GM giving NGVs a go in the fleet market

The BP oil spill, rising gasoline prices in recent years and global terrorism are causing American political leaders to seek out alternative sources of energy and to create a more energy independent nation. One of the potential sources of alternative energy for automobiles seems to be natural gas. In fact, GM will roll out two vehicles for 2011 powered by natural gas.


The question is, is that a good bet?

Car buyers do like the idea of electric and hybrid cars, but not their limitations such as range, and high up front costs. Natural gas vehicles, or NGVs can be even more expensive up front. Plus, there aren’t very many fueling centers for natural gas, so it will take time to support any possible growth.

“It’s a chicken-and-egg thing,” Hill explained. “If there were a lot of delivery points, [automakers] would make the vehicles. And fuel providers say that if there were more vehicles, they would provide the fuel. You probably needed some sort of government intervention to subsidize more fuel stations.”

Perhaps GM is testing the market. If the automaker can create a demand for natural gas vehicles then perhaps more service stations will begin offering natural gas filling centers. Then, if more service stations begin providing natural gas more automakers will start making these vehicles to fill the demand. Or, maybe it’s all just a pipe dream.

But you do have to hand it to GM for making the move. For decades, automakers have been fixated on body style design and technological innovations. This is a welcome change.

There are two ways to pump up demand for natural gas vehicles and cars powered by other alternative energy sources. One is a free market solution and the other involves government grants, or investments.

  1. The free market solution so far has not worked too well. Automakers have been building eco-friendly vehicles for years. Drivers just haven’t been interested in them. One reason is because they are so expensive coming off the floor. But new technologies generally are more expensive until they are widely accepted. Maybe we just haven’t reached the point in the marketplace where consumers are willing to make the commitment.
  2. Government subsidies could open the floodgates to alternative energy. Grants for service stations to add natural gas pumps might create more demand for the vehicles. Or perhaps the federal government could subsidize the building of the vehicles and offer incentives to consumers to purchase and drive natural gas vehicles, which would spark the demand for more fuel.

Whether you are a proponent of supply-side solutions or demand-side injections, one thing is clear: If natural gas is to be the sexy solution that GM is banking on it being then something has to give. The endless tug of war between supply and demand will need to break.

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