviously leveraged that against future products in other categories as well.

Ben Kenney: So, if you were to repeat the study in, say, 10 years, then…

Art Spinella: Totally different.

Ben Kenney: It would be totally different.

Art Spinella: It would be totally different in three years.

Ben Kenney: In three years, okay. Probably the hybrid would look better compared to non-hybrid versions?

Art Spinella: Significantly better because the new hybrids that they’re developing now are more simplified in order to do what the current versions do. They will be able to do with far less complexity, lighter motors, more recyclable parts, longer lasting components. Current hybrids unfortunately don’t have the kind of lifetime expectancy in terms of miles that do their conventional power plant counterparts.

Ben Kenney: Okay. So, this study that you did didn’t necessarily focus on hybrids either.

Art Spinella: No.

Ben Kenney: There are a lot of cars that were more energy intensive than the hybrid vehicles.

Art Spinella: Oh, sure. I mean if look at something like the Mercedes-Benz Maybach, it's $11+ per mile, so, yeah, society is doing a whole lot of subsidizing whenever you see a Maybach drive by.

Ben Kenney: Something else that struck me though was just say I had a Volkswagen Golf that costs $2.70 per mile, but when you compare that to a Hummer H3, it’s still more expensive than a Hummer. So, there aren’t any batteries involved here. So, how can a Golf be more expensive than the Hummer which is basically built like a tank?

Art Spinella: Well, it gets down to some of the content, some of the technology that's used. A Hummer, even the H3 has a lot of its cost that’s distributed among many different products better sold in the US. General Motors does an enormous amount of cross product parts usage simplified tooling and dye. Even though that's big, for the most part, the tool and dye parts are very, very simple, a lot of very simple components in a Hummer H3, but for the most part, the biggest reason is that a lot of those components are used in other products sold by General Motors, so the costs are spread around. Golf is different. As far as the US version of the Golf, it has many parts that are US-specific. It has certainly more technologically advanced power train than does the Hummer even though there's more Hummer power train in general because they will drive and all. It's all pretty, pretty crude in terms of technology. It’s old technology for the most part. It's been long ago paid for.

Ben Kenney: Okay. I think this study has the potential to be hugely significant because it would basically mean that the direction -- well, do you think it means that the direction that the industry is going which would be towards hybrid cars, does this study means that it's the wrong direction?

Art Spinella: No, I don’t think it means it's the wrong direction. I think what it means is that you have to pick and choose the vehicle that’s suitable for the environment you live in. For example, if you live in the Los Angeles Basin as I once had, at the time I was driving my old sedan, clean air, stickers all over it and it's had electric on it and it was because the smog in Los Angeles was so bad. It wasn’t necessarily because of fuel economy, but if you live in the Los Angeles Basin, for example, then a Prius or any of the hybrids are perfectly logical things to buy because you’re reducing the pollution in the Basin. You have a lot of stop and go traffic, all of those kinds of reasons. As gas prices go up and LA was one of the more expensive places, it made perfectly good sense to get a Prius. The point I guess more than anything else is that if you do that, while it's good for your local environment and a logical choice to make as a consumer, the reality is that you’re exporting energy needs outside of the Basin.

Ben Kenney: Yeah.

Art Spinella: You’re exporting the pollution back to Japan or you’re exporting the pollution to some place in Oklahoma where the eventual vehicle will be disposed of.

Ben Kenney: It’s just too bad CO2 emissions don’t respect boarders.

Art Spinella: There you go.

Ben Kenney: What type of responses have you been getting?

Art Spinella: For the most part, it’s been splitting the two. We have a lot of auto engineers and scientists and non-automobile engineers. We have some software engineers as well who have responded and they have always understood this. They just never have seen it quantified and are anxious to see all the numbers as you can imagine. They have been pretty positive about it because this has been fairly well known inside the auto industry for decades and that’s one of the reasons there has been such a resistance on the part of some companies to develop hybrids. On the other side, on the consumer’s side, it's been pretty much split as well. You have those who accept the numbers as being kind of a gut instinct they have that feeling anyway, that the more complex something is, the more energy intense it is in terms of dust-to-dust kind of analysis. Then you have those who simply cannot get through their head that there is more to these issues than simply the gas usage or the amount of oil that's sucked out of the graph. Even those have been pretty -- I don’t think there’s one rooting lunatic except maybe one, but for the most part everybody has been rather civil.

Ben Kenney: I got an email from you this morning I think saying that this report will eventually be free for everybody?

Art Spinella: Yeah. We decided that because of the interest that we've gotten literally -- I can’t tell you how many emails and faxes, there are still people who use fax machines, believe it or not, emails and faxes we’ve gotten related to this and I think you’re right. I think this has the potential to be significant if it's done long enough, if we continue doing it and we start see trend lines, we start to see how, for example, hybrids become increasingly more competitive. That’s our intention is to continue doing this, but yeah, we've decided that it should be available to the public. If they want it, then just go get it.

Ben Kenney: Excellent.

Art Spinella: We will offer it to our subscribers first, obviously.

Ben Kenney: When will it be available?

Art Spinella: It will probably be around the first of May.

Ben Kenney: Okay. Perfect. Well, thank you so much for coming on the show.

Art Spinella: Oh, shut up Ben. Thanks for inviting me.

Ben Kenney: It’s a very interesting report.

Art Spinella: Good.

Ben Kenney: Okay, bye-bye.

Art Spinella: Take care.