Annual sales of hybrid vehicles fell by 10 percent in 2008 compared to last year. This marks the first year that hybrid sales dropped since gas-electric cars were introduced in the United States in 2000.

In the first half of 2008, hybrid sales were on pace to exceed 2007 numbers—but the impact of the economic recession, tight credit markets, and a sharp decline in gas prices took a toll. In 2008, hybrid sales totaled approximately 315,000 units compared to 350,000 units in 2007. Nonetheless, 2008 hybrid sales outperformed the total light duty vehicle market, which fell by 18 percent.

Historically, hybrid sales have grown due to new product introductions. In 2008, the only new hybrid introductions were low-volume vehicles from General Motors and Chrysler. Throughout 2008, GM averaged approximately 1,000 hybrid sales per month—but managed to increase sales toward the end of the year. In December, GM expanded its hybrid sales to 2,555 units—with 1,729 of those sales coming from hybrid versions of the Chevrolet Tahoe, GMC Yukon, and Cadillac Escalade, all full-size SUVs. Chrysler rolled out its full-size SUV hybrids late in the year, and tallied approximately 100 sales for 2008.

The best-selling hybrid, the Toyota Prius, posted 158,884 sales in 2008, a drop of 12.3 percent from 2007. In mid-year when gas prices spiked above $4 a gallon, customers joined long waiting lists for the Prius. Those waiting lists, and general demand for hybrids, evaporated as gas prices plunged, falling below $2 a gallon by the end of the year.

Rebound in 2009?

While the fate of future hybrid sales are tied to the uncertain prospects for the entire auto industry, there are signs that hybrids will resume their growth trajectory in 2009. In April, Honda will introduce the 2010 Insight in an effort to offer high fuel economy at a price well timed for tough economic times. The new Honda Insight—selling at approximately $19,000—is expected to achieve fuel efficiency in the mid-40 mpg range.

If Honda achieves its annual goal of selling 100,000 units of the Honda Insight in North America, that car could single-handedly boost hybrid sales beyond 2007 levels. In addition, Toyota will roll out a new and improved Toyota Prius, and Ford will begin selling the Ford Fusion Hybrid—the first full-size sedan offering fuel economy above 40 mpg in the city. Ford is aiming to sell 25,000 units of the Ford Fusion Hybrid and the nearly identical Mercury Milan Hybrid—which would double its hybrid sales in 2009.

In the coming months, the most dramatic influences on future hybrid sales will continue to be gas prices, consumer confidence, and the availability of credit. Beyond that, President-elect Barack Obama is expected to significantly expand industry and consumer incentives for hybrids and other fuel-efficient cars, as part a program to jumpstart development in the clean energy sector.

Jim Lentz, president of Toyota Motor Sales USA, is optimistic that hybrid sales will rebound. “We’re going to see fuel prices creep up a bit,” he said in an interview with Associated Press. “I think the overall greening of America is going to see an increase in hybrid (sales) as well.”

The December Hybrid Market Dashboard will be post later this week.