Bloomberg News

Gasoline Sticker Shock Fuels Fiat Natural-Gas Auto Sales

September 17, 2012

Fiat Passes Gas Boom From Italy to U.S. With Obama Rule

With 10 euros, a Fiat Punto can drive for about 96 kilometers with gasoline, 183 kilometers with LPG and 283 kilometers with compressed natural gas, according to the Turin-based carmaker. Photographer: Giuseppe Aresu/Bloomberg

For Fiat SpA (F), Italy’s austerity efforts have meant falling sales, stubborn losses and layoffs for thousands of workers. One business, though, has benefited mightily: the division that makes vehicles fueled by natural gas and propane.

Deliveries of those cars in Italy surged 90 percent to 114,226 vehicles through August, accounting for 11.6 percent of the market, compared with 4.9 percent a year ago. That’s good news for Fiat, which says it has 90 percent of the market for natural gas cars and 47 percent of the propane car market in its home country.

The boom takes some of the sting out of the 20 percent plunge in the Italian car market, to its lowest level in more than 30 years. Fiat is determined to export its advantage to the U.S., where regulatory changes are poised to boost interest. The spread of natural gas and propane vehicles is critical for Fiat, which has been developing the technology since the 1990s, because it doesn’t have an advanced electric-vehicle strategy.

Cars powered by compressed natural gas or propane (liquefied petroleum gas) have largely been a sideshow in the push for cleaner cars. Lacking the futuristic allure of hybrids and electric powertrains, the vehicles have failed to find widespread adoption even though they’re as much as 23 percent cleaner than gasoline engines.

A surge in pump prices for traditional fuels and belt- tightening spurred by Italy’s shrinking economy is changing that. Almost every auto manufacturer that sells in Europe has increased its offerings of natural gas-powered vehicles in Italy, the region’s biggest market for such cars.

‘Surf the Wave’

“The competition is higher as every carmaker is now trying to surf the wave,” said Daniele Chiari, Fiat’s head of European product planning. “We want to strengthen our leadership with new models,” like natural gas versions of the Panda city car and 500L compact wagon.

With auto sales tumbling in Italy, Fiat and other manufacturers of natural gas cars are luring customers with steep discounts and promises of 50 percent savings in fuel costs. Both Fiat and General Motors Co. (GM:US)’s Opel unit are offering rebates of as much as 5,000 euros ($6,570) on the cars to offset the additional costs of the engines and high-pressure fuel tanks. A natural gas Fiat Punto compact costs 2,450 euros more than the gasoline version -- a premium of 18 percent.

Tax Burden

For strapped consumers, the advantages are compelling. Tanking up with 10 euros worth of fuel will take a gasoline- powered Fiat Punto about 96 kilometers (60 miles) versus 183 kilometers with propane and 283 kilometers with compressed natural gas, according to the Turin-based carmaker.

The prospect of such savings has made an impact on consumers like Alessandro Carmignola. The 36-year-old human resources manager reduced weekend trips to northern Italy’s Dolomite mountains after Prime Minister Mario Monti raised gasoline taxes to rein in debt. That pushed petrol prices to about $9.50 a gallon in some areas, making Italian fuel stations the costliest in Europe. Carmignola then made a drastic choice.

“Gasoline has simply became unaffordable, so I just sold my Audi A6 turbo for a gas-powered Ford Focus,” he said.

Demand for the cars is boosting sales of companies such as Landi Renzo SpA (LR), a maker of injection systems for alternative fuels. The manufacturer expects revenue to grow by 5 percent this year after first-half sales in Italy almost doubled.

“The rise of demand for vehicles that use cheaper fuels and aggressive campaigns by carmakers are boosting our sales,” Chief Executive Officer Claudio Carnevale said in an interview. There’s potential for the segment to take a “big step” in North America after the technology got a boost from Barack Obama’s administration, he said.

U.S. Support

Under White House regulations tightening fuel-economy standards, automakers received an incentive to sell natural gas- powered vehicles. The final rules, released Aug. 28, give automakers advantages for selling more cars that use the technology.

The changes boost Fiat CEO Sergio Marchionne’s plan to install the technology in Chrysler Group LLC vehicles. Marchionne, who also runs the U.S. automaker, has argued that natural-gas engines are cheaper and more viable than plug-in hybrid and electric cars. In Italy, natural gas and propane cars outsold hybrids and electrics 29 to 1.

“The president has an all-option strategy as far as energy goes, so that helps quite a bit” on natural gas, said Peter Grady, Chrysler’s vice president of network development. “The market’s going to take shape, but not without a lot of cooperation and work.”

‘Convenient Solution’

The U.S. has some catching up to do. In Italy, years of government support have helped build up a network of about 900 natural gas fueling stations, among the densest in the world. By comparison, California -- which is 40 percent larger than Italy -- has just 135 stations, the most in the U.S.

Natural gas cars need a more extensive network of stations because they usually have a shorter range than conventional vehicles. The Honda (7267) Civic Natural Gas, the only such vehicle that’s widely available in the U.S., gets 220 to 250 miles per tank, versus about 400 miles for the gasoline version.

Still, there are signs of adoption. Chrysler says orders for Ram trucks that can run on both conventional gasoline and compressed natural gas exceeded the company’s expectations before production starts in October.

“Natural gas doesn’t have the sexy allure of hybrid and electric cars,” said Gian Primo Quagliano, president of Promotor, an automotive research group in Bologna. “But at the end of the day, it’s often the more convenient solution” to lower emissions.

To contact the reporters on this story: Tommaso Ebhardt in Milan at tebhardt@bloomberg.net; Craig Trudell in Southfield, Michigan at ctrudell1@bloomberg.net

To contact the editors responsible for this story: Chad Thomas at cthomas16@bloomberg.net; Jamie Butters at jbutters@bloomberg.net


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