"Top 5 global hybrid markets" based on vehicle registrations CYTD May 2008.

and "Top 5 US hybrid markets" based on vehicle registrations CYTD May 2008.

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It’s been a tough summer for the car business. In July, US auto sales fell to 1,136,539 units—13 percent below July 2007. Analysts are now predicting that the US market will shrink below 13 million vehicles annually, a level not seen since the recession of the early 1990s. Although hybrids fared better than most vehicles, their performance wasn’t stellar. Weak inventories of the Prius led to sales 8 percent below last year. The Camry Hybrid and Ford Escape Hybrid also posted declines from previous year’s levels. Last month’s winners included the Honda Civic Hybrid and Highlander Hybrid —up 38 percent and 14 percent respectively. But neither sells in large enough volumes to move hybrid sales into the black. Overall, hybrid sales fell 7 percent from July 2007, and hybrid models accounted for a modest 2.4 percent of the vehicle market.

By now it’s obvious that carmakers weren’t ready for the major changes that occurred in the economy, fuel prices, and consumer preferences. It’s unclear how long it will take them to adjust. It’s also unclear how hard they are trying. Sales of compact cars like the Toyota Yaris, Honda Fit, Nissan Versa, and Ford Focus have risen dramatically, and automakers have done what it takes to keep up with demand. Are hybrids that different?

Sure, hybrids require high-technology components, including expensive nickel-metal-hydride battery packs. But who says extra shifts can’t be added to battery manufacturing lines to increase production, just as overtime has been added at factories that produce fuel-efficient four-cylinder engines in order to put more Yarises, Fits, Versas, and Focuses on dealer lots. Is there something so special about batteries that we can’t make more of them when demand is high?

The underlying issue is that hybrids are not big money-makers for most automakers, so there’s little incentive to ramp up production substantially. GM is a case in point: the company acknowledged last year that it cannot recoup the costs of the two-mode hybrid system used in its Yukon and Tahoe hybrids. Last month in an era of shrinking wealth and rising gas prices, more Bentleys left US showroom than Yukon Hybrids, a testament to GM’s lack of interest in mass-marketing its hybrid SUVs.

But hybrid economics are beginning to change. Honda recently announced that it dramatically lowered the cost of its next-generation hybrid powertrain, and plans much higher production volumes as a result. Toyota, too, may be improving the economics of its hybrid offerings—the company’s decision to use nickel-metal hydride batteries in the next-generation Prius has been criticized by some, but it is a move that will help limit the vehicle’s powertrain cost.

With all the discussion of new technologies like plug-in hybrids and electric vehicles, we tend to forget that hybrid vehicles account for a tiny fraction of the vehicles sold in the US. For that to change, supply and demand must converge: consumers must show interest in the vehicles, and manufacturers must be able to sell hybrids profitably. At the moment, consumer interest is healthy, but improvement is needed in hybrid profitability before hybrid sales can really take off.

US Sales

Our information is based on hybrid sales as reported by the manufacturers. For each model, this month’s sales are shown compared to sales in the previous month and at the same time last year. We also examine hybrid market share by model and manufacturer. The historical sales graph for top-selling hybrid models shows estimated 2008 volumes based on sales-to-date.

Hybrids sold in the U.S. (July 2008): 26,877

Regional Data