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Where Are the Republican Hybrid Buyers?

Posted on May 9, 2009
Filed Under General News, Government | Leave a Comment

Washington Prius PHEVUnless you are willing to buy a windmill, the biggest green purchase out there is buying a hybrid car. Recently, the 1 millionth hybrid in the U.S. was sold, out of 135 million cars on the roads today.

That makes hybrid-buying a microtrend, and it is an accelerating one. While constituting less than 1% of all cars, hybrids represented approximately 2.5% of all new cars sold in March 2009 (21,000 of 858,000 cars sold). And it is up from 15,000 a month in March 2006 when overall car sales were a lot higher.

Hybrid buyers are far from typical car consumers. They also are far removed from the image of the budget-conscious motorist buying a hybrid to save some hard-earned scratch. I know one Prius owner who has two cars — a hybrid and a stretch limo — and carefully chooses which car to use, for an evening out or a trip to the mall.

Early hybrid buyers have been buying the cars less for their fuel efficiency than to make a statement about who they are. Just as owning a Mercedes used to scream luxury and refinement, so hybrids have been about forgoing luxury and making sacrifices to help save the planet. Sometimes that statement has been a sincere effort by environmentally concerned citizens who are spending more than they have to help us cut down on carbon emissions. Other times people buy hybrids just for the panache of it.

Prius has led the way, holding 41% of the hybrid market share, and has to be considered today’s ultimate green status symbol. Lexus has tried to combine green with high-end luxury in its GS460h — a huge Mercedes S-class-like car that uses the hybrid engine to boost power rather than mileage; but at $120,000, it comprises less than 1% of the hybrid marketplace. Now more automakers are poised to offer new 2010 hybrids in the mid-scale and mid-priced car segments — cars like the Ford Fusion that for the first time are being offered in gasoline and hybrid versions — but at a significant cost difference: the hybrid’s list price is $8000 higher than the $19,270 base gas-only car.

The economics of hybrids has been daunting, and often confusing. To make up for cost differences that vary between $1,700 and $11,000, the federal government has stepped in and offered incentives which can run as high as $3,400 a car, and some states also have additional incentives. But the politics of it have been complex. Most hybrids are made by Japanese manufacturers and Congress didn’t want all the subsidy to wind up going to Tokyo, so members approved a complex formula in which only the first 60,000 cars from a manufacturer get the full tax credit. To get the full tax break, you have to buy a Japanese hybrid in the early months of the year. You can linger a few more months to pick out an American one.

The price of gasoline has not been helping. If you drive 15,000 miles a year and are getting 20 miles a gallon, you spend $1500 a year on gas (assuming $2 a gallon). A 50% per cent boost in gas mileage to 30 miles per gallon saves you $500 a year. You need to keep the car a lot of years to save $8000. If on the other hand, gas returned to $4 a gallon and hybrid-based mileage improved to 40 mpg, the yearly savings would be $1500. That starts getting interesting as a value proposition — especially for high-mileage drivers.

So except for most customers, hybrids have been more of a political statement than a prudent financial choice. Early buyers fit a simple profile: they largely earned more than $100,000 a year, were more likely to have college or post-college degrees, and were more likely to be Democrats than Republicans, by more than two to one. The hotbeds of hybrid-buying have been in places like Seattle, San Francisco and Portland, Ore. — communities with strong environmental movements and upscale communities.

But look at a state where motorists typically drive much longer distances on average — say, Arizona. Hybrid buying there has been nearly 10 times lower per capita compared with Seattle sales. A look at the presidential election map reveals that Republicans are a lot more likely to live in states with wide open spaces and long driving distances, but are far less likely to buy a hybrid. Perhaps as part of the Republican party’s makeover, it might want to ponder this. Detroit and Tokyo, too, might want to think about how they are going to sell these new mid-priced hybrids to politically resistant customers.

President Obama took a big step a few days ago toward making the federal government a major buyer of hybrids, ordering the purchase of nearly 20,000 of them. Mayor Michael Bloomberg tried a different approach in New York City. He mandated that all cabs become hybrids, and threw the costs onto taxi fleet owners, and by extension drivers and consumers. But the courts struck down the mayor’s plan, and many owners have opted not to buy them, despite incentives. They say that the hybrids weren’t built to be cabs and lack the heavy-duty features of their trusty Crown Victorias. Even in San Francisco, where hybrid taxis were encouraged, only about 15 per cent of the drivers and fleet owners made the transition.

According to a poll we conducted for the Wall Street Journal’s ECO:nomics 2009 conference by my firm Penn, Schoen and Berland, huge numbers of Americans would like to buy one if the price were right: two out of three expect to buy a hybrid in the next few years and 80% want a more fuel-efficient car. Consumers typically estimated the additional costs as quite high and as a barrier to purchase today, but there is considerable pent-up demand which could be turned loose if costs were to come down, or gas prices go up. Such developments would put hybrids right in the value sweet spot for more motorists.

Without a clear cost advantage, hybrid sales have to rely primarily on the segment willing to pay more for green — a segment that has been hard-hit by the financial crisis yet still seems to be growing. But if we really want to expand the number of buyers, we should develop new arguments that appeal to the Republicans who have been holding back. To look at it another way, every hybrid car reduces not just greenhouse gases but reduces our dependence on foreign oil — especially the new plug-in hybrids under development. And that means that buying a hybrid is not just good for the environment, but good for our energy independence and national security.

To rev up sales further, hybrids need to be seen as not just green, but as red, white and blue. Even if they are made mostly in Japan.

SOURCE: Wall Street Journal

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