This paper will focus on preparing an assessment for Lotus Rental Car’s Chief Financial Officer on the feasibility of adding alternative fuel vehicles to the fleet. Although there are many forms of alternative fuel vehicles, this study will primarily focus on the use of hybrid vehicles at Lotus Rental Cars. We will discuss the background of Lotus Rental Car’s current status, the advantages and disadvantages of adding alternative fuel vehicles, and provide our recommendation on why and how it should be done.
Our focus will be on three specific areas: budget costs, marketing strategy and performance as well as how Lotus Rental Cars will benefit financially from using this new process in their current fleet. Background Lotus Rental Cars is a national domestic rental car organization operating in several locations within the United States headquartered in Los Angeles, California. They have been in business for 20 years and are not as well-known among customers as some of their competitors, such as Budget, Avis and, Enterprise.
Lotus Rental Cars uses various vehicles from economy to larger sized vehicles for rental purchase by their customers for personal or business need. A large concern of the organization is long-term cost savings and developing a better marketing strategy. The cost of using various vehicles, increased gas prices caused by the economic downturn, and maintenance of these vehicles will produce a long-term debt versus profit over the next several years if Lotus Rental Cars does not take action to prevent at an operating loss.
Lotus Rental Cars needs to develop a long-term solution for the budget concerns and offer a product to make them stand out among their competition. Advantages Because there is a concern over the long-term effects of operating costs, Lotus Rental Cars needs focus on expenses from the purchase of vehicles, fuel prices, and maintenance costs to remain healthy financially. Purchasing a hybrid vehicle to test the waters would prove to be a financial gain for the organization. Although costly to purchase, hybrid vehicles ultimately save money in long-term situations. According to the International Energy Agency (“Outlook,” n.
d. , p. 1), “In countries with relatively high gasoline prices, the savings in gasoline costs currently pay back the extra purchase costs of the car in about eight years. As manufacturing volumes and gasoline prices increase, this payback period could be reduced to 3-5 years, and consumers would have an economic incentive to buy Hybrid Electrical Vehicles. ” Because hybrid vehicles operate with an electric motor and battery, the electric motor assists in acceleration, this allows for a smaller and more efficient internal combustion engine (International Energy Agency, 2010), thus saving on the maintenance of the vehicles.
There are several advantages to using alternative fuel vehicles from a domestic to global level. According to the Federal Energy Management Program (National Renewable Energy Laboratory, a DOE national laboratory, September 2003, p. 1), “Relying more on domestic fuels and less on imported petroleum will enhance the nation’s energy security, help to curb air emissions, and serve as a hedge against fluctuating fuel prices. ” In an effort to preserve our nation’s energy source, switching to hybrid vehicles will allow Lotus Rental Cars visibility with their customers who prefer “going green” and allow the organization a unique marketing strategy.
Hybrid vehicles produce less pollution by using their combustion engines. Reduction of pollution by using hybrid vehicles will prove to be another successful marketing strategy for Lotus Rental Cars. It shows the customers and stakeholders of the organization the willingness to the commitment to keeping the environment healthy. Customers, who promote greater environmental consciousness by their cultures and values will appreciate and market their commitment with Lotus Rental Cars with their customers, which could in turn can assist in gaining new business.
Hybrid vehicles produce lower emissions and promote higher air quality, lower pollution, and helps in an effort to prevent global warming. According to Energyandclimate. org (“Alternative Fuels and Alternative Fuel Vehicles,” n. d. , p. 1), “The new generation of hybrid PZEVs (Partial Zero Emissions Vehicles) such as the Toyota Prius and Ford Escape hybrid have substantially raised the bar for future Alternative Fuel Vehicles. These vehicles have no different safety concerns than other gasoline cars, a substantially lower annual fuel bill range, a 40% to 50% reduction in greenhouse gas emissions, and a 90% reduction in tailpipe emissions.
” Lotus Rental Cars would benefit from trying one hybrid vehicle such as the Toyota Prius or the Ford Escape Hybrid. The Ford Escape was the first vehicle to combine a Sport Utility Vehicle with outstanding fuel economy and provides an estimated 34 miles to the gallon for city driving and 31 miles to the gallon on the highway. Some of the first-generation Prius models have already surpassed the eight-year/200,000-kilometer threshold of battery life (International Energy Agency, 2010). Disadvantages Alternative energy vehicles can cost more than traditional vehicles.
According to an article written in the New Hampshire Business Review by Cindy Kibbe, the cost of an alternative energy vehicle can cost between $1,000 and $7,000 more than a traditional gasoline powered vehicle (Kibbe, 2006). The additional upfront costs of the vehicles will create a need for an additional capital investment from Lotus. There is no guarantee that Lotus will recover the additional capital spent on the higher priced vehicles. Operating an alternative fuel vehicle, like a hybrid Toyota Prius or Ford Escape, is different from operating a traditional gasoline powered vehicle.
Kibbe wrote about the way people will need to change their driving habits to take advantage of the fuel economy benefits. The article uses a specific example of how a driver needed to drive 60 miles per hour on the highway, instead of the usual 75 miles per hour he was used to (Kibbe, 2006). Many Lotus customers are not likely to adjust their driving habits. There may be a certain niche of customers but not all Lotus customers will like this setback. There are also cultural differences regarding American society’s views on hybrid vehicles.
Ed Noble, an automotive columnist for the Fort Worth Business Press, wrote a negative review of the Toyota Prius. He criticized its interior and highlighted how he believed the car was underpowered and inferior to high-performance gasoline vehicles. Noble also questioned the vehicles ability to escape winter situations, like being stuck in a snow bank. He was so critical of the Prius, he wrote, “The Prius returned no enjoyable emotions. It was like a week-long Yanni concert on wheels” (Noble, 2004, p. 5).
This column helps show the cultural divide between environmentally conscious customers, and those that don’t want to sacrifice the comfort of a high-performance gasoline car. Recommendation Alternative fuel cars are not a viable choice for every Lotus customer, and Lotus should not completely replace its fleet with hybrid or alternative fuel cars. However, there is enough evidence to show that certain customers value and appreciate hybrid vehicles, and Lotus should implement marketing efforts to penetrate that niche group.
Lotus should set up a new line of vehicles in select test markets to determine the success rate of hybrid vehicle rental sales. There are several vehicle options available to customers that include: economy, mid-size, full-size, luxury, and SUV. Adding a “green” line will target environmentally conscious customers. The target audience of this line can include customers which already own hybrid vehicles, customers curious about hybrid vehicles, and customers who want the increased fuel economy of a hybrid vehicle.
Setting up this new line will ensure that Lotus retains existing customers, and doesn’t violate any cultural opinions of hybrid vehicles. Adding a “green” line of vehicles will allow Lotus to capture additional revenue to make the line profitable and viable to the company. Evidence shows hybrid vehicles cost more, and this will mean charging higher rental rates for such vehicles. Setting up a green line of vehicles will allow Lotus the ability to justify the higher rates to its customers.
Because the vehicles get better fuel economy, Lotus agents can accurately point out that hybrid vehicle fuel savings could make up the additional cost of renting them. Because our target customer likely is already aware of hybrid vehicles, it would likely be easier for us to justify the additional rental costs. Companies that promote environmental consciousness can also take advantage of the green line of vehicles to extend their company culture and values. Some businesses have a passionate appreciation for saving the environment.
Using a green line of vehicles will allow the business to extend its environmentalist viewpoint. It will also allow the business to impress clients and vendors by showing them their dedication to the environment. This will allow Lotus to capture additional revenue through business rental sales. Lotus should minimize the risk of implementing a green line of vehicles by allowing free market principals to work in its favor. The company should purchase a minimal amount of hybrid vehicles for a test market. The company can then purchase additional vehicles when demand permits.
This will ensure that Lotus captures a maximum amount of profit with a minimal investment. Conclusion It is obvious that hybrid vehicles are not for everyone. Some people prefer the performance of high powered gasoline engines, while other people just don’t like the feel of a hybrid. However, it is apparent that there is a select group of individuals who are dedicated to saving the environment and would appreciate the availability of hybrid vehicles. In addition, business customers also need to accommodate company cultures and their own credo when dealing with vendors.
It is apparent that replacing our existing fleet with all green vehicles does not make sense. However, implementing a line of green vehicles will capture this niche market and open new revenue streams for Lotus. By purchasing a minimal amount of vehicles for a test market, Lotus can prove this theory with a minimal amount of risk and increase their overall profitability for a long-term solution to their budget concerns. References Alternative Fuels and Alternative Fuel Vehicles. (n. d. ). Retrieved from http://www. energyandclimate.
org/alternative-fuel-vehicles. html Hybrid Electrical Vehicles. (n. d. ). Retrieved September 22, 2010, from http://www. ieahev. org/hybrid. html Kibbe, C. (2006, October 12). It’s not always easy driving green. New Hampshire Business Review, pp. 34-35 National Renewable Energy Laboratory, a DOE national laboratory. (September 2003). Alternative Fuel Vehicles. Retrieved from http://www. nrel. gov/docs/fy03osti/26066. pdf Noble, E. (2004, September 2). Being green saves dollars and drives like pennies. Fort Worth Business Press, p. 5.