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Hybrid Car Demand Climbing December 2004As gas prices soared over $2 a gallon this year and politicians paid lip service to increased fuel efficiency, the auto industry was left playing catch-up when demand ballooned for hybrid cars that operate on a combination of gas and electricity. But despite a spike in hybrid sales, the market could have a limited impact on the overall auto industry in the near term.Toyota, the U.S. industry leader in production and sales of hybrid cars, has pledged to double production next year to satisfy a market that's created a six- to eight-month waiting list for its Prius hybrid. The company has sold about 250,000 of the compact and midsize Prius and hopes to produce about 100,000 next year for sale in the United States. Honda, which already offers a hybrid version of the Honda Civic, will roll out a hybrid midsize Accord, and Ford began selling the hybrid Escape SUV in September. Other automakers are behind the curve. Nissan has announced a plan to produce a hybrid by 2006, and General Motors will market a hybrid in 2007. By all indications, the demand has grown more quickly than the industry anticipated. "It's fair to say that we were really surprised by the consumer response, that the market really took us by surprise," said Toyota spokesman Joe Tetherow. "But we're taking steps to meet that demand." A backup in parts and production for the new hybrid models led to some of the delays, but the slow industry response to the demand may indicate a cautiousness about the market potential for hybrids. It remains a relatively small slice of the market. About 100,000 hybrids will sell in the United States this year, less than 1 percent of the country's 17 million new vehicles sold. "They're really not selling that many hybrids in the grand scheme of things," said Morgan Stanley auto analyst Stephen Girsky. Rising Gas Prices The rise in gas prices undoubtedly heightened awareness of hybrid cars among consumers looking for ways to save money. But Girsky noted that hybrid technology comes at a price, and there may not yet be a compelling economic reason to pay up for a hybrid. Toyota's Tetherow estimated that the Prius sells for about $4,000 to $5,000 more than the similar-sized Toyota Corolla, and Girsky determined the Honda's Civic Hybrid sells at a $3,500 premium to the standard Civic EX. That's a price gap that would be tough to make up even if gas prices linger at or above $2 per gallon. "If you buy a hybrid now, you'd have to drive it for about nine years to cover the price disparity with a savings on gas. The people who are buying them aren't buying them to save money," he said. Instead, today's hybrid customer is more likely an environmentally conscious consumer drawn to the lower emissions or a technophile excited by the technology of the hybrid, Girsky said. A Morgan Stanley research study showed the average annual income of a hybrid buyer is near $100,000, outpacing the typical buyer of a compact car by more than $30,000. And hybrid buyers are nearly twice as likely to have a college degree, which suggests current hybrid owners are not necessarily a good indicator of market-wide acceptance and interest in hybrid cars. Where is the Savings? The Prius and the Civic Hybrid are alternatives to the Corolla and the standard Civic, both of which already get relatively good gas mileage. This makes it difficult for driver to recover the price premium. Ford's Escape, on the other hand, has a slightly smaller premium. Girsky's research determined the Ford Escape Hybrid offers a fuel economy savings of 27 percent to 32 percent and sells at just $2,500 to $3,000 more than the standard Escape. And marketers believe the strong demand for SUVs will make the hybrid SUV a quick seller. "Getting the premium back can be just as easily tied to what you get out of the car, and right now size is really related to the premium," said Bryan Olson, Ford's marketing manager for the Escape hybrid. "The small SUV segment is growing faster than any other segment, and right now we know there's a huge demand." Toyota is aiming to produce hybrid versions of the luxury Lexus RX SUV and the Toyota Highlander early next year. The Rise of Competition For its part, Toyota believes the hybrid market will remain steady beyond the first round of customers, which the industry refers to as "early adopters" The company believes that ramped-up production will eventually drive prices lower and lessen the impact of the price premium. "It's obviously a product and a technology that people are buying. Any good car dealer or manufacturer is going to respond to consumer interest," Tetherow said. Toyota's long-term goal is to offer a hybrid drive-train in all of its vehicles. Tetherow pointed to the hybrid plans of competitors as evidence that the market will continue expanding. "A lot of people are developing hybrids and everybody else is going to catch up at some point," he said. "At startup it was sort of a niche product that was environmentally conscious. But people are buying it, and it's becoming more of a core product." Hybrids will no doubt become more common and more available. Automakers have shown a commitment to developing the technology and offering consumers more choices, and the increased competition will likely pressure prices lower. But the depth of the market is yet to be determined. The current price disparity could drive some customers away once the initial wave of early adopters has purchased a hybrid. So will more choices and falling prices allow the hybrid to compete with standard mass-marketed vehicles? "There will be some changes, and the premium will come down," said Morgan Stanley's Girsky. "But is the hybrid going to become a mass market product? I think the jury is still out." SOURCE: ABC News | ||
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