Wednesday, April 08, 2009

Hybrid Choices

Having just returned from a brief family vacation, I spent much of the last few days driving. That afforded much time to ponder the mix of cars on our roads and the product-line choices the administration may soon be imposing as it attempts to restructure the ailing US auto industry. The conventional wisdom appears to favor building lots of hybrids, though that leaves open the question of which vehicles or vehicle types to hybridize first. It also ignores the potential of clean diesels, for which there is already more than adequate refueling infrastructure. In any case, I hope the government avoids the trap of focusing the industry's hybrid efforts mainly on small cars. That's not just because sales of small cars are suffering under current low fuel prices, but because the potential to save fuel in larger cars is much greater. Our national energy goal ought not to be hybridizing cars, but saving as much imported petroleum as possible. That means putting hybrid and other advanced powertrains where they'll do the most good.

I was surprised by the number of questions I received from friends about hybrids on this trip, including one couple who asked whether they should buy a Prius. Although hybrids' share of US car sales remains quite low, their "share of mind" appears to be much higher than those figures would suggest. However, unless the administration intends to impose high enough taxes on gasoline to drive consumers towards hybrids and smaller cars, hybrid economics look shaky at $2 gasoline, particularly for those models for which the tax credits have already phased out. Although I continue to believe that oil prices will rebound strongly once the economy recovers, I would sympathize with a consumer who is worried that the $8,000 premium for the 2010 Ford Fusion Hybrid over a base-model Fusion (or $3,300 over the best-equipped non-hybrid four-cylinder Fusion) appears hard to justify, even after the $1,700 federal tax credit now available. After all, the base Fusion is hardly a gas hog, at 20 city/28 highway. As appealing as the hybrid seems, typical annual fuel savings would be around 200 gallons--less if you do a lot of highway driving. That's pretty good, compared to the Toyota Camry Hybrid, which would only save around 130 gallons/year over the non-hybrid 4-cylinder Camry, but it only translates to $33 per month.

If we can't hybridize every car at once--and it's clear we can't and probably shouldn't even try--which ones should get the highest priority, particularly if the government, rather than the market, is calling the shots? The clear answer seems to be intensively-used urban vehicles such as taxis, delivery vans, and police patrol cars. If hybrid economics look shaky for the next few years, go where those economics look strongest, even with low fuel prices. Take that same Camry Hybrid or its Detroit counterpart and put it into taxi service, driving 20,000 miles or more per year, all in the city, and the fuel savings expand to nearly 600 gallons. Even at $2/gal, the hybrid model would pay out its higher cost in less than 6 years, and that would drop to less than 4 years with gas at $3, or 3 years at $4. Similar calculations apply to clean diesels. Although their fuel savings are somewhat lower than for hybrids, even with diesel fuel and gasoline again close to price parity, the up-front premium is also typically lower.

Targeting light-duty and heavy-duty urban vehicles would provide additional benefits, both for air quality and vehicle performance. Hybrids emit less pollution and most give at least a few miles of electric-only driving with zero local emissions. You also need a much bigger gasoline engine--with even higher fuel consumption--to deliver the same torque as an electric motor or a diesel. If the administration intends to dictate the future product mix to car companies that accept government assistance, it should base its choices on tangible benefits such as these, not just on a vague preference for "green".

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