Which Green Car Is Best?

Carmakers are turning to a range of different technologies to improve fuel economy. Why can't they agree on just one?

by Matt Vella

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Thirty years ago a "green car" would have more than likely been an asparagus-colored Ford Torino. Today, of course, the phrase has an entirely different meaning.

Hyper-efficient compacts and innovative gas-electric hybrids have been around for years, but the greening of the auto industry is still relatively young. Nearly every major automaker has extensive plans to broaden its clean, fuel-efficient offerings, yet many are only ramping up production now.

Though consumers and manufacturers appear ready to embrace vehicles that are friendlier to the environment, there's little consensus on how best to achieve optimum "greenness." The term hybrid itself has evolved to describe multiple technologies since the first gas-electric model rolled onto U.S. shores in 1999. A number of alternative fuels are vying for attention, from clean diesels to corn-based E85 ethanol.

Open to Alternatives

What's certain is that "green" cars are something in which consumers are increasingly interested. Attitudes toward efficient vehicles have changed. Last year's volatile gas prices—which peaked around $3 for a gallon of regular—didn't help much. In fact, according to polls taken by research firm Frost & Sullivan, fuel costs weighed heavily on the minds of 80% of car consumers during those rises.

But alternative technologies, not just high gas prices, have piqued consumer interest. Last summer, a survey conducted by J.D. Power & Associates found that 57% of respondents would consider a hybrid as their next purchase; 49% would consider a vehicle using E85 ethanol fuel.

Growing interest in "green" vehicles has cast a noticeable hue over recent auto shows. During January's North American International Auto Show in Detroit, General Motors (GM) made headlines with an all-new, ultra-efficient electric concept car, the Chevrolet Volt, capable of running a backup motor on gas, diesel, ethanol, or hydrogen. And in March in Geneva (see BusinessWeek.com, 3/5/07, "At Geneva Cars Go Green"), hybrid concepts and small, efficient subcompacts took center stage, not the overpowered, extravagant speed machines of years past.

Competition Up, Prices Down

The buzz around hybrids—which combine a conventional gas engine with sophisticated electrical components—hasn't subsided. In the next 20 months, at least 30 new hybrid models will hit the U.S. market. According to Boston-based research firm Global Insight, that would bring the total number to more than 40 models.

With so many new hybrid models rolling off assembly lines, competition is heating up. In February, manufacturers, including market leader Toyota (TM), began putting incentives on certain models. According to Edmunds.com, on average, hybrids that sold last December for $809 above the manufacturer suggested retail price went for $2,015 below MSRP in February.

Still, Toyota has said it expects to grow sales of its popular Prius by 50%, to at least 150,000 units, this year as it tries to nudge the vehicles' position closer to the mainstream. "The market is certainly going to continue growing," says Jesse Toprak, an Edmunds analyst. "But now manufacturers are going to have to go after the mass market."

Needs New Batteries

As hybrids begin attracting a second wave of first-time buyers, questions loom over the direction the technology will take. In February, Toyota Chief Executive Katsuaki Watanabe confirmed to BusinessWeek that the company would put high-capacity lithium-ion batteries in the third-generation Prius, due toward the end of 2008 or early 2009 (see BusinessWeek.com, 3/5/07, "Toyota's Bid for a Better Battery").