Barriers to growth for the US autogas market

October 7, 2015 By    
Photo: Propane Education & Research Council

Photo: Propane Education & Research Council

Eyes drooping. Heads nodding. Bodies slumping.

Based on the body language of propane retailers in the room, the messages about propane autogas weren’t resonating.
It’s a scene Mike Walters recalls from a presentation he gave at a trade show a couple of years ago, and retailers’ reactions weren’t consistent with what the industry was saying about autogas.

“All these [other] presentations are about why autogas is the best thing since sliced bread,” says Walters, the vice president of safety and training at Superior Energy Systems.

Don’t get Walters wrong; he’s an autogas proponent. The key reasons autogas should be the alternative fuel of choice – it’s clean burning, cost-effective and domestically produced – are valid, he says.

But even the retailers who aren’t involved in autogas know propane’s advantages as a motor fuel. They’ve heard or read about autogas success stories, and they’ve seen the market climb over the years to its current state.

Still, despite the progress, many retailers have not incorporated autogas into their businesses. Walters wonders what’s holding them back. It’s a question for which he sought answers as a presenter at this year’s Midwest Propane Gas Convention & Trade Show in Columbus, Ohio.

“I said to the group that if you subscribe to what PERC (the Propane Education & Research Council) is telling you, there’s a 1 to 1.5 percent erosion in domestic and commercial markets annually because of reasons like conservation, more efficient appliances, natural gas expansion and the fact that some people can’t afford it,” Walters says. “If you subscribe to that, when do all of those factors become significant to you?”

Those factors and others are adversely affecting gallon sales at retail businesses across the United States. But what are retailers doing to combat the decline?

They could be marketing propane autogas, Walters argues.

“With all due respect to the people asking questions like when is PERC going to do this or that for autogas, I submit to you that they already have,” he says. “All the tools are out there.”

So what’s really holding retailers back if the marketing tools are in place and the technology is certified and sound? What are the barriers preventing retailers from capitalizing on autogas like some have? What exactly do retailers fear?

Retailer resistance

Walters injected the notion of “fear” into his Midwest Convention presentation.

“Fear isn’t necessarily fear of the product or of a catastrophic event,” he says. “Fear is fear of the longevity, fear of a vehicle running out of gas.”

Nearly two full pages of fears were scribbled on butcher paper by the end of Walters’ presentation. The fear that stood out most to Walters? Developing relationships with potential buyers and sales partners.

“The conclusion was if you want to be in the autogas game, it’s about developing relationships,” he says. “You may be talking to the fleet manager, but he’s not the guy who makes the buying decision. Who do you think is the person who makes the buying decision at the school district? It’s the school board. Or, if it’s a municipality, it’s the town council.”

Stuart Weidie agrees relationship building is central to achieving success in the autogas market. But Weidie, the president of Alliance AutoGas, Blossman Gas’ autogas fueling and vehicle network, says autogas relationships retailers foster are unlike the ones they traditionally establish with residential, commercial and industrial customers.

Autogas sales simply aren’t transactional in nature, Weidie says.

“If somebody wants to set up gas logs or a fireplace, you get the logs, install the tank, run the gas line and it’s over,” he says. “In [autogas’] case, we have very long sales cycles; ongoing maintenance on refueling equipment; and you have to assure the vehicles are attended to.”

Providing the fuel is the easiest part of the equation, according to Weidie. To him, fuel supply is one of five areas that must be addressed to bring an autogas account to life. The other imperatives: having access to quality vehicle technology; installing the technology properly; providing refueling infrastructure that’s easy to use and durable; and having a means to keep vehicles on the road or access to a local service provider that can offer ongoing support.

These four areas are generally outside the purview of most propane retailers, who can more easily sell within traditional markets because fuel needs are firmly established. Autogas isn’t an easy sell because gasoline and diesel are entrenched in the motor fuels market.

So, the challenge retailers face in convincing potential buyers to convert is great.

Some potential buyers can be convinced of autogas’ merits, but the road to the sale is long. Some retailers are unwilling to commit the time to build in-roads with potential buyers and sales partners – providers of vehicles, vehicle systems and related infrastructure – who are essential to the autogas sales equation.

“[Some retailers] are comfortable making a good living and don’t feel the need to grow their business because one of the great benefits of our industry is you don’t have to go out and create a new customer every day,” Weidie says. “You have residual value in customers because you can sell gas to them year after year. But at the same time, that’s a bit of a curse for the industry because it creates some complacency.”

The industry’s future is dependent on growth markets, Weidie adds. A study from market research firm ICF International calls for 4.2 percent less demand in the residential market between 2014 and 2020.

Still, the firm forecasts 5.7 percent more propane demand overall during that period. The engine fuel markets, which ICF International forecasts to grow at a 58.7 percent rate over those years, are anticipated to drive the overall growth.

Likewise, ICF International forecasts annual propane vehicle sales to rise from about 13,000 last year to more than 30,000 in 2020.

“The health of the industry is dependent on more marketers going out and growing their business, developing the commercial side, developing new markets such as lawn mowers and autogas,” Weidie says. “[Autogas] is just one means, one market to create some growth.”

Partner up

The retailer hesitation Weidie used to hear about autogas was that a propane motor fuels market would threaten supply for other propane markets.

“That fear, which I used to hear five to seven years ago, is no longer valid,” he says.

Now, Weidie hears another hesitation among retailers: They simply don’t know how to get started.

Walters continuously hears this hesitation, as well. He says a willingness to change is a good starting point to venture into autogas.

“We resist the word ‘change’ so much in the United States, but change is how we evolve,” Walters says. “It’s a tough thing to get past.”

Retailers don’t have to embrace change alone, though. Autogas system and equipment providers say they’re willing to partner with retailers as they pursue fleet vehicle and school bus sales. Retailers are an obvious starting point to a sale, though, because they’re connected to the communities and businesses within their sales area.

“We really need all those marketers out there to get the conversation started in their community,” says Todd Mouw, vice president of sales and marketing at Roush CleanTech, an alternative fuel systems provider. “If we can get that ball rolling, then we can go in and help bring [the sale] home.”

According to Ryan Zic, a regional alternative fuel manager for school bus manufacturer Blue Bird, successful propane retailers typically dedicate an employee or team to develop the autogas market for their company.

“These are guys who understand autogas better than anybody else, which gives them a competitive advantage in the marketplace,” Zic says. “They understand the dispensers you need to fill the buses, differential pressures and things like that. They understand fleets and fleet needs. They also have a good understanding of the opportunity that’s there.”

A retail business’ size shouldn’t restrict its ability to enter the marketplace, either. Michael Taylor, PERC’s autogas business development director, says retailers big and small are currently involved.

“All interested marketers can participate in it and succeed,” Taylor says. “Unlike the residential or commercial markets, this requires a bit more handholding. You really have to get to know these customers, because they will shop around.”
Retailers also shy away because of the upfront capital equipment costs involved, says John Foster, president of Blue Flame Propane in Richmond, Mich.

Blue Flame Propane encountered some of these costs upon finalizing a 35-school bus order and related infrastructure this summer for the Detroit Public Schools and its school bus provider, ABC Student Transportation. Foster doesn’t expect to see a return on the company’s investment overnight, but the opportunity to serve a customer like ABC Student Transportation – one with more than 100 buses to potentially convert – is attractive.

“We’re banking on the success of the technology and on this fleet becoming a 150- to 200-bus fleet,” Foster says.

Such accounts present big gallon sales opportunities but, as Walters says, retailers should first educate themselves before venturing down a road with potential autogas customers to whom they can’t deliver answers.

“If you go to the table with a fleet and you don’t know anything about infrastructure or about the conversions themselves – whether it’s vapor injection or liquid injection – you’re not going to be successful,” he says. “Yes, you can answer questions about the fuel supply because that’s what you do. But if you aren’t able to take it all the way, you have to form relationships with the right people to help you get through it.”

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About the Author:

Kevin Yanik was a senior editor at LP Gas Magazine.

1 Comment on "Barriers to growth for the US autogas market"

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  1. Steve Newman says:

    Kevin, well written article and I enjoyed it.

    Working for Georgia Gas Distributors I am technically a propane sales person, so that’s it, right … just tell potential customers AutoGas is great and start making huge profits!

    Far from it.

    I have had to read every detail in CARB/EPA regulation changes, benefits of Clean Cities programs, Federal rebates/incentives and work with the Georgia Department of Natural Resources. I work with Georgia Public Service Commissioner Tim Echols office to understand what we are promoting as an industry to the general public, how do we promote without stepping on each others reputation? You have to understand AFV-DMV requirements for AFV tags, become a system expert – install systems, diagnose any issues and ensure we use only the best in propane AutoGas fueling systems available. If the propane industry does not make this easy and convenient, we will fail as a whole. The propane provider must be the one-stop expert as we interact with the customer most.

    All of these items require relationships and at this point I have not even dealt with the customer. Now we have to prospect, get a hold of the company president or senior VP’s and get their “buy-in,” this is not as easy as it sounds.

    We are not selling to a warehouse manager, we are selling to corporate people with years of experience and masters-level education – they can read you like a book if you are not an educated expert. Granted the vehicle system supplier could be making the call… but are these individuals experts at ensuring the propane company installs a filtered top-quality refuel site? Does this sound difficult? It is behind the door, but to the customer it must be seamless – or we will fail.

    We also overcome barriers in a sales cycle that can last 2 years, all while our puppet-masters say, “have you not sold anything yet?” The reality is we are overcoming objections every step of the way. Technology has changed for AutoGas – no different than cell phones. What did a cell phone do 10 years ago compared to today? This propane AutoGas world is viral and changes every day like the cell phone world has. Propane companies that evolve and understand this will do well to promote our brand and I am lucky to work for such a company. Speaking of cell phones, we are not selling just a commodity like a phone, we are selling a concept and application – a philosophy if you will.

    Customers must be educated and willing, it is our job to provide this education and promote the benefits in order to win their hearts and minds. Propane suppliers have to be patient, we are not filling forklifts – but the life blood of the business – service vehicles. We are negating years of bad systems, corrupt systems and the days of grand-pappy’s carbureted propane system. We are fighting history and making corrections every day. We must ensure we are not “sticking it to the client” and understand that it is a 3 to 5 year contract that is fair, but beneficial to all involved.

    Reliability, service maintenance, and “will I really save money” are my key questions from prospects.

    I say, Yes… If a propane company is not trying to recoup a 20k investment in an AutoGas refuel site in a year. Yes… If the propane sales person really understands the system and platform, have they at least watched an installation – let alone done an installation themselves? How can you sell if you don’t understand the system? Yes, If they have partners via dealerships and manufacturer support. Without this – are you a forklift propane sales person attempting to be an AutoGas expert. Where are you when things go wrong? Can you explain Flex-Fuel to propane system corrections are we are using O2 sensors designed to read gasoline fuel trims, not propane! Now we need to know even more about overcoming technical complications.

    But am I not just a propane sales person looking to make money? The answer is no.

    I blame the propane companies as much as I do ignorance of the corporate customer, we have failed to build AutoGas experts – Meaning vehicle experts/AFV system experts, and propane system experts. It is a triad of understanding that will build the right AutoGas sales person. Through sustained propane sales and customer conversion to AutoGas, the profits will come! But our industry attempts to underpay a propane salesman and expect expert level sales representatives. This industry will grow when we realize that the starting point is a representative that can answer and respond to any objection, not “let me ask the system guy or I am not sure.” And… provide fair and consistent pricing that make propane very attractive to operating on gasoline.

    I have been forced to become an Isuzu-NPR expert – as if I was selling the vehicle to a customer. I have had to understand Campbell-Parnell systems as if I was selling direct to the client. I have had to sell propane AutoGas understanding that it is a multi-inclusive concept, I am the “face” for client retention. Isuzu is not the propane or system expert, Campbell-Parnell (system supplier) is not the propane expert, but the propane person – well… he/she better know it all. When you can achieve this by building Propane AutoGas experts – we all win!

    If it’s not convenient to the customer… AutoGas will fail.