Why Hybrids Are Such A Hard Sell

Given all the buzz about hybrids, not to mention the greening of the citizenry, you’d think they would be easy to sell. They’re not. After growing nicely through much of 2006, hybrid sales began to slow early this year. The gasoline-electric vehicles now make up 1.8% of all vehicle sales, says Edmunds.com, down from a peak of 2.1% in October.

One major reason is that hybrids typically cost $3,000-plus more than conventional cars. As a result, automakers in recent weeks have been slashing prices. Less than a year ago, Toyota dealers got full price for the Prius. Now you can immediately lease one for a slim $219 a month. Ford Motor Co. is also cutting the price of the latest version of its Escape hybrid. In fact, in February, carmakers spent an average of $1,500 on incentives per hybrid, says Edmunds–triple what they laid out in January.


The discounting helped the likes of Toyota Motor Corp. and Ford post decent sales in February, but, as the Big Three know all too well, ladling out incentives is no way to make decent profits. Making matters worse, just as hybrid sales start slowing, automakers are gearing up to launch a slew of new models. At least 30 hybrids will hit the market in the next 20 months. That will bring the number to more than 40, up from 12 today, says Boston research firm Global Insight. “Now that the automakers have tapped the early adopters, they’re going after the mass market,” says Jesse Toprak, an Edmunds analyst. “For consumers, the answer is often no.”

Tailing Off

A few years ago, automakers decided to put hybrid technology in regular models. The hope was to move beyond the geek chic of the Prius and win over everyone else. Hybrid would be another option, like , say, navigation. If enough people bought hybrids, carmakers figured, they would achieve sufficient economies of scale to eliminate the big premium over conventional models.

That hasn’t happened. And some models have suffered badly. Honda Motor Co. sold 70% fewer hybrid Accords in 2006; Toyota has sold 24% fewer Lexus RX 400h sport-utility vehicles so far this year. The fuel savings are simply too puny to offset the hybrid premium. With gas at $2.50 a gallon, it would take 10 years to recoup the extra $3,000 cost of the Accord hybrid.

Business Week