Hybrids Stake Claims

Volatile gas pump prices, a dicey Middle East oil situation and environmental concerns are fueling new interest in hybrid-electric vehicles (HEVs) in the U.S. marketplace.

Spiking gas prices, at nearly $3 per gallon in April, are primarily affecting HEV sales at the lower end of the market, but not in luxury, near-luxury or small SUV segments, auto experts say.

In their early intro years (1999-2002), the HEVs, namely Toyota Prius and Honda Insight, were dismissed as regional triumphs, led by California's environment-conscious buyers and early adopters, namely tech lovers who embrace new innovations.

But a new hybrid trend is emerging: Popularity of the fuel-efficient wonders is spreading to Eastern states and toward the nation's center as consumers add “patriotic” to their reasons for going hybrid.

Automotive experts believe the overall HEV market is poised for greater growth as models proliferate and consumers gain confidence in them.

Currently, the West Coast (California, Washington and Oregon) reports about 32% of hybrid registrations from R.L. Polk & Co., which collects and analyzes automotive data.

Dealer marketing associations show a new picture emerging.

Hybrid sales are up in regions such as Boston-Manchester, Chicago, New York, Philadelphia, Denver, Atlanta and Minneapolis-St. Paul, says Celeste Migliore, national manager, advanced technology vehicles, Toyota Motor Sales USA. Toyota dominates the U.S. hybrid market by 71%, she says.

“We have not seen any regions decline anywhere; it's still growing year-over-year, with the very bottom contributing to the growth curve,” adds Lonnie Miller, director-industry analysis at Polk.

Miller says growing consumer trust in hybrid technology, a proven reputation and a proliferation of models are spurring sales. Consumers see that “trust in technology is a process, and it works,” Miller says.

Currently, there are 11 U.S. hybrid models, but that number is expected to jump to at least 20 by 2007 and to 35 by 2011, according to forecasts.

“Hybrids are becoming quasi-mainstream. If you have another year like 2005, and another 3-4 models across all segments, they become more legitimate in consumers' eyes. Once you hit 5% (market share), the criteria changes,” Miller says.

Spiking gas prices so far have not caused a critical-mass shift to HEVs.

Pump prices would have to hit $4 per gallon and stay there for a year to measurably change buying habits, says Tom Libby, director-industry analysis, Power Information Network, a division of J.D Power and Co.

If fuel prices hit $5 a gallon, “there'd be a revolution,” predicts James Boyd, a member of the California Energy Commission.

Hybrids represented only 1.2% of total vehicle sales in 2004. But that's expected to double again in 2005 and 2006.

Hybrid sales nearly have doubled every year since the two-seater Honda Insight debuted in the U.S. market in late 1999, selling only 51 units in 2000. Last year, about 205,828 HEVs were sold in the U.S., according to Ward's data.

“It's very likely we could get another 100% increase (in 2006) and then taper down a little,” Miller says. He doesn't think he's out on a limb predicting “90%-110% hybrid sales growth,” in 2006.

Toyota plans to get even more competitive in the HEV arena. The 2007 Camry Hybrid, which became available in May, signals the automaker will go more mainstream; Camry has been America's best-seller for eight of nine years, topped only by Honda Accord in 2001.

Toyota Prius led the way with 107,897 cars sold for the year. The next most popular hybrid, Honda's Civic Hybrid, sold nearly 25,868 units.

Overall, hybrids represented 6.2% of Toyota's total vehicle sales in March; 2.2% of Honda's and 0.5% of Ford's.

Like chief rival Honda, Toyota is hampered by production constraints of its popular models built solely in Japan's Toyota City.

Dealer shortages

Toyota says it plans to start shipping more hybrids to U.S. dealers, answering complaints of dealer shortages and slipping Prius sales.

Toyota dealers generally have waiting lists of four-to-six months, while Honda waits are about three months for primarily the Civic Hybrid, which Honda took mainstream in 2003.

Like other dealerships, Toyota of Hollywood (CA), the nation's highest-volume hybrid dealer, is strapped for product. The store sells to many celebrities, who have helped push HEV popularity.

“From superstar actors to grocery clerks, they want to say they drive a hybrid,” says Chris Abrahms, Toyota of Hollywood's general sales manager.

These buyers are making a statement they're concerned about the environment, and related energy crisis, he says.

Critics suggest the HEVs are overpriced, and that hurts sales.

Abrahms believes they still offer superb value.

“The average vehicle sells for about $18,000 today,” he says. “For $23,000-$28,000 on hybrids, people forget you get the greatest technology in the world, safety and a quiet ride. You also get gas savings, a tax credit — and you're doing the right thing for the environment.”

High-volume Scott Robinson Honda dealership in Torrance, CA, won't sell hybrids above the manufacturers' suggested retail price, even though dealerships could hike prices — especially in hot-selling regions.

“We sell every Honda hybrid that comes in. We choose to sell at MSRP because we want to take good care of the customer,” says Jim Maxwell, general sales manager of the dealership, which has experienced inventory constraints.

“We're selling all of them as fast as possible. People are flocking to us,” he says.

Particularly popular is the redesigned 2006 Civic, he says.

Even in Michigan, the domestic heartland, Honda dealers complain of hybrid shortages. Bloomfield Honda in West Bloomfield Hills, has a two- to three-month waiting list. Most HEVs are pre-sold; and dealer trades are rare with them, managers say.

“Give us more,” Bob Straub, Bloomfield Honda's Internet sales manager, urges Honda. “When we've got them (in stock), we can sell as many as you give us.”

Ford Escape and Mercury Mariner HEVs are slower to move because they are more costly, according to some dealers.

“When you compare them to the non-hybrid Escape at $18,000-to-$19,000, the hybrid (Escape) is at about $30,585. They're not cheap enough yet,” says Jim Ahmadpour, sales manager of Worthington Ford, Long Beach, CA.

Prices need to come down, and the factory needs to incentivize the hybrids to move them, he says. He expects year-end sales at the all Ford store in the summer clearance months.

Ward's U.S. Hybrid Light Vehicle Sales