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Hybrid Owners Get Incentives: Incentives for Hybrid Cars May Start to Appeal to Buyers' Financial Side

Posted on: Monday, 27 February 2006, 12:00 CST

By Paul Gores, Milwaukee Journal Sentinel

Feb. 26--Bradlee Fons never needed an incentive to convince him that gas-electric hybrid cars are worth the extra few thousand dollars that drivers pay to buy one.

The 56-year-old Pewaukee man and his family own three hybrids -- two used Honda Insights and a new Toyota Prius.

Fons said in optimum conditions, the two-seat Insight gets more than 85 miles per gallon of gasoline.

"People always want to buy the cheapest thing because they don't think about energy costs," Fons said. "But after this winter, and with energy costs going up, I think the public is beginning to get wiser about looking at the longer term."

Most Americans haven't been as quick as Fons to embrace hybrids, which usually carry a higher price tag than their gasoline-powered counterparts.

But incentives offered the federal government and other new perks could begin to make hybrid cars more attractive to those who wouldn't buy them just for environmental principle or because they want to cut their gasoline bill.

Insurance incentives

The latest draw is a 10% discount on the cost of auto insurance offered to hybrid owners St. Paul Travelers Cos. The company says it is the first such discount to be offered nationally.

St. Paul Travelers spokeswoman Jennifer Wislocki said data show that hybrid drivers are a good insurance risk -- married people between 40 and 60 years old. Even though it's a niche market at the moment -- only 206,000 of almost 17 million new cars sold last year were hybrids -- it's growing.

"If you look at the data, you will see sales of hybrid cars have doubled every year since they were introduced in 1999 in the U.S., and we just see that trend continuing," Wislocki said. "We want to be the company that hybrid car owners think of when it's time to buy their auto insurance."

Other insurers haven't jumped on the hybrid discount idea yet, saying there's not enough data on the claims experience. Madison-based American Family Insurance, which insures about one of every four drivers in Wisconsin, is watching to see what happens.

"With the technology being fairly new on the market, we don't have enough information to justify a discount at this time," said American Family spokesman Steve Witmer. "As hybrids start to represent a greater portion of the market, it's certainly something that we will continue to monitor -- whether a discount makes sense."

Bradley Berman, editor of the online publication Hybrid Cars.com, said more insurers are likely to offer hybrid-owner discounts.

"I think it will catch on because the demographics of hybrid buyers are very attractive," Berman said. "They are more affluent than the average car buyer, they're older. In terms of insurance, they drive more safely."

Tax credits

Any insurance discount would come on top of a federal tax credit of up to $3,400 -- depending on the vehicle -- available this year for people who buy hybrid cars. In some cases, the tax credit would offset a large chunk of the premium motorists now pay to purchase a hybrid from the expanding list of models offered domestic and foreign car-makers alike.

Although the Internal Revenue Service has yet to publish exact credits for certain vehicles, the American Council for an Energy Efficient Economy has estimated, for example, that a 2006 Honda Civic hybrid will get a $2,100 credit. That would cover most of the $2,790 difference in the manufacturers suggested retail price shown the Edmunds.com car-buying guide for the Civic hybrid ($21,850) and the Civic EX powered solely gasoline ($19,060).

Berman said in some cases the tax credit is "wiping out" the price premium between a hybrid and a comparable non-hybrid.

Some cities and states -- not Wisconsin -- also offer discounted or free parking at public parking spaces to registered hybrid vehicles, according to HybridCars.com. Others are preparing to let hybrids drive with a single occupant in highway lanes normally set aside for vehicles carrying more than one person.

Despite all the efforts to get more hybrids on the road -- President Bush was among those endorsing them during his visit to Milwaukee last week -- they still represent only a small part of the auto market, said Paul Taylor, chief economist for the National Automobile Dealers Association in McLean, Va. Before the tax credit, he said, the average buyer had to pay more up front and then drive the hybrid for five years to get the money back in savings on gasoline.

Some motorists still may have doubts about the long-term maintenance costs of hybrids because they have "twice as many moving parts," he said.

"These cars aren't being sold in huge numbers to typical customers who drive 12,000 to 15,000 miles a year," Taylor said. "They are being sold to early adopters of technology, long-distance commuters and people who want to be seen driving the 'correct' vehicle."

New hybrids are expected to make up 3.5% of car sales 2012, according to the research and consulting firm J.D. Power & Associates. That's up from about 1% in 2005. A report the Westlake Village, Calif., firm also said manufacturers will have to reduce the cost of hybrids to attract buyers who aren't motivated concerns about the environment or trimming fuel consumption.

Spreading the word

Hybrid car enthusiasts see nothing except strong growth ahead for their favorite type of vehicle.

"Every hybrid that's produced is sold, and sold quickly, and there's not a sign of that letting up," Berman said.

Fons said he is meeting new hybrid owners all the time, and, along with his 16-year-old son Justin, just started the Milwaukee Hybrid Group (milwaukeehybridgroup.com). It's described as "a group of enthusiastic individuals who know that hybrid technology works and wish to share their knowledge with others."

The group already is planning to hold "Hybridfest" in Madison in July.

"Most hybrid car owners enjoy talking to other people about hybrid cars, and driving their hybrid cars is just a witness to their commitment to the environment," Fons said. "Now is the time to start getting the public thinking about this."

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Copyright (c) 2006, Milwaukee Journal Sentinel

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Source: The Milwaukee Journal Sentinel

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