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Hybrids and Small Cars Staging a Comeback

Toyota, Ford, DaimlerChrysler Hyundai Ante Up; Sour Grapes from GM

By Joe Benton
ConsumerAffairs.com

April 5, 2007

• Tax Credits On Ford Hybrids Phasing Out • Small Car Market Faces Potentially Large Problems • Ford Plans Car That Parks Itself • Drivers Wanted: Mini Developing Electric Model • GM Invests In Electric Car Engine Plant • GM Increasingly Viewed As "Green" By Online Consumers • Honda Plans New Hybrid for Earth Day 2009 • Hybrid Technology a Presidential Campaign Issue --- • More ...

Hybrids and other small cars are staging a renewed assault on America's shores as consumers come to the realization that high gas prices are here to stay.

New Toyota Priuses are jamming dealer lots as the Japanese automaker's supply catches up with demand but sales are inching up as well, along with the price of gas. Ford, meanwhile, is working on a plug-in hybrid as DaimlerChrysler looks farther down the road with the Smart ForTwo minicar and Hyundai pins its hopes on diesels.

And GM? Out of synch with just about everyone else, it's complaining about proposals to increase fuel mileage.

It's been a long time coming but hybrids and smaller cars are carving out a growing market share.

California and the Washington, D.C. are the two hottest Prius markets in the country and there are ample supplies of the little car available. Hundreds of the cars languish in Washington-area dealerships poised to take advantage of the next sudden rise in gasoline prices.

A Toyota salesman complained to ConsumerAffairs.com that just two years ago there was a waiting list for the car along with a price mark-up that provided the salesman extra income. Now lots are overflowing with the Pius.

The Japanese automaker is actively trying to expand Prius sales despite the vanishing tax credit and sales figures seem to suggest the Toyota marketing plan is beginning to work.

Toyota has linked Prius sales in April to Earth Month and the automaker is actively pushing for higher hybrid vehicle sales in April by placing up to $2,000 in incentives on the car. Toyota offered consumers lease incentives on the Prius in February and March and Prius sales were once again climbing along with gasoline prices.

The large number of Prius sales just in the last two years have whittled away at government tax breaks available to Prius consumers.

So far this year, Toyota has sold 61,635 hybrids in the United States, up 68 percent from the first three months of last year. That includes 28,453 hybrids last month.

"This month marks a milestone eight years in the making," Jim Lentz, executive vice president of Toyota's U.S. division, said in a statement. "Record U.S. sales of Toyota and Lexus hybrids have now topped the half-million mark."

This year, unlike 2006, there are plenty of the hybrids on Toyota lots to go around.

Battery Stymies Ford

Ford executives report that their most difficult challenge in developing a plug-in hybrid is battery technology.

"There is also the problem of infrastructure. When people start driving electric cars, where will the electricity come from? That has to be looked at," said Ford product head David Kuzak.

Unlike current hybrids, plug-in cars could be driven entirely by electric power. But no automaker has a plug-in on the road right now and battery technology is the primary reason.

Automakers are searching for ways to lower the cost of batteries and increase their power and storage capacity.

So Smart

In the land of small cars the Smart Car is still waiting in the wings but consumers looking at the two-seater can reserve a Smart Car production model for a $99 deposit.

The tiny car made by DaimlerChrysler AG already sells in Europe and Canada and is scheduled to arrive in the U.S. market in the first quarter of 2008.

The $99 deposit is refundable and doesn't lock a potential buyer into a particular color or trim level. Potential buyers can make changes to their order and the $99 reservation fee will be factored into the total sum for the car.

Excluding destination fees, tax and costs of added options, the entry-level Smart ForTwo starts under $12,000, the ForTwo coupe is less than $14,000 and the ForTwo Cabriolet is priced under $17,000.

More than 46,000 people have registered on the Smart Car Web site and asked to be updated on an ongoing basis as the vehicle's launch date nears.

Smart USA operates under Roger Penske's United Auto Group and is in the final stages of building a sales network. The company estimates there will be between about 50 to 70 dealers ready to sell Smart cars in the first part of 2008.

Hyundai's Diesel

Hyundai is planning to offer diesel engines across its U.S. lineup of cars and trucks as an alternative to gasoline-electric hybrids.

The Korean automaker thinks diesels make better financial sense for its customers.

"The highest priority on my personal wish list is bringing our diesel technology to the United States, and I'd like to bring that across all of our products," said Steve Wilhite chief operating officer of Hyundai Motor America.

Most automakers are working on diesel models for the U.S. since federal regulators have finalized strict new emission rules. Honda Motor Co. plans to offer a diesel engine to U.S. consumers in 2009.

Hyundai suggests a diesel option will cost about $1,000 and would pay for itself in fuel savings.

Diesels can deliver 40 percent better fuel efficiency than gasoline engines. Hybrids deliver even better mileage gains but cost $2,000 to $3,000 more upfront than standard models.

GM's Beef

General Motors, meanwhile, is charging that the kind of fuel economy increases Congress is considering will cost roughly $6,000 per vehicle.

General Motors Corp. Vice Chairman Bob Lutz offered that warning as a growing number of lawmakers are supporting a demand to make a 4 percent annual increase through 2017 a requirement rather than leaving the final decisions to federal administrators.

Speaking at the New York Auto Show, Lutz said meeting a 4 percent increase would require hybrid systems and other technology on nearly every vehicle and could add between $5,000 and $6,000 to a typical vehicle’s cost.

"You tell me what happens to the market if these cars come out and everybody looks at the one they own and the new one is $6,000 or $7,000 more expensive," Lutz said. "This technology does not come for free."

The Bush administration estimates the 4 percent increase would cost 40 billion but would pay for itself in fuel savings.

Backers of mandated fuel economy increases have pointed to a 2002 study by the National Academy of Sciences that said the industry had the technology to hit a 4 percent annual improvement. Lutz claimed those estimates miss the mark by a wide margin and underestimate the costs for the changes that would be needed.

"I would really encourage all of these people to come and see us immediately if not sooner, because we are vitally interested in these magic, no-cost solutions," he said.

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