Lotus Rental Car - Feasibility of Adding Alternative Fuel Vehicles - Case Study Example

Lotus Rental Car: Feasibility of Adding Alternative Fuel Vehicles Introduction Alternative fuel cars bring a lot of benefits to their owners and most important benefit gained by a company running a fleet of alternative fuel vehicles is the lowered cost of fuel. However, for a rental car company where the cost of fuel is mostly undertaken by the person renting the car, alternative fuel vehicles may not present such a visible advantage. At the same time, there are other tacit benefit which support the feasibility of adding alternative fuel cars to the fleet of a company and these tacit benefits can be translated into a competitive advantage for our firm. Before a recommendation can be made to add such cars to our fleet, the tacit benefits and the advantages have to be clarified which justify the addition of such cars. Alternative Fuel Cars Understandably, cars have not changed much in more than a hundred years and even though they have become more comfortable, more efficient and more diverse, the fundamentals of the automobile engine and the car itself have not changed. For rental car companies, the problem of innovation still stands since we can compete on price and we can compete on the types of car we offer for rent but by offering hybrid cars and vehicles that use alternative fuel we can also offer a positive image to the client. This would bring us into a new market which would fundamentally give us a big advantage over the competition who are still using the ‘same old cars’. The idea of cars running on alternative fuels in general and the innovation of the hybrid engine have changed the very nature of automobiles (Brown, 2006). It may not present a situation where hundreds of miles can be driven on a single gallon but the innovation with regard to less pollution and higher standards for emissions give such cars a green image which would be transferred to our company by association. From a rental car company stand point, alternative fuel running cars give the company an image of being caring towards the environment and being socially responsible. Rising fuel prices coupled with the idea of protecting the environment could be a very important concern for our clients who do not wish to see their actions having a negative impact on the world. As discussed by Dyson (1997), alternative fuels and cars running with hybrid engines are the need of the hour and it is an innovation which can certainly be helpful to the planet. There may be objections made with regard to the availability, cost of ownership and even the fuel availability of concerns for vehicles with alternative fuels but it must be noted that major companies such as GM, Ford and Honda had all produced cars which take alternative fuels and the market acceptability of such cars has only increased with time. It has been more than a decade since the Prius was launched by Toyota in Japan and cars with alternative fuels are gaining acceptance as are cars with hybrid engines. The theory concerning the use of innovative technology in business certainly supports the idea of offering our clients cars that use alternative fuels since Christensen et. al. (2004, Pg. 19) explain the Value Chain Evolution theory of innovation when they say that, “The theory suggests companies ought to control any activity or combination of activities within the value chain that drive performance along dimensions that matter most to customers”. Since hybrid cars and cars operating with alternative fuels have been tremendously successful in the American market, it is reasonable to say that the clients want such cars and it would be perfectly acceptable for us to offer them for rent. This theory becomes completely applicable to our business objectives as fuel efficiency and protecting the environmental could be a performance criterion for many of our clients who wish to use cars that use alternative fuels. As described by Prencipe (2001), such innovations can often lead to competitive advantages and our idea of offering cars using alternative fuels would certainly be such an innovation since such cars have lower emissions and offer greater fuel efficiency as compared to normal cars. As noted by Packard (1996), innovations may come as the result of seeing the needs of the market and the sales of hybrid cars as well as cars running on ethanol should that there is a demand in the market for these cars. Additionally, the manner in which all car manufacturers are offering one or more cars with hybrid engines or cars with the ability to run on alternative fuels, it shows that the market needs have created a market based response. Undoubtedly, the presence of ‘green’ customers and ethical consumers who want to protect the environment would become our key demographic just as Toyota and other car producers are using hybrid engine to push their image of being ‘green’ companies (Motavalli, 2007). The impact of the need for green cars becomes clear when we see that Ford has created a hybrid SUV. The vehicle type which is supposed to be the antithesis of the green car is now essentially a green vehicle. In effect, the innovations made by car manufacturers with regard to cleaner, fuel efficient cars have altered the course of the industry. The future may give us cars that run completely on electric power such as the Chevy Volt but even before the Volt, there were kits available to make the Toyota Prius a purely electric car to enable running it without any gasoline (Motavalli, 2008). The success of the such vehicles becomes obvious when we examine the graph for American hybrid sales for 2004-2007 (Figure 1) which shows an overall rising trend. Figure 1 Hybrid Car Sales in America. http://en.wikipedia.org/wiki/Image:Gcc_hybrid_sales_feb07.png The credit for the boom in alternative fuel cars as well as the success of the hybrid vehicle is given by Allan (2005) to the Toyota Prius. He says that the entire industry has been forced to make changes to their plans due to the Prius and this includes our own company since the customers demand fuel efficient cars from the providers. Allan further notes that the Prius is responsible for creating a “revolution in automotive energy savings and pollution lowering technologies (Allan, 2005, Pg. 48)”. As described by Newman (2005), automobile related which companies that have not shown any strong moves towards being green may have a difficult future when they have to compete with those suppliers who are offering such vehicles. Even in financial terms, Ruffino and Acheson (2007) discussed the impact of the hybrid engine and cars running on alternative fuels to say that hybrids are twice as efficient as conventional cars while they only emit 50% of the pollutants as compared to other machines. At the same level of power output, a hybrid engine can get almost a sixty percent improvement in mileage which means more savings for the clients who rent cars from us. Since the cost of acquisition for hybrids and the cost of maintenance is comparatively the same, renting hybrids would offer a real financial benefit for our clients which would mean we could pass on the savings to them in terms of lower rental prices. Rosenbloom and Cusumano (1987) note that the first mover advantage can be a very important factor in creating the overall strategy of a company and we can certainly use the idea of renting cars with alternative fuels as a move towards being the first ‘green’ car rental company in the locality. The first mover advantage is exemplified by the Toyota since 90% of the world’s cars with hybrid engines use Toyota’s engines. The demand for hybrid vehicles has only gone up with time since there was a period when American had to wait six months before their ordered hybrid cars would arrive. Further, we could even get government support for our plans while getting cars with alternative fuels since tax credits could be on offer in some locations where we chose to deploy hybrids cars or alternative fuel cars (Allan, 2005). Industrial analysts such as Allan (2005) as well as Ruffino and Acheson (2007) have noted that the future of all vehicles may be dominated by automobiles that use some sort of alternative fuel. In essence, cars running on electric power seem to be the way to go since hybrids are not the ultimate answer for the personal transport needs of the world. Even today, companies are busily creating more efficient batteries that will allow cars to on pure electric power and this would eliminate the need for gasoline. GM has already done that with the Volt which runs entirely on electric power alone and the car can be charged from an outlet in the owner’s home. While the Volt uses conventional batteries, future cars may use super sized capacitors which have longer lives than batteries as well as greater storage capacities. Even further in the future, small companies coming to the market with their electric cars could outperform the giants. One such example is the Tesla which is a small American company creating performance based automobiles which run entirely on electric power. While the car they produce costs more than a hundred thousand dollars, they have managed to find buyers for all of their cars which they will produce in the next two years (Motavalli, 2007). As the expectations of the customers increase, automobile producers as well as car rental companies will have to live up to those expectations if they wish to remain competitive (Newman, 2007). As gas prices are only likely to rise with time, the more people notice the prices, the more likely they will be to be ask for hybrids or alternative fuel cars (Guyer, 2005). We need to be in a position to offer such cars before they are demanded and need to be able to meet the desires of our customers. Ruffino and Acheson (2007) report that the Toyota brand has become directly linked with the idea of the hybrid and fuel efficiency and we can do the same with our rental brand if we connect our rental offerings to cars which can use alternative fuels. In fact, this may be a bet which we have to take since it is simply not possible to imagine cars running on normal fuel still being used on the roads of America fifty years from now. The future is certainly going to offer us many options and before those options are forced upon us, we have a choice to make regarding cars which are able to use alternative fuels. Even today, every major manufacturer from Alfa Romeo to Volvo has shown plans for cars which give better mileage to the buyer through various means. The means may be to use alternative fuels, more efficient engines or even engines that are hybrids but the need for improved mileage numbers and lowered emissions remains a constant for the customer (Zakaria, 2005). Conclusion For an industry which had worked with the same basic engine for more than a hundred years, alternative fuels and cars which have hybrid engines present a new era in which innovation becomes a necessity since those who do not innovate will only be left behind. Our company also needs to innovate and offer the client what they want which is lower emission levels and cars that give better mileage numbers and automobiles with alternative fuels are the best answer for that particular need. Word Count: 2,088 Works Cited Allan, R. 2005, ‘Setting the Standard for Hybrid Cars’, Electronic Design, vol. 53, no. 25, pp. 41-48. Brown, S. 2006, ‘Where Is the Hybrid Car Heading?’, Fortune, vol. 153, no. 10, pp. 29-29. Christensen, C. et. al. 2004, Seeing Whats Next: Using Theories of Innovation to Predict Industry Change, Harvard Business School Press. Dyson, J. 1997, Against the Odds, Orion Guyer, L. 2005, ‘Hybrids soar via word-of-mouth’, Advertising Age, vol. 76, no. 8, pp. 36-36. Motavalli, J. 2007, ‘Cleaner Greener Cars’, E - The Environmental Magazine, vol. 18, no. 2, pp. 26-32. Motavalli, J. 2008, ‘The plug-ins are coming’, E - The Environmental Magazine, vol. 19, no. 2, pp. 24. Newman, J.2005, ‘Nissans Forecast: Cloudy’, U.S. News & World Report, vol. 139, no. 17, pp. 14. Newman, R. 2007, ‘GM Bets That a Huge Battery Can Power It Past Toyota’, U.S. News & World Report, vol. 143, no. 19, pp. 27-30 Packard, D. 1996, The HP Way, Harper Collins. Prencipe, A. 2001, ‘Exploiting and nurturing in-house technological capabilities: lessons from the aerospace industry’. International Journal of Innovation Management, vol. 5, no. 3, pp. 299-321. Rosenbloom, R. and Cusumano, M. 1987, ‘Technological Pioneering and Competitive Advantage: The Birth of the VCR Industry’, California Management Review, vol. 29, no. 4, pp. 51-76. Ruffino, N. and Acheson, J. 2007, ‘The Hybrid Phenomenon’, Futurist, vol. 41, no. 4, pp. 16-22. Zakaria, F. 2005, ‘Imagine: 500 Miles Per Gallon’, Newsweek, vol. 145, no. 10, pp. 27-27. Read More