Newsletter Archive Index

~~~ Hybrid Cars Newsletter: Issue No. 0017 ~~~
Moderator: Bradley Berman [brad@hybridcars.com]

In This Issue:

Updates
What’s Selling | Hybrids in the Works | Hybrid Review Contest | More

Hybrids Go Schizoid
Detroit is now gung-ho on hybrids. Toyota and Honda are opting for power over fuel economy. Consumers are confused, but are buying hybrids in record numbers. All bets are off.

Energy Bill Boosts Hybrid Consumer Incentives, Favors Domestic Automakers
Only accountants will be able to figure out the hybrid incentive formula in the new Energy Bill. Nobody can figure out if it really promotes greater independence from oil—or if it’s just one big handout for Big Oil.

Greetings, Hybrid Car Enthusiasts,
You see what happens when you go on summer vacation. I took one month off from the newsletter, and all hell broke loose in the hybrid world. Hybrid sales are going through the roof. Carmakers continue to expand their offerings. And debates about the value of the technology to consumers and to society rage out of control. One thing’s for sure: Hybrids are shaking up the world of automobiles, our society, and our culture. Issue number 17 of our newsletter tries to make sense of it all. Enjoy.

UPDATES
What’s Selling?
The list of currently available hybrids has grown to eight. In order of their appearance on the American market, there is the Honda Insight, Toyota Prius, Honda Civic Hybrid, Ford Escape Hybrid, Honda Accord Hybrid, Lexus RX400h SUV Hybrid, Toyota Highlander Hybrid—and making its appearance on July 12, the Mercury Mariner Hybrid. The Mariner, a stylized version of the Ford Escape, made news for two reasons. The vehicle will be sold almost exclusively online, and the introduction of the Mariner was applauded by the Sierra Club. The San Francisco-based organization, which has been critical of Ford’s dismal overall record on fuel efficiency, said it will tell its members about the vehicle and offer test drives at its annual summit in September. Other environmental organizations remain critical of Ford. Only 4,000 Mariners will be produced this year, representing approximately 2 percent of the anticipated hybrid market in 2005.

Hybrids in the Works
Honda recently announced that the 2006 Civic Hybrid will sport a snazzy new design—and more importantly, will achieve 5 percent greater fuel efficiency and 20 percent more power. The new Civic Hybrid will juice up its battery output, enhance its regenerative braking system, and deliver a full-hybrid system that can run part of the time strictly on electricity. The new Civic Hybrid will go toe-to-toe with the Prius, providing consumers a choice of two moderately priced sedans with fuel economy hovering around 50 miles per gallon.

The decision to give more style to the Civic Hybrid reflects auto company’s possible reconsideration of making hybrids look just like regular cars. The Detroit News reported on July 25 that Toyota is planning more prominent emblems on its gas-electric hybrid SUVs in a belief that owners want others to know of their environmental consciousness. The Car Connection website also reported that Toyota is “in the midst of a major internal debate over whether it should produce more hybrid-only models such as the Prius,” and that both Toyota and Honda have had complaints from consumers that the hybrids are indistinguishable from the non-hybrids.

“Write Your Own Hybrid Review” Contest
As a way to give more voice to actual hybrid drivers, rather than relying on “professional” car reviewers, HybridCars.com is launching its third contest, entitled “Write Your Own Hybrid Review.” Previous contests gave hybrid fans a chance to write short hybrid poems (Hybkus), and to create original hybrid vanity plates. In the review contest, hybrid drivers are asked to submit a review of the hybrid vehicle that they own.

The reviews should be no longer than 800 words, and will be judged based on how helpful they are to hybrid shoppers, as well as style, creativity, and humor. Non-traditional reviews, which blend details about the performance and functionality of the vehicle with political arguments and personal anecdotes, are highly encouraged. The reviews do not need to be entirely flattering to hybrids, but should provide an accurate account of the pros and cons of the vehicle.

One or two reviews for each available hybrid will be published in this newsletter and on HybridCars.com. If your review is selected, we will send you an American Express gift certificate for $100. The contest is open until at least one review is selected for every hybrid.
> Submit your review now

Scientific Study of Hybrid Mileage – Update
As we announced in June, HybridCars.com plans to conduct a “scientific” study to determine the actual mileage of hybrids. Thanks to the hundreds of people who have already volunteers. We are looking for more participants who drive the Lexus RX400h, Toyota Highlander Hybrid, Ford Escape Hybrid, Honda Accord Hybrid, and Mercury Mariner Hybrid. Please contact us if you drive one of these vehicles and are willing to submit detailed records of your mileage and maintenance costs.

> Sign up today by emailing us with your name, city and state, and hybrid model

Participants will be provided simple instructions on how to log and report their mileage.

Recent Blogs
Our bloggers have been busy this summer. David Miller confesses that his marriage has suffered by his dedication to hybrids. He couldn’t convince his wife to buy a Prius. With the death of King Fahd, and the failed attempt by the Chinese oil company, CNOOC, to buy Unocal, it may be more difficult to figure out where your gas will be coming from, but blogger Maria McLean knows she won’t be filling up at Exxon anytime soon. Kip Munro explores the outer reaches of fuel-efficient technologies with his recent blogs about 100-mpg Priuses, solar car racing, and Formula 1 racers going hybrid.

HybridCars.com Price Pulse
If you haven’t checked out our self-service pricing reporting tool, click now: http://www.hybridcars.com/pricepulse

THE HYBRID WORLD GOES SCHIZOID
In July, Hybrid sales broke through the 100,000 mark for the first time. This milestone shouldn’t have surprised anyone, given the strong hybrid sales posted during the first half of the year. On the other hand, pro-hybrid announcements from traditionally anti-hybrid Detroit, and hybrid studies and reviews from hybrid sympathizers, were more surprising.

“Detroit’s automakers need to move faster on hybrid electric cars” said Lee Iacocca, the 80-year-old former Chrysler chairman and Detroit icon, who was recently called back into service as a television spokesman for Chrysler. After remaining silent about the auto industry for many years, Iacocca said that General Motors should have invested in hybrids instead of buying the Hummer brand.

Iacocca was apparently preaching to the recently converted. A few weeks before Iacocca’s return, Robert Lutz, GM’s vice chairman of product development, said, “It would be foolish at a time like this not to be focusing heavily on all kinds of hybrids: mild hybrids, intermediate hybrids, full-massive hybrids.” Iacocca warned Detroit automakers that they “can’t let Toyota rule the roost [on hybrids] continually.” Katsuaki Watanabe, who became president of Toyota six weeks ago, is working to do just that. On July 11, he said that Toyota is aiming to sell one million hybrids globally per year “as soon as possible.” Fully 600,000 of those are expected to be sold in the United States. “To achieve that goal, we will have to look at offering hybrid power systems in virtually all our vehicles, including trucks,” said Jim Press, president and chief operating officer of Toyota Motor Sales USA. The Japanese auto company is developing 10 different hybrid models for sale in the next decade.

To make sure that everybody is baffled, John Mendel, senior vice president of automobile operations of American Honda Motor Co., said, “I don’t think that hybrids are the best solution. Right now hybrids don’t make sense economically.” Mendel was pushing the benefits of Honda’s natural gas Civic in the July 18 issue of Automotive News. His anti-hybrid arguments echo comments made by Kazuo Okamoto, head of research and development at Toyota, who said, “The extra costs of hybrid cars more than wiped out any financial gains of lower fuel consumption (in the U.S.)."

Studies Deny Hybrid Awareness
Just as Detroit is joining the hybrid race—or facing being completely left out of the growing market—new studies oxymoronically indicate that consumers are lukewarm on hybrids. R.L. Polk, the auto market research firm, released a new study on July 19. “We see the general desire for these types of vehicles growing,” said Jeff Martini, vice president of Polk’s OEM division. “However, the compelling argument to actually buy one has to be made more strongly as automakers introduce additional models equipped with this type of technology. It’s still a ‘wait and see’ game out there.” But Polk hedged on their findings. It acknowledged that among the 307 survey respondents, 78 percent of respondents would consider buying a hybrid vehicle—that seems pretty darn high—but that 61 percent were concerned with the price. Who isn’t concerned about the price of what you buy?

Another July 2005 study, The Kelley Blue Book New-Vehicle Buyer Attitudes Study on Hybrids, showed that “the average shopper is willing to pay a premium of $2,355” to buy a hybrid. The premium for most hybrids—minus tax deductions but not considering strong resale value—is somewhere between two and three thousand dollars. This would suggest that the average buyer is considering a hybrid. Another 6 percent of the 425 respondents in the survey indicated they would buy a hybrid vehicle regardless of the premium they might have to pay. These finding hardly suggest a “wait and see” approach. In fact, the KBB survey showed that 36 percent of vehicle shoppers think that gas/electric hybrid engines will be the dominant engine type in five to 10 years, three points higher than the 33 percent who think that regular gasoline engines will still be dominant. In addition, more than half of consumers think that in five to 10 years, hybrids will provide better fuel economy yet also offer driving performance similar to gas engines.

The major concern for the respondents to the KBB survey was fear of the new technology and what it might mean down the road for hybrid owners. 61 percent of consumers said they were very concerned about the difficulty and expense of fixing the complicated technology of hybrids, and 55 percent said they are very concerned about hybrids’ limited battery-pack life. The survey did not inform the respondents that hybrid vehicles are not more difficult or expensive to maintain, and that hybrid batteries are expected to last the full lifetime of the vehicle.

Consumers rated maintenance and battery concerns significantly higher than issues related to hybrids failing to deliver the level of gas mileage promised by E.P.A. labels. (Fear of maintenance costs also topped the list of concerns among 1,600 owners and shoppers in our own 2005 survey, conducted with the University of Michigan’s Office for the Study of Automotive Transportation.)

Performance Hybrids Called Into Question—And Defended
The Polk and Kelley Blue Book surveys indicate that mileage is not the point for consumer. But stories from the New York Times in July, “Hybrid Cars Burning Gas in the Drive for Power,” “The Hybrid Emperor’s New Clothes” and “More Thirsty Than You Think” put mileage issues front and center, and bring into question the use of hybrid technology for speed at the expense of fuel efficiency. (In the spirit of full disclosure, I’ve written a couple of articles about hybrids for the Times in the past few weeks, one about GM’s two-mode hybrid system and one about possible changes in EPA’s mileage test procedure.)

Is the latest incarnation of hybrids as “muscle” vehicles the key to breaking into the mainstream, or a misstep by Toyota and Honda that will alienate the core hybrid fans?

The first set of hybrids—the Prius, Insight, and Civic—used a core strategy of reducing the size of the gas engine and providing “on demand” power from the electric motor and batteries. Reducing the size of the gas engine, which can stand to be smaller based on 90 percent of common driving—is one of keys to gaining better fuel economy. The newer hybrids—the Accord, Lexus SUV, and Highlander—maintain the size of the gas engine, and add power by way of the electric components. This approach does little or nothing to boost fuel efficiency.

James Cobb, editor of the Auto section for the New York Times, in his analysis of the Highlander Hybrid, made reference to comments by Gabriel Shenhar, senior auto test engineer for Consumer Reports. Shenhar suggested that “if Toyota had truly wanted to make a fuel-efficient seven-passenger wagon, it could have developed a hybrid from the four-cylinder Highlander with real-world mileage of 30 mpg.”

“Promoting hybrids is not a robust strategy for protecting the environment. The only truly sound advice is really quite straightforward: consumers should be mindful of the fuel consumption impacts of their transportation choices and, when it comes to selecting a vehicle, simply choose the most fuel-efficient model that meets their needs and fits their budget.”

ENERGY BILL BOOSTS HYBRID CONSUMER INCENTIVES, FAVORS DOMESTIC AUTOMAKERS
Consumers who purchased a hybrid vehicle in 2005 benefit from a $2,000 tax deduction. This incentive, a reduction of taxable income, cuts the hybrid buyer’s tax bill by about $600. The $2,000 federal deduction has been in place since 2003.

President Bush signed the new Energy Bill on August 8. As a result hybrid buyers will benefit from a more valuable tax credit that could put as much as $3,400 back into the pocket of consumers who purchase the most fuel-efficient of hybrid vehicles. The Energy Bill’s incentive also applies to diesel cars with engines engineered to reduce emissions.

You’ll need an expensive graduate degree in accounting or economics to unravel the formula to determine the tax credit for each hybrid vehicle. The formula uses as a base the fuel efficiency numbers for 2002 vehicles. If the new car is 25 percent to 50 percent more efficient than the 2002 model, the buyer gets a $400 credit. If the buyer opts for a new vehicle that more than doubles the fuel efficiency of the 2002 model, then credit grows as high as $2,400.

In an apparent attempt to discourage auto technology that runs efficiently during the first years of operation, but becomes less efficient if not properly maintained (See diesel), the incentive formula weighs how much fuel the car is expected to save over its lifetime. When lifetime usage is factored, the total benefit could reach $3,400.

Before you celebrate these incentives as a great victory for hybrids or, depending on your politics, lament the waste of taxpayers’ dollars, please consider that the bill caps the number of people who can claim the deduction at 60,000 for each automaker until 2010.

In July 2005 alone, Toyota tallied 14,507 hybrid sales. At that rate, incentives for Toyota hybrids would shut down after four months. At current sales rates, Honda would be cut off in about a year and a half, and incentives for Ford would last about three years. All the other automakers are unlikely to reach their cap before 2010, especially considering how late they are to enter the hybrid market, how low their targeted annual production numbers are, and how low the anticipated efficiency improvement is for the new hybrids.

As reported in The Wall Street Journal, a House Republican aide who worked on the issue said the cap was intended to limit the incentive’s cost to $800 million, while encouraging domestic manufacturers to break into the hybrid market. However, the cap might have the opposite effect. By quickly removing the tax incentive from Toyota and Honda shoppers, domestic automakers might feel less market pressure to keep pace with the Japanese car companies.

For more details, see Maria McLean’s blog, "Time to Pay the Bills."

Two Other Legislative Notes
Twelve of the nation’s largest environmental public interest groups have launched a campaign to criticize the Energy Bill waiting President Bush’s signature. In a report entitled “Exxpose Exxon,” the groups claim that the energy bill allocates at least $4 billion in subsidies and tax breaks for the oil industry.

And finally: The Federal Transportation Bill, which passed on July 29th and awaiting the president’s signature, paves the way for solo-driving hybrids to access HOV lanes. The new federal law will allow states to set a standard for miles per gallon that Hybrids must obtain if they are to use carpool lanes. In California, where the number of hybrid permits will be limited to 75,000, that standard is 45 miles per gallons. HybridCars.com blogger Paul Burnett is doing a great job of keeping us up-to-date on the issue.

WRAP-UP
That’s all for now, folks. I look forward to seeing your creative writing in our hybrid review contest, and hope you’ll consider signing up for our mileage and maintenance study. Stay tuned as the hybrid roller-coaster ride continues.

Happy Driving,
Bradley Berman
brad@hybridcars.com

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