VCR profitability

VCR: a new and efficient profitability source for automotive industry

For carmakers, mass-production of VCR engines constitutes a great opportunity to improve their profitability. This is due to Variable Compression Ratio performance ability, fuel efficiency and induced negative costs (see: VCR cost price).

Indeed, in 2010, VCR vehicles could cost about 1,000 Euros less than Diesel vehicles at same performance and CO2 emissions, and at comparable pollutants emissions level (VCR price for comparison: MCE-5 technology). Compared to hybrid vehicles, the cost difference will be about 3,000 Euros.

There are two main explanations for the future cost gap between VCR and Diesel:

	1)	To conform to future pollutants emissions standards, Diesel after treatment will have to integrate both particulates filter and DeNOx. Additional cost for such devices could be up to 1,000 Euros per vehicle depending on the chosen technical solution. This will aggravate the situation of already costly Diesel vehicles (In the EU, Diesel vehicles are already sold about 2,000 Euros higher than gasoline vehicles).
	2)	Particulates filters and deNOx after-treatment systems and associated regeneration processes will increase Diesel vehicles Fuel Consumption of about 5 to 8% (source: French Petroleum Institute).

On the other hand, Diesel attractiveness will be reduced by a constantly increasing Diesel price which will progressively reach that of gasoline in European countries. This is due to different political and energy reasons, among which, the necessity to ensure a balance between Diesel and gasoline consumption that is compatible with oil refining industry. In the future car market context, there is no reason for selling VCR vehicles cheaper than Diesel vehicles: they offer the same advantages for users. VCR also provides requested features for high volume sales: high torque and power, excellent driving pleasure, high autonomy, high engine durability (particular case of the MCE-5), low-cost per kilometer, good resale price... Thanks to VCR cost that will be about 1,000 Euros lower than Diesel at same performance and emissions, high profit margin is expected for each VCR vehicle. In addition, the high attractiveness of VCR vehicles (high performance, high fuel-efficiency, high-tech brand image) will guarantee them high commercial success and market volume. In conclusion, VCR presents all requested features to highly improve carmakers profitability (potentially, several billion Euros per year for each carmaker).

In terms of general strategy, VCR will permit the come back of fuel-efficient gasoline (and even multi-fuel) vehicles in Europe. VCR will also respond to the worldwide necessity for energy saving, energy sources diversification and CO2 emissions reduction.

VCR is not only interesting for carmakers, but also for consumers, oil refining industry and in general, for economy.

VCR profitability reaches the general case of fuel-efficient technologies

The higher the fuel price, the more profitable fuel-efficient technologies. From the economic point of view, fuel-efficient technologies can be compared to some oil extraction techniques, which become profitable from a certain oil barrel price.

In USA, fuel price increased from 30 cents in 2002 to 60 cents in 2004 resulting in a great sales reduction of fuel-consuming vehicles. As US carmakers produce for the most part high-consuming vehicles, Asian carmakers have great benefit from fuel price increase on US market because they produce fuel-efficient vehicles.

Most of analysts agree on this point: oil price will constantly increase in the coming years. Indeed, it will be technically and economically difficult (high investments) to increase oil production in order to respond to a constantly increasing global oil demand (at least, 2% per year).

It is then predictable that future market is for fuel-efficient vehicles. But not at any conditions: future vehicles also have to be attractive and high-performing. This is necessary to respond to main market trends:

Source : ACEA/OICA/CEMT, 2003, abstract from AAA database for all carmakers until 1997,
data extrapolated until 2000, vehicles sold by ACEA carmakers only for 2001

Indeed, low-powered expensive «green cars» designed for concerned ecologists respond to a too limited market.

In the near-future, fuel-consuming vehicles will not only be penalized by market, but also by governments. In USA and EU, CO2 emissions reduction targets will result in new regulations: in addition to environment preservation, reducing Fuel Consumption reduces national oil bill (and trade deficit) and promotes economic growth (and associate tax revenues).

Regulations comparable to CAFE standard in USA could be decided for EU in the near-future to dissuade consumers from purchasing fuel-consuming vehicles. On the contrary, purchasing fuel-efficient and clean vehicles could be greatly encouraged by tax breaks and subsidies.

In US, CAFE standard is already costly for fuel-consuming vehicle producers: since 1983, Mercedes-Benz have paid $225.5 million and BMW $210.7 million fuel-economy fines (source: Automotive News Europe - October 4, 2004).

Conclusion

Present context is highly favorable to fuel-efficient and clean engine technologies.

VCR vehicles respond to all determining market and regulations demands and present a new profitability source for worldwide carmakers (potentially, several billion Euros per year). For this reason, high production volumes are expected for VCR vehicles.

Marketing attractive VCR vehicles could rapidly lead to FCR (Fixed Compression Ratio) vehicles depreciation: the situation could be the same as that actually existing between Indirect Injection and Direct Injection Diesel vehicles.