When Toyota introduced the Prius back in 1997, many thought it was the answer to oil prices that continued to swell uncontrollably. A decade and a half later, hybrid vehicles are losing their appeal with the U.S. market as gasoline engines not only continue to be cheaper, but close the gap in fuel economy figures. At the North American International Auto Show in Detroit this week Cadillac introduced its latest ATS sedan with a turbocharged engine producing 270 horsepower and still capable of achieving 40 mpg.
In another telling sign in Detroit this week, Ford Motor Company also said it plans to axe its hybrid version of the Escape SUV. The elimination of the hybrid Escape continues with the trend of a diminishing number of hybrid vehicles on display at this year’s auto shows. This can be attributed to hybrid sales that have continued to slow down over the past year as gasoline engines begin to shrink in size but turn out higher fuel economy numbers. Last year hybrid sales dropped slightly to 2.2 percent of auto sales in the U.S. from 2.4 percent in 2010. Many auto makers are realizing (finally) that they can side-step the expensive batteries needed to power hybrid powertrains and still give the customer what they want: good fuel economy from an engine that has life.
“The advantages of hybrids are getting harder to justify,” said Scott Corwin, a vice president with consulting firm Booz & Co. in New York in an interview with Bloomberg. “It’s the cost differential. Consumers are rational and they understand the cost of ownership.”
Another issue that affects hybrid sales is that the cost to own one has continued to stay high. Many people are interested in purchasing a hybrid vehicle but are usually scared off by the price and choose a gasoline-powered vehicle that gets comparable fuel economy numbers. For example the Honda Civic gets 32 mpg combined while the Civic hybrid gets 44 mpg but because the hybrid’s higher sticker price it would take an extra six years to get the money spent back on a vehicle with similar features at today’s price for fuel.
In an interview with Bloomberg Mike Jackson, chief executive of auto retailer AutoNation Inc., based in Fort Lauderdale, Florida said that 75 percent of customers come in looking for a hybrid. However most are scared off as hybrid sales only account for 2.5 percent of the Florida-based dealerships sales.
“What happens from the 75 percent consideration to the 2.5 percent commitment?” said Jackson in an interview. “They look at the price premium for the technology, which is already subsidized and discounted, and say ‘the payback period is too long; not for me.’ It’s a back-of-the envelope conversation on the part of the American consumer.”
The two heavyweight hybrids, the Chevrolet Volt and Toyota Prius, have either seen slowing sales figures or multiple versions introduced over the last year. In 2011 the Volt only moved 8000 units while Toyota introduced the Prius c, which starts just under $20,000 and is expected to achieve 50 mpg. The Prius c could be a formula for massive success with its uncommon combination of great fuel economy and a cheap price tag.
Hybrid vehicles have been on the U.S. market for 10 years now but many consumers still aren’t ready to pay the premium required to acquire one. Reid Bigland, president of Chrysler Group echoed that sentiment as he unveiled the all-new 2013 Dodge Dart at the Detroit Auto Show this week. The Dart, which is scheduled to go on sale in the second quarter of this year, will not be offered as a hybrid initially.
“The delta you get in fuel-economy lift with a hybrid is continuing to shrink because of the efficiencies with the internal combustion engine” through advanced fuel injection, turbochargers and transmissions, Bigland said in an interview. “The pure economics are a tough case.”
Don’t expect hybrids to be thrown completely to the wayside just yet though. Hybrids will be an integral part for every auto maker as the EPA mandate for fleet vehicles to reach 54.5 mpg by 2025. Weight reduction and better aerodynamics will also help auto makers reach this goal in the short term but the jury is still out about long-term fuel economy goals.
Sergio Marchionne believes the underlying skepticism surrounding hybrids is justified. However while his company doesn’t utilize hybrid technology as much as fellow competitors do Marchionne believes hybrids will still play a role.
“If anyone thinks [auto makers] will meet future EPA rules solely with internal combustion engines, they are smoking an illegal substance,” Marchionne said to Bloomberg.