Hybrids’ Unpredictable Future

Forecasting the future of hybrids is tricky business. Nobody predicted how fast the sales numbers would grow since hybrids were introduced in 2000. And future predictions conjure up images of crystal balls, divining rods, and fingers held to the wind.

In February 2004, Dave Hermance, Toyota’s hybrid guru, said, "The Japan and U.S. markets are taking orders for the product at a much higher rate than expected.” Fourteen months later, in April 2005, Dieter Zetsche, DaimlerChrysler CEO said, "We underestimated the interest that Toyota and Honda hybrids would generate." In May 2005, Mary Ann Wright, Ford’s former hybrid chief, said “Frankly, we underestimated the demand for the Escape Hybrid." As late as October 2005, Kazuo Okamato, Toyota executive vice-president of R&D, was still showing surprise. He declared, "We didn’t think demand would jump like this."

By the end of 2005, the sentiments of the world’s top auto executives had apparently changed. Responding to a 2005 survey by the global consulting firm KPMG, 88 percent of 140 senior auto executives said they expect gas-electric hybrids to gain market share, up from 74 percent in 2004. Moreover, the car industry bosses believe sales of hybrid cars, as well as other fuel-efficient models, will outpace sales of sport utility vehicles, pickups and luxury models over the next five years.


The black line shows hybrid sales continuing at their current pace since hybrids were introduced in 2000. In the five-year timeframe, J.D. Power forecasts are well below the line, while others (e.g., D.O.E., Freedonia Group, and BoozAllen) predict wider public acceptance of hybrids. See larger pdf of this graph.

Assumed To Be Wrong

Current forecasting methodologies require listening closely to statements by auto executives, but not necessary taking them at their word. Anthony Pratt, senior manager of global powertrain forecasting at J.D. Power, in an interview with HybridCars.com, said, "A fair amount of grandstanding takes place by vehicle manufacturers.”

J.D. Power is long regarded as the gold standard of vehicle forecasting, but that does not mean the company can see into the future. “A forecast is a tool, like a compass of the general direction of the market. In this business, you have to assume that there will be a variance in our forecast and the exact outcome,” said Pratt.

If Pratt and other forecasters don’t expect to be right, it’s based partly on a methodology—the "bottom-up" approach. The forecaster conducts "intelligence gathering" of all the various industry sources, hoping that trusted employees will leak useful information. Suppliers are major source because contracts are discussed and awarded three to five years before production begins.

Tallying up the expected number of hybrids to be produced by each automaker provides a base number, which is only as good as the info provided by the carmakers, suppliers, and other contacts. The base number is then evaluated against the "market potential" of the products being offered. J.D. Power has access to millions of consumer opinion surveys, large samples of 50,000 for their quality surveys, and "real-time data" from the company’s "Power Information Network," providing feedback from 6,000 – 7,000 dealers with line items for buyer demographics, days-to-turn, average price, and actual transaction price.

When You Assume…

In the case of hybrids, there are also a list of assumptions to be considered: the price of fuel, the relative cost of hybrids, and the relative fuel economy differences between a hybrids and non-hybrids. J.D. Power’s current forecasts are based on assumption that prices will not exceed $3.50 a gallon through 2011. Lindsay Brooke, a senior analyst at Farmington, Mich.-based auto industry forecaster CSM Worldwide, set the tipping point for hybrid adoption at $3 per gallon. In this light, the uncertainty of predicting sales numbers for hybrids five years from now are multiplied by the uncertainty of predicting the price of gas five years from now.

Moving further on to shaky ground, there’s not a consensus on how to define "hybrid." Is it any vehicle that has a transmission with the ability to store energy? Is it any vehicle with sophisticated engine management? What about the "mild" hybrids, such as the Saturn VUE Green Line, which can store and reuse electric energy but require at least some gasoline to power the transmission? Struggling with that question, Pratt said, "Stop-start technology has grown out of hybrids, but may become a competing technology.” And when asked how valid the existing numbers would be in the event of a breakthrough in battery technology, Pratt responded, "Throw all of our numbers out the door.”

The Marketing of Hybrid Market Research

Ultimately, the marketing of marketing might be the biggest influence in the hybrid forecasts. J.D. Power’s ability to continue selling their market research is based on the reliability of their forecasts. If the company projects optimistic numbers about hybrids—and the market does not materialized as predicted, J.D. Power’s influence would be undermined. Walter McManus, the former powertrain forecaster at J.D. Power, and now the director of University of Michigan’s Office for the Study of Automotive Transportation, said "Conservatism make their forecasts reliable and persuasive to top management in business cases."

When McManus took over the forecasting role at J.D. Power In 2003, he reduced the company’s existing hybrid forecast from 500,000 to 350,000 units by 2008. In the same year, McManus participated in a U.S. Department of Energy report that pegged the "market potential" for hybrids at 1.2 million for 2008. McManus’s forecast was based on 28 hybrids in the market; the D.O.E. report anticipated 54 hybrids.

In the following year, McManus raised his forecast—which Pratt subsequently lowered upon taking over the position.

Based on five years of sales forecasts and sale data, the only certainty is that sales numbers will defy expectation.