Friday, June 30, 2006

Hybrid Setback

Ever since Toyota introduced the Prius in the late 1990s, gasoline-electric hybrid cars have been the benchmark technology for improving the fuel efficiency of internal combustion engine cars, at least in the US market. All major carmakers now offer hybrid models, or will introduce them shortly. Ford made headlines last year when it announced it would build 250,000 hybrids per year by the end of the decade, and they have just made headlines again by retracting that pledge. I'm not sure this is as bad for hybrids and automobile fuel efficiency as it may seem, but that depends largely on what actual steps follow this announcement.

The problem seems to be low sales for hybrid models other than the Prius. With a Ford Escape Hybrid (small SUV, 4WD) carrying a sticker price of $27,845, roughly $3,000 over the comparably equipped 6-cylinder gas model, it would take nearly 7 years for the hybrid's 8 mpg gas mileage improvement to pay out, on an undiscounted basis and ignoring tax credits. That's a tough sell, even with gasoline prices around $3.00/gallon. The Washington Post article linked above cites a JD Power survey indicating hybrids account for only 1% of all US car sales today.

So does it mean anything that Ford has backed off their earlier estimate of how many hybrids they'd sell? If they cancel plans to add hybrid options on future models, then the answer is clearly yes. And if, as they Post suggests, they shift their emphasis to flexible-fuel models, then not only will the growth of hybrids be compromised, but the whole push for reducing petroleum product consumption through quantum-leap technology. That doesn't mean that better transmissions, direct injection and other less costly fixes won't eke out a few more mpg, but these could easily be overwhelmed by persistent consumer preferences for larger, faster, heavier vehicles. The only other technology we can be deploy today that yields fuel savings in the class of hybrids is the diesel.

It's too early to write off hybrids, just as it's too early to conclude they will be the ultimate winner in the brisk competition to determine what will be under the hood of the average car in 2020. The next generation of hybrids is likely to be cheaper and may include the much-touted "plug-in" feature that would allow limited all-electric usage, with zero gasoline consumption. Or consumers may suddenly decide that the trendsetters who've been buying hybrids for the last several years are the folks to emulate, rather than those who've been buying ever-larger SUVs. But Ford's move at least dims the prospects that the next big trend in US cars will be led by a US auto maker.

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