Nissan Motor Co., Ltd will launch ethanol-fueled pickup trucks in South America before the end of March 2008. Andy Palmer, vice president of Nissan's commercial vehicle division, said in an interview with Nikkei Business that the Japanese automaker will introduce in Brazil and Argentina new vehicles with an innovative engine that the company developed on its own.

Brazil is the world's largest producer of fuel ethanol made from sugarcane and other crops. Aiming to reduce carbon-dioxide emissions and oil consumption, the country has established a regulation requiring oil companies to add ethanol (totaling more than 22 percent) to all gasoline.


However, the automakers producing the vehicles fueled by gasoline supplemented with ethanol should take necessary measures to prevent the engines and exhaust systems of the vehicles from deteriorating. This must be done in proportion to the amount of ethanol added to the gasoline.

Since 2003, General Motors Corp (GM) and Ford Motor Co of the United States, Volkswagen of Germany and other automakers have been selling “flex-fuel” vehicles, which are designed to run on gasoline containing any amount of ethanol. The automakers’ cumulative shipments of the flex-fuel vehicles topped 1.3 million units at the end of 2005.

Flex-fuel vehicles gain popularity due to environmental-friendliness and economic advantages

Among Japanese automakers, Honda Motor Co., Ltd plans to release flex-fuel sedans in Brazil by the end of this year. Also, Toyota Motor Corp has almost completed the development of a similar engine for flex-fuel vehicles.

Toyota vice president Kazuo Okamoto said that Toyota will decide on the release date of its flex-fuel vehicles, in consideration of the sales growth of such automobiles in the country.

Now that Nissan has decided to launch new vehicles with the flex-fuel engine in Brazil, flex-fuel vehicles made by each of the three major Japanese automakers will be sold in Brazil.

The total sales of automobiles in Brazil for 2005 reached about 1.7 million units, and thus the Brazilian automobile market was around the world’s tenth largest.

In addition to the preferential tax treatment provided to the purchasers of the flex-fuel vehicles, the price of fuel ethanol is about 40% lower than that of gasoline. This is why the flex-fuel vehicles are rapidly gaining in popularity in Brazil.

Since November 2005, flex-fuel vehicles have accounted for about 70% of new vehicles in the country. The surge in the sales of the flex-fuel vehicles in Brazil has encouraged Japanese automakers to strive to catch up with their rivals.

However, Brazil is not the only target country for the Japanese automakers. Recently, ethanol-fueled vehicles have begun attracting increasing attention in the United States as well.

In January, U.S. President George W. Bush declared the policy of a “departure from the dependence on oil,” and announced a plan to promote research on ethanol in the United States. In February, General Motors and Ford announced plans to nearly double their combined annual production of E85-compatible vehicles to 650,000 units. E85 is a type of fuel made of 85-percent ethanol and 15-percent gasoline.

Some strong political motives appear to underlie this movement. With the off-year election drawing near, the Bush administration seeks to call for a change in the current U.S. energy policy in which the U.S. economy depends heavily on oil from the Middle East.

Various politicians from Midwestern states also are actively supporting the development of ethanol-fueled vehicles. If the output of such vehicles increases, the demand for crops used for making ethanol will expand. As a result, the agriculture in their states will be promoted, and the politicians will likely win more votes from the local farmers in the off-year election. At least this is the scenario they envision.

On the other hand, GM and Ford, which are lagging behind their rivals in the development of hybrid technology, aim to catch up and even advance ahead of their competitors in the field of ethanol-fueled vehicles.

Under the slogan of “environmental consciousness,” the politicians and the automobile industry share the same overall interest.

According to Brent Dewar, GM North America vice president in charge of marketing and advertising, the price of a flex-fuel vehicle is almost the same as that of an ordinary vehicle. If demand for the flex-fuel vehicle expands rapidly, building a suitable infrastructure will be accelerated, he said.

Because the prices of flex-fuel vehicles are not as high as those of hybrid vehicles, the U.S. automobile companies see the flex-fuel vehicles as a potentially strong means to compete effectively with Toyota and Honda. In cooperation with major oil companies, GM plans to boost the number of fuel-ethanol-compatible gas stations in the United States by 20 times, to 12,000 sites within a few years.

Means to compete with hybrid vehicles in U.S.

Which vehicle will become a mainstream type in the U.S. automobile market, ethanol-fueled vehicles or hybrid vehicles, depends largely on the measures the U.S. government takes to support or even protect the country’s automobile industry.

For this reason, the Japanese automakers are closely watching various moves involving the ethanol-fueled vehicles in the U.S. market. Currently, nearly all of the four million units of the E85-compatible vehicles running on U.S. roads were made by GM and Ford. If the U.S. government gives favorable treatment to the E85-compatible vehicles alone, Detroit would become the sole beneficiary of the preferential treatment.

An executive of Toyota Motor North America, Inc said that Toyota is carefully watching whether the U.S. government will take protectionist measures, such as the establishment of regulations favoring ethanol-fueled vehicles. Should this occur, more automobile-related friction may be seen between Japan and the United States, yet it would be quite different from previous cases, he noted.

With the deterioration of the business situations at GM and Ford, the U.S. government seems to be trying to indirectly hold the Japanese automakers’ moves in check by shifting its policy emphasis to promote the ethanol-fueled vehicles.

The competition among the Japanese and the U.S. automakers over the ethanol-fueled vehicle originally started in Brazil and appears to be spreading to North America.