April 24, 2006

US hybrid sales mostly slack despite gasoline hike

By Poornima Gupta

DETROIT (Reuters) - U.S. gas prices have risen nearly a
third over the past year without touching off a boom in sales
of fuel-efficient hybrid vehicles, some of which are sitting on
dealer lots for as long as three months.

Many U.S. consumers are concluding that what they save in
gasoline and on tax credits from driving a hybrid does not
justify the roughly $3,000 premium they face at the dealership,
even with high and volatile fuel prices, analysts said.

That poses a problem for car makers including Honda Motor
Co. Ltd., Ford Motor Co. and Toyota Motor Corp., that have bet
on broadening popularity for hybrids, including more powerful
six-cylinder models and sport utility vehicles.

"What it comes down to is whether you want to pay for that
premium right up front... or pay for it incrementally in the
form of a different vehicle that gets a slightly lower fuel
economy," CSM Worldwide analyst Mike Jackson said.

Gasoline prices across United States are nearing $3 a
gallon, up from $2.23 a year ago, driven by a surge in oil
prices to record highs.

Hybrid vehicles, which use both gasoline and electric power
to achieve better mileage, have been touted as a way to reduce
consumption of oil and to reduce exhaust emissions.

Some hybrids qualify for special car pool lanes in some
states, a key benefit in traffic-clogged areas. Many also carry
federal and state tax incentives.

But for most U.S. consumers, the economics still favor
traditional gasoline-powered cars.

An April report by Consumer Reports concluded only two
hybrids in the U.S. market offer savings over five years and
75,000 miles -- the Honda Civic and the Toyota Prius. Even
then, the savings are small: $400 and $300 respectively.

Other models actually cost between $1,900 and $5,500 more
to own and operate, the magazine published by Consumers Union
reported. It assumed gasoline prices of $3 per gallon, rising
to $4 per gallon over the five years.


"For there to be a major shift in the industry, prices have
to go well above $3 a gallon and remain there consistently,"
said Tom Libby, senior director of industry analysis at Power
Information Network. "If you do the math it's still going to
take many, many years to recoup your extra price through gas

Honda has said it may cut production of its Accord hybrid
after weaker-than-expected sales in its first four months on
the market.

The Accord hybrid sat 90 days on average on dealer lots
last month, while Ford's Escape hybrid took 61 days to sell on
average. Toyota Highlander and Lexus RX400h hybrids sat on the
lot for over a month, according to Power Information Network.

The two hot-selling hybrids have been the Prius, selling on
average in 8 days, and the Civic hybrid, selling in 12 days, on

Jackson and other analysts said the Prius has been a hit
because its distinctive styling immediately identifies it as a
hybrid -- conferring a kind of halo effect for its drivers.

The lack of broader sales momentum has prompted some
automakers to offer discounts on hybrids.

Ford is offering interest-free loans, and has underwritten
a national ad campaign, featuring Kermit the Frog singing: "It
is easy being green."

Ford and other automakers have a lot of investment riding
on the hybrid market. Ford is planning to increase production
of the gasoline-electric vehicles tenfold to 250,000 by 2010.

Toyota is targeting sales of 400,000 hybrids this year.
General Motors Corp., Nissan Motor Co. and others all plan to
introduce hybrid models in coming years.

Hybrids currently account for only about 1 percent of all
U.S. light vehicle sales, a share expected to grow to only 4
percent in the next six years, according to J.D. Power.

The automakers are watching the hybrid market very closely
and trying to project its longer-term growth said David Cole,
chairman of research firm Center for Automotive Research.

"A fairly realistic market is beginning to emerge here,"
Cole said, referring to the slower sales of some hybrid models.
"Some of the luster is wearing off."