March 13, 2007: Marketplace—Risky Hybrid Business

Summary: All that sells does not a profit make. Not at first, anyway. But if you have a guaranteed market and a product that’s in demand, it seems likely that profit will be forthcoming eventually. And if it doesn’t, well, that risk is part of doing business, isn’t it? These analysts seem to forget that.

"SCOTT JAGOW: Today, Hyundai said it’s gonna start mass producing hybrids in 2009. It’s a bit of a risky move, getting into the hybrid business. It’s costly, and even though U.S. sales boomed last year, now they’re starting to slow down. David Welch of BusinessWeek Magazine is with us. David, why aren’t the hybrids moving as fast?

"DAVID WELCH: Well it’s still a very small niche. There’s a core buyer who really loves hybrids but penetrating the mass market has been incredibly difficult because economically they just don’t make sense yet. You buy a hybrid Honda Accord, there’s a $3,300 premium over a V6- powered regular old Honda Accord and you even have some pretty aggressive incentives. Toyota started offering lease deals as cheap as $219 a month to move the Prius, which has been the hottest hybrid."

Hybrids don’t make sense yet? Ay, ay, ay. To prove that point, Welch had to choose a poorly selling muscle hybrid that gets about 20 mpg less than the best-selling Prius. In the very next sentence, he contradicts himself with the great deals Toyota is now offering on Prius leases.

Good for Hyundai, making an effort to provide cleaner vehicles. But note that South Korea’s public policy leans heavily toward requiring deep cuts in pollution. If the US were to encourage government agencies to replace Crown Vics in the fleet with Escape Hybrids (or even muscular Honda Accord Hybrids), analysts might be singing a different tune.

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