The Determinants of Demand for Hybrid Cars

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The Determinants of Demand for Hybrid Cars

• Shad Ahmed
• Mark Baldwin
• Kelly Fogarty
• Michael Kendra

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Overview

• Objectives
• Hypotheses / Variable Examined
• Software
• Approach
• Model
• Variables
• Statistics
• Results
• Policy Implications

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Objectives

• To develop an econometric model and analyze
  historical data sets to determine which variables
  explains what factors drive the demand for hybrid
  vehicles in order to confirm or deny public
  speculation.
• To maximize the statistical significance of the
  model in order to provide forecasters with a
  working model that can be used to make
  predictions about future demand for hybrid cars.
• To provide the environmentally conscience public,
  automobile industry, and law makers a foundation
  upon which to make policy decisions based on
  objective reasoning.
• To provide a solid foundational model upon which
  future research projects can build on.

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Hypotheses

• H1 The demand for hybrid cars is explained by
  gas prices.
• H2 The demand for hybrid cars is explained by
  the Producers Price Index for automobiles.
• H3 The demand for hybrid cars is explained by
  the personal consumption on expenditures for
  automobiles by the US population

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Variables examinedDependent variable Demand
for hybrid vehicles

• Economic Indicators
• PPI for motor vehicles
• Personal consumption on motor vehicles
• Bank loan rate
• Consumer credit outstanding
• Unemployment rate

• Energy Indicators
• Price of gasoline
• Barrels of gasoline consumed
• Total energy consumption of US population

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Variable Identification and Definition

• Variable Type Hypothesized Sign
• Demand for Hybrid Cars Dep
• PPI for motor vehicles End Neg
• Personal consumption on End Pos
• motor vehicles
• Bank loan rate Exo Neg
• Consumer credit outstanding Exo Pos
• Unemployment rate Exo Neg
• Price of gasoline End Pos
• Barrels of gasoline consumed End Pos
• Total energy consumption of End Pos
• US population

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Software

• WinORSfx was used to develop the model.
• Availability of Economic data from Economagic
• Extensive ability to determine statistical
  significance.

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Approach

• Monthly data sets were used from 2004 2007.
• Stepwise regression was run to determine which
  variables to eliminate from the model.
• Remaining variables were examined for
  practicality.
• Ordinary Least Square method was used to test the
  remaining variables for multicollinearity,
  homoscedasticity, explainability, and serial
  correlation.
• First Difference was run to attempt to eliminate
  serial correlation.
• A final model was assembled.

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Determinants Model

• Qx -167376 758P 163.20Pgas .104C
• Qx Demand for hybrid vehicles
• P PPI for automobiles
• Pgas Price of gasoline
• C Personal consumption of automobiles

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Predictive Ability of Model
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F-statistic

• The P-value 0.00001 is significantly below the
  critical value, 0.05
• The model is statistically significant above the
  95 confidence interval
• F value 44.63
• P value 0.00001

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Coefficient of Determination

• Demonstrates that a high degree of variability in
  hybrid sales can be explained by variation in the
  independent variables
• Root MSE 3489.600
• SSQ(Res) 426205816.031
• Dep.Mean 15818.923
• Coef of Var (CV) 22.060
• Multiple R 89.038
• R-Squared 79.278
• Adj R-Squared 77.502

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Multicollinearity

• No evidence of multicollinearity is present in
  the model (VIFlt10)
• Average VIF 1.037

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Parameter VIFs

• Variable VIF
• Price of gasoline 1.040
• PPI of automobiles 1.053
• Personal consumption on 1.018
• Automobiles

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Constant Variance

• Whites Test shows that the model is
  homoskedastistic
• Whites Test 8.32
• P-Value for Whites .502

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Constant Variance Graph
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Auto Correlation

• Durbin Watson test shows evidence of Auto
  Correlation
• Ho Rho 0
• Rho Pos Neg Reject
• Rho Positive Do Not Reject
• Rho Negative Reject
• First difference solution attempted resulted in
  a new R-squared value of .277

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Normality of Error Terms
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Elasticities

• Variable Parameter Estimate
• Price of gasoline 2.89
• PPI of automobiles 8.38
• Personal consumption on 3.87
• Automobiles

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Elasticity Implications

• Income elasticity
• Hybrids are a luxury item
• Elasticity is gt1
• As income increases, Qx increases
• Cross price elasticity
• Gasoline and other automobiles are substitutes
• Elasticity is gt1
• As prices of gasoline and other autos increases,
  Qx increases