Hybrid car sales may currently be in the doldrums, but the forces for a major hybrid takeover of the auto market in about three to five years are already in the works.
This week, Mike Jackson, the CEO of AutoNation complained that he has 600,000 hybrids “that no one wants”—an exaggerated figure—sitting on car lots across his company’s network of 300 auto dealerships. Hybrids were red-hot sellers in the first half of 2008, but are now caught in the auto industry meltdown. The American car market has dropped to an annual pace of nine million sales. That represents a slicing of the auto market almost in half compared to 2007.
Hybrids are generally faring better than the overall car market, but the slowdown comes on the heels of a meteoric rise in hybrid popularity in recent years. From 2000 to 2005, hybrid sales doubled almost every year. Toyota and other hybrid makers couldn’t keep up with demand, especially when gas price spiked in 2005 after Hurricane Katrina and mid-2008 when the price of oil jumped to $145 a barrel.
Betting on Higher Gas Prices
Carmakers apparently learned from that experience. Despite the current downturn in hybrid sales—and the first annual drop (by about 10 percent) of the hybrid market in 2008—nearly every major car company in the world is moving rapidly toward greener vehicles.
Toyota has committed to 10 new hybrids globally by 2012. GM is planning to introduce 26 new hybrids by 2014, according to Automotive News, a trade publication. Every major car company, without exception, has outlined aggressive timelines for hybrids, plug-in hybrids, electric cars, fuel cell vehicles and more efficient small gas-burning cars.
Toyota is intensifying its move toward hybrids because it believes that today’s low gas prices are temporary. “We know that oil prices will have peaks and valleys, but over time the general trend direction is going to be up,” said Jim Lentz, president of Toyota Motor Sales USA, in an interview with HybridCars.com. “That trend will be up to a lesser degree in the next four to five years, but starting 2015 and beyond, that peak will increase at an accelerating rate.”
Countdown to the Next Energy Crunch
The current downturn in the auto industry and energy markets may in fact help set up the conditions for a major takeover of hybrids when the economy improves. The Houston Chronicle reported this week that the number of oil rigs actively exploring for oil and natural gas in the United States dropped by 73 this week to 1,170, as weak energy demand hampers oilfield activity. The US oilfield count is down more than 40 percent since the end of August. There have been similar decreases in investment in all types of automotive fuel sources, from tar sands to ethanol.
Also this week: OPEC, the supplier of 40 percent of the world’s crude oil, said lower energy prices may lead to a supply crunch by 2013. “The failure of the industry to invest will result in a supply crunch by 2013 and beyond,” said OPEC Secretary Abdalla el-Badri.
We may be already seeing glimpses of Mr. Lentz’s predicted peak and Mr. el-Badri’s supply crunch. Light, sweet crude for April delivery rose $1.91 to settle at $45.52 Friday on the New York Mercantile Exchange. It was the second time crude settled above $45 in one week, which hasn’t happened since the first week of the year.
Interdependence of Jobs, Oil and Hybrids
The increase was set in motion by more bad economic news. The Labor Department reported this week that the US economy shed about 650,000 non-farm sector jobs in February. (Fifty-thousand Americans are already out of work due to the closing of about 1,000 auto dealerships.)
With this news, the value of the dollar dropped against global currencies. Oil is traded in US dollars, so buyers armed with more valuable euros, yen and yuan traded up the price of oil. Analysts believe OPEC will call for more production cuts at its meeting on March 15, which could lead to slightly higher prices at the pumps. On Thursday, Texas billionaire oilman T. Boone Pickens predicted US crude oil prices will hit $75 by the end of 2009.
Gas prices moved in step with oil markets this week when the average price of a gallon on unleaded self-serve regular moved to $1.94, up from $1.88 last Friday, according to AAA. California’s average price of gas is $2.23 a gallon. “There are a lot of projections that this summer, gas will be back to $2.50 a gallon,” said Lentz. “At $2.50 a gallon, we’re selling [hybrids] at a very high rate again.”
If hybrid sales do indeed pick up with $2.50 gas and a dismal economy, imagine what happens in 2013 if consumer confidence and credit has returned, the price of a barrel of oil is back to triple digits—and carmakers are prepared with full production capacity for conventional hybrids, plug-in hybrids and electric vehicles.