California Signals Importance Of Hybrids
Special To The Auto Channel
By August Cole, CBS.MarketWatch.com
SAN FRANCISCO Aug. 23, 2003 (CBS.MW) -- When General Motors and DaimlerChrysler dropped their lawsuit against California's Air Resource Board last week, they signaled just how important the hybrid-vehicle market is going to become not just in the West but nationwide.
There's just one problem. Japanese automaker Toyota already has a lead in the segment, and that has caught the attention of marketing and financial analysts alike.
While pushing a range of products from the popular Camry sedan to thirsty V8-powered SUVs and large trucks, Toyota has also been working the other end of the U.S. market with its electric-and-gasoline powered Prius sedan for a few years.
The car's diminutive stature belies its importance as the solid beginning of the company's accelerated push into the hybrid electric vehicle, or HEV, market.
Rivals, who know that a bigger Prius is due this fall and that a Lexus hybrid SUV is also on the way sometime next year, are on notice.
"GM, Ford, Chrysler, most of the smaller Japanese brands have one enormous fear. It's called Toyota," said Art Spinella of CNW Marketing in Brandon, Ore.
"When Toyota says it's going to get heavily into the hybrid market and address the environmental concerns, you're spitting in the wind if you think you can run against that kind of attitude or competitor," he added.
And when it comes to marketing cars, experts inside and outside the industry agree that these trends start in California.
Navigating the current
GM and DaimlerChrysler said they dropped the lawsuits against the California Air Resource Board's 2001 zero-emission vehicle regulation after the new language and rules were added this year to accommodate hybrid and more efficient gasoline-powered car development. With the new rules established in April, fuel cell development also comes in to play.
The rewritten zero-emissions vehicle rules specifically addressed the companies' concerns, said Jerry Martin, spokesman for CARB, while still holding true to the group's mission: protecting public health.
The new rules should help bring about hybrid and fuel cell developments that can be expected to make all cars more efficient. Previous legislation designed to push the development of electric cars never really took hold within the industry or among consumers.
For the average consumer, there aren't a lot of choices for hybrid electric vehicles. Honda's Civic and Toyota's Prius are among the most visible and best known.
The automakers involved argue that consumers should lead the way on product development, not government regulators asking for rules that go against what people appear to want.
"You can't mandate a vehicle that doesn't have the utility that customers expect," said DaimlerChrysler's spokeswoman Kathy Graham.
GM spokesman Dave Barthmuss made a similar point. "ZEVs aren't going to shape any product development at all. Consumer choice is going to shape product development," he said. "The idea is to provide as much choice as possible all the while meeting California's clean-air targets."
Toyota, which designed Prius around a hybrid gas-electric drivetrain, also said it's up to consumers. "It's our feeling that the customer is king or queen. The market will tell us what kind of products to produce," said Ed LaRocque, Toyota national manager for advanced technology vehicles.
Consumer acceptance rising
There are signs that newly energy-aware drivers may be ready to try something different. Despite the tepid reception for all-electric cars, more Californians in particular appear to be ready to give hybrids a try.
According to data from Spinella, the acceptance of hybrids priced at over $20,000 is at 18 percent in 2003, up from 5 percent in 1999. Toyota sold about 22,000 Prius in 2002, a small number for the automaker overall but an important inroad to establish itself in the sector among dealers and customers alike.
Yet fuel economy is low on the list of priorities for buyers, according to DaimlerChrysler's (DCX: news, chart, profile) Graham. It typically ranks 20th or lower, she said.
From Wall Street's perspective, the "green" light is worth watching.
"The industry looks to be embracing HEVs now more than they appeared to a year ago because all vehicles, including fuel cell and diesel powered, will be HEVs in the future. And it looks like Toyota's HEV cost and driving performance is better than most thought," wrote Ron Tadross, auto analyst at Banc of America.
In GM's (GM: news, chart, profile) case, the company is going to take some of its most popular vehicles and offer hybrid gas-electric engines as an option. Honda's approach was similar with the Civic. Other automakers like Ford (F: news, chart, profile) are also getting ready with their products.
To find examples of what the zero-emission vehicle push has meant to drivers, CARB's Martin points to the growing list of ultra-efficient gasoline powered cars called partial-zero-emission vehicles, or P-ZEVs.
It's an accomplished clique with cars like Ford's Focus and BMW's 325 along with offerings from Honda (HMC: news, chart, profile) and Toyota (TM: news, chart, profile), among others. That list is proof enough for CARB's Martin that the pursuit of higher emissions standards has paid off for consumers.
To see if it will ultimately pay off for the automakers and their shareholders, look no further than California.
It's an important state. Toyota, for one, makes about a third of its U.S. vehicle sales there. If buyers are to begin accepting hybrids as something more than cars for the hemp-and-homeopathy crowd, chances are the revolution will start in California. Toyota wants to sell 300,000 hybrids globally in 2005, with about 40 percent in the U.S.
"Hybrid can also mean performance as well as a clean-air solution," said Toyota's LaRocque. And a car's fun factor is one thing that you can't legislate.
August Cole is spot news editor at CBS.MarketWatch.com in San Francisco.