Thanks to OPEC and Hollywood - Hybrids Become The Rising Star

DETROIT May 29, 2004; Poornima Gupta writing for Reuters reported that Hybrid vehicles made headlines last March after movie stars like Will Ferrell, Robin Williams and Tim Robbins used the Toyota Prius to get to the Academy Awards show.

Their environmentally conscious fashion statement seems to have foreshadowed a trend. This spring, more and more Americans are looking to buy one of a growing array of fuel-saving vehicles designed to run on gasoline and electricity.

"With gasoline prices reaching beyond $2 per gallon and the general concern over the U.S.'s dependence on foreign oil, hybrid vehicles are catching more consumers' attention," Prudential Equity Group analyst Michael Bruynesteyn said in a recent research note.

Hybrids hold only a tiny share of the U.S. car and truck market, but sales have climbed 36 percent so far this year, according to research firm R.L. Polk & Co.

The vehicles, which get up to 55 miles on a single gallon of gasoline, are no longer just for technophiles or environmentalists, Bruynesteyn said.

A similar trend had surfaced during the energy crisis of the 1970s, when many Arab nations cut off oil exports to the United States and other counties. Gas prices surged, and many Americans turned to smaller cars, only to trade them in for bigger models when fuel got cheap again.

Now people again appear to be staying away from gas-thirsty vehicles. Sales of the Hummer H2 sports utility vehicle, which gets 11 to 13 miles per gallon, have cooled in recent months. And there are signs that people are staying away from other larger SUVs.

At the same time, the cost of hybrids, which sell for an average of about $2,500 more than comparable gas-only vehicles, has limited their appeal since the first one, from Honda Motor Co. Ltd., went on sale in the United States about five years ago.

COST VS. SAVINGS

Total hybrid sales in the United States reached 43,435 vehicles last year, compared with 16.7 million for the overall car and truck market.

Dan Becker, director of the Sierra Club's Global Warming and Energy Program, said hybrid buyers could eventually make up the extra cost with tax subsidies and reduced gasoline consumption.

"People have to remember that they save a lot of money on gas at the pump," particularly when prices are so high, he added.

Hybrid vehicles use batteries to power themselves at slower speeds. The batteries charge automatically by capturing energy that is usually lost while braking.

Detroit's Big Three automakers, which book most of their profits on sales of big, low-mileage SUVs and pickup trucks, have lagged behind Japan's Honda and Toyota Motor Corp. in entering the hybrid market.

Besides Toyota's Prius, only two hybrid cars are available in the United States -- Honda's Insight and an electric-gas version of its Civic.

But Ford Motor Co. is launching a hybrid version of its popular Escape compact SUV this summer and has plans to roll out others in the near future.

"Among the Big 3, Ford is the clear early leader in the hybrid arena," said Bruynesteyn.

Hybrid versions of the Chevy Silverado and GMC Sierra from General Motors Corp. are also in the pipeline. The company, the world's largest automaker, has said it could build as many as 1 million hybrids by 2007.

HOLLYWOOD MUST-HAVE

Chrysler, a unit of DaimlerChrysler, is introducing a hybrid version of its Dodge Ram pickup truck.

However, Eric Ridenour, Chrysler's head of product development, said some automakers have overstated the benefits of hybrids, which only yield better fuel-economy in stop-and-go driving.

"Will hybrids become ubiquitous?" he said. "I don't think so."

But for now, they seem to be capturing the imaginations of consumers and automakers. The upcoming vehicles from Detroit will compete with new offerings from the Japanese, including hybrid versions of the Honda Accord, the Lexus RX SUV and Toyota Highlander.

"That will expand the appeal of the vehicles quite a bit," said R.L. Polk analyst Mark Pauze.

The two top-selling vehicles available now -- Prius and the Civic hybrid -- are both in the subcompact-to-compact category, he said.

As an indication of growing consumer demand, Toyota decided increase this year's Prius shipment to the United States to 47,000 cars from the 36,000 originally planned. And the Sierra Club's Becker noted that Prius buyers in some parts of the country must wait up to eight months their cars to arrive.

The New York Post termed Prius the "transportation of choice" at the Academy Awards, where several stars came via the Toyota car instead of a limousine as part of an effort by advocacy group Global Green USA.

Other entertainers, such as Cameron Diaz, Leonardo DiCaprio and Billy Joel, also tout their ownership of hybrids as part of a backlash against consumerism and America's love affair with gas-guzzling SUVS.

Even police officers are using hybrids to save money.

In Florida, the Martin County Sheriff's Department owns about two dozen of the newfangled cars and is planning to buy more.

"We consume 60 percent less fuel with these vehicles," said Sheriff Robert Crowder. The hybrid trucks and SUVs hitting the market soon are "probably going to be something we would be interested in."