Wave of hybrid sport utility vehicles, trucks on the way
By Rick Popely, Chicago Tribune
12/20/2003
CHICAGO — Instead of steering Americans toward smaller, fuel-sipping cars such as the Toyota Prius, hybrid technology is more likely to encourage them to stick with what they love most — trucks.
The three current gasoline-electric hybrids in the U.S. are cars, the compact Prius and Honda Civic Hybrid and the Honda Insight, a smaller two-seater.
A wave of sport utility vehicles and pickups with hybrid power is coming in the next few years, some of which will provide only nominal fuel-economy improvements.
Nevertheless, industry forecaster J.D. Power and Associates predicts that by 2008 two-thirds of hybrid vehicles sold in the United States will be trucks, including sport utility vehicles, pickups and vans.
"You’re not going to get people out of trucks unless they’re outlawed. That’s what they want," said Walter McManus, Power’s global forecasting director.
Hybrid-powered SUVs begin rolling out next fall with the Ford Escape, Lexus RX330 and Toyota Highlander.
In 2005, General Motors will add "mild hybrid" versions of its full-size pickups with an integrated alternator/starter system that increases fuel economy 12 percent to 15 percent. Dodge plans a hybrid Ram pickup called the Contractor Special with an onboard generator.
GM will add a hybrid Saturn Vue in 2006 with 12 percent to 15 percent better fuel economy, up from 23 m.p.g. now. Like the Lexus, Toyota and Ford SUVs that will get hybrid systems, the Vue is based on a car platform.
In 2007, GM says it will offer hybrid versions of the Chevrolet Tahoe and GMC Yukon full-size, truck-based SUVs with 25 to 35 percent higher fuel economy, up from 16 m.p.g. now. GM will put the same system on its full-size pickups in 2008.
Toyota says its hybrid midsize SUVs will have the fuel economy of compact cars, around 35 m.p.g., up from 21 m.p.g. now, though it will stress the performance boost provided by the electric motors in those vehicles.
Thad Malesh, a partner in the Automotive Technology Research Group, a California firm that specializes in hybrids and diesels thinks that is the right strategy.
"Consumers are reluctant to buy a hybrid because they’re afraid they will have to sacrifice performance to be green," Malesh said.
"You have to have both. If they have to make a choice, they will not give up performance. They want their cake and eat it, too." Hybrid technology doesn’t have to deliver 50 m.p.g. to attract buyers, Malesh says, but it has to provide tangible benefit.
"Consumers want to see relative improvement in their fuel economy. They will not give up what they drive now to get it, but if you can go from eight to 10 miles per gallon up to 12 or 14, that’s tremendous," he said.
Research and polling firm RoperASW says SUVs are the vehicle of choice for the "influentials," better-educated, leading-edge opinion leaders among consumers who tend to be early adopters of new technology.
One of four influentials owns an SUV, which are at the top of their shopping list for their next vehicle. However, they want better fuel economy.
"They feel SUVs are practical and safe, but one problem they see is fuel efficiency," said Jonathon Berry, RoperASW’s senior research director. "When you put these findings together, hybrids could address the major complaints the influentials have against SUVs. If you can address the major problem, they’re bound to attract more people."
Influentials are intrigued by the fuel-saving aspects of hybrid technology but wary of how long it will last compared to a conventional engine. Their main concerns are reliability and safety, overshadowing their desire for an environmentally friendly vehicle.
"A car has to deliver on the other priorities first," Berry said.
J.D. Power’s McManus says hybrid trucks with modest fuel economy gains have greater growth opportunity than smaller cars with eye-popping mileage.
"If people only wanted better fuel economy, (carmakers) could sell more small vehicles, but people don’t want just one thing. They have a diversity of needs, and they want a vehicle with four doors, room for six people and cargo space.
"It makes sense to apply the technology to vehicles people want, if you can do it without changing the performance and other things they like."
Even with the gas/electric technology spreading to SUVs and pickups, McManus doesn’t see hybrids becoming big sellers in the next five years.
Power recently lowered its sales projection to 350,000 vehicles per year by 2008 from an earlier forecast of 500,000. Toyota and Honda will sell less than 45,000 hybrid models in the U.S. this year.
McManus cited the high cost of the technology and limited consumer demand in predicting hybrids would grow to just 2 percent of new-vehicle sales in 2008.
Power issued its forecast before GM announced it would offer hybrid technology on full-size SUVs and pickups by 2008. Power will revise its hybrid forecast in January.
"They’re putting it in the right vehicles," McManus said of GM’s plans. "This obviously could make a big difference in sales." Automakers do not disclose their costs, but McManus estimates that hybrid technology runs as high as $4,000 on the Escape, $3,000 on the Prius and Civic and as little as $1,250 for GM’s alternator/starter system.
The cost won’t drop significantly until higher sales volume produces economies of scale.
"It’s a chicken-and-egg thing. To get volumes up, you have to get the cost down. To get the cost down, you have to increase the volume," McManus said. "It’s not going to become mainstream unless they get the cost down."
At $20,650, the Civic Hybrid is priced about $2,300 more than a comparably equipped Civic EX. The Prius is not based on a conventional car, but at $19,995 it is in the same range as a Camry LE sedan. Industry analysts believe Honda and Toyota, two of the most profitable automakers, are eating part of the cost of the hybrid technology.
Power’s lowered expectations for hybrid sales conflict with Toyota’s plans announced two years ago to sell 300,000 hybrid vehicles worldwide by 2005, more than half in North America, its largest market.
"I can only imagine that their projection is based on what they’ve heard from other manufacturers. Our plan is the same as it’s always been," Toyota spokesman John Hanson said. "We’ve always said that’s a very aggressive target. We’re not stepping back from that, but meeting the 300,000 target will be very difficult."
Toyota Motor Sales U.S.A. expected to sell 36,000 Priuses in the 2004 model year but has asked for a larger allocation from Japan, where a single plant has capacity to build about 70,000 units annually.
"Based on the initial response to the Prius, we’re pretty sure we’re going to end up with a higher number than 36,000," Hanson said.
As automakers add hybrid models, the federal government is reducing its incentive to buy one.
A tax deduction that applies to hybrids drops to $1,500 on Jan. 1 from $2,000. That means a consumer in the 28 percent tax bracket can claim a $420 deduction for buying a hybrid vehicle in 2004.
A comprehensive energy bill before Congress would provide tax credits up to $2,400 on hybrids, but the bill stalled in the Senate and was tabled until next year. The bill would limit the tax credits to the first 80,000 hybrid vehicles sold by each manufacturer.
