Detroit blows more smoke on hybrids

By SHARE

So now that hybrids have enjoyed their moment in the sun, the obligatory backlash seems to be forming. Ford Motor Co., struggling to return to profitability, recently backed away from its bold, less-than-year-old plan to build 250,000 hybrids a year by 2010.

CEO Bill Ford told the New York Times that the company will begin to emphasize other kinds of fuel-saving efforts, which basically means Ford is cutting costs by "investing" in technology, like ethanol, that it has already developed. Some analysts say hybrids haven't lived up to the hype anyway: A recent study by CNW Marketing Research found that only 6 percent of car shoppers who start out considering a hybrid actually buy one. By contrast, more than 80 percent of shoppers who put a Mercedes on their shopping list end up driving one home.

But it would be a mistake to write off hybrids as a fad, as some executives in Detroit have long insisted. The companies that are really pushing hybrid technology—Toyota and Honda—aren't slowing their efforts; they're intensifying them, with new hybrids like the Accord and the Camry. And those two automakers have the most acute strategic vision in the business.

Both companies have viewed hybrids as part of a broader strategy—a way to generate enthusiasm for fuel-saving technology, a shrewd campaign to burnish their green credentials, and a possible steppingstone to hydrogen-powered cars or other breakthroughs. And sales aren't exactly sluggish. Toyota is likely to sell about 110,000 Priuses this year, along with about 30,000 Camry hybrids. And the company says sales are limited by its ability to produce hybrids — not by flaccid demand — which is backed up by pricing data. Few, if any, hybrids sell below manufacturer's suggested retail price (MSRP), meaning there's no daylight between demand and supply.

In Detroit, many executives have insisted that the fuel-skimping vehicles are simply not cost-effective. In terms of pure numbers, they're right: A hybrid usually comes with a $3,000 to $4,000 premium tacked onto the price, and in ordinary driving it takes about seven years for the improved gas mileage to make up the difference. But there's plenty of research by now showing that few people buy hybrids to save money. They buy them to express their disdain for gas guzzlers, to make a personal statement, and to support new technology.

Detroit is now trying to shift the focus away from hybrids, toward "flex-fuel" vehicles that can run on ethanol. But the numbers still don't add up. The CEOs of GM, Ford, and Chrysler recently sent an open letter to members of Congress saying they plan to build 2 million vehicles a year that can run on ethanol blends of up to 85 percent, double current production. If that helps generate interest in ethanol, along with an ethanol infrastructure, it's good news. But from a consumer's perspective, ethanol comes up short. It costs less than gasoline, but mileage is worse too, and on the whole, it can cost a typical driver about $250 more per year to fill up on ethanol. And the fuel is hard to find: There are just 619 ethanol stations in the whole country, an average of about 12 per state. How many consumers are going to drive far out of their way to buy fuel that ultimately will cost more than the gasoline that's available down the road?

Toyota and Honda don't offer flex-fuel vehicles. But they easily could, and it would be a lot easier for Japan to catch up with the Detroit 3 on ethanol than for Detroit to catch up to the Japanese on hybrids: Converting a conventional car to a flex-fuel vehicle takes only about $100 worth of modifications on the assembly line, whereas building a hybrid is complex and highly technical (one reason Ford is scaling back its ambitions).

When Toyota and Honda announce plans to sell flex-fuel cars, that will be a good sign that it's strategically smart. For now, building millions of flex-fuel vehicles seems like little more than a cheap, convenient way for Detroit to earn some environmental cred. A year from now, don't be surprised if Ford has announced new goals that are within even easier reach. Or if Toyota's hybrid sales are up.

--Rick Newman