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Hybrid Demand Challenges Industry

Posted on March 28, 2009
Filed Under Chevrolet Volt, General News, Toyota Prius | Leave a Comment

2010_toyota_priusWhen Tom Weatherbee swapped his minivan for a Toyota Prius hybrid two years ago, he was mostly hoping to save money at the gas pump.

But he was pleasantly surprised by both the requests from friends for a test drive and the grins its aerodynamic profile drew at the grocery store, and he basked in the attention.

“Even the people who own more expensive cars acknowledge the Prius as being pretty cool,” said Weatherbee, 51, an electrical engineer who lives outside Traverse City, Michigan.

That, in a nutshell, is the challenge for Toyota Motor Co. as it looks to build on the success of the Prius, the leading hybrid vehicle in the United states, and also in Canada along with the Camry.

For rivals such as Honda Motor Co. and General Motors Corp., they are also seeking a share of the projected boom in greener cars.

Even with Canadian gas prices hovering around $1.20 a litre, and U.S. gas prices over $3 a gallon, marketing experts say buyers want hybrids that not only reduce fuel consumption and emissions, but also make a statement about the driver’s commitment to the environment.

The result is one of the biggest challenges to the auto industry since Detroit figured out how to market the hulking, gas-guzzling sport utility vehicles that dominated the market in the 1990s.

Toyota’s Prius, with a list price of $29,500 in Canada and fuel consumption of 5.2 litres/100 km (45 miles per gallon), commanded 51 per cent of the U.S. hybrid market in 2007. Sales in Canada are much smaller, but consider that in Canada, until 2004, sales of hybrid cars were less than 1,000 a year. But between 2004 and 2006, annual hybrid sales jumped 300 per cent to just under 9,000.

Now the No. 1 Japanese automaker is considering extending the Prius lineup — effectively making it a brand on its own.

GM, meanwhile, is focusing on its all-electric Chevrolet Volt in a bid to create its own “halo” car. Although GM will not sell the Volt until at least 2010, it has already started featuring it in TV ads.

GM invited over 200 Volt enthusiasts from all over the United States to the New York auto show to meet with designers and developers, building further buzz among a group of devotees who call themselves the “Volt Nation.”

Honda, which beat Toyota to the U.S. market with the Insight hybrid in 1999, but withdrew it in 2006, is planning a more economical hybrid for 2009 that takes aim at the Prius. Honda’s Civic hybrid, at $26,000 in Canada, and with the same fuel consumption as the Prius, is the No. 2 hybrid, but was outsold by the Toyota vehicle by a more than five-to-one margin in 2007 in the U.S.

Hybrids, which shift between a battery and a combustion engine to boost fuel economy, made up just three per cent of U.S. sales in 2007. But growth was 40 per cent from the previous year, and there is plenty of room for that to continue, given that they account for just 0.3 per cent of registered vehicles. Gas-thirsty SUVs, by contrast, account for more than 14 per cent of vehicles on the road.

Jon Osborn, research director at consulting and research firm J.D. Power & Associates, said automakers must tailor their message to a small but emerging market.

“Only about six per cent of the U.S. population buys a new car each year,” Osborn said. “It’s not quite a needle in a haystack, but it’s a small target to shoot for.”

One complication for car makers has been inaccurate market research. In research groups, car buyers have said they would consider buying a car that looked just like established models, with just a badge on the back to identify it as a hybrid.

But George Peterson, president of consulting firm AutoPacific Inc. in Tustin, Calif., said that is where everyone except for Toyota have missed the mark.

“Our respondents are lying through their teeth,” Peterson said.

“The dramatically different look of the Prius is something that’s appealing,” he said. “The Ford Escape and Toyota Camry hybrid have not been as successful because they don’t look as different.”

Toyota questions that analysis.

“The buyer is not necessarily trying to make a statement,” said Toyota spokeswoman Denise Morrissey. “They’re trying to make a smart choice.”

Ford Motor Co. has also questioned the theory that drivers want a halo with their hybrids by playing up the fact that its Ford Escape hybrid looks the same as a regular Ford Escape SUV. But sales of the hybrid Escape, which costs around $32,000 in Canada and gets 7.8 km/100 litres, pale in comparison with the Prius.

Toyota says Prius buyers are equally split between men and women with a median income between $60,000 and $80,000. It markets the Prius on its green credentials. One recent TV ad showed a gas station reduced to the status of a museum visited by tourists in a happy carbon-free future.

A study by J.D. Power released in March found hybrid buyers tend to have higher education levels and much higher income than the average new car buyer. They are also about four years older on average.

Wes Brown, an analyst at Los Angeles-based automotive marketing firm Iceology, said automakers could apply some of the lessons learned in marketing sport utility vehicles in the 1990s to the nascent boom in hybrids.

Brown said it took automakers years to realize that while car buyers were saying they wanted rugged, sporty trucks, what they really wanted was a vehicle that looked rugged and sporty.

SUVs didn’t become the dominant vehicle on the road until manufacturers added luxury features and made them drive like cars instead of trucks — while keeping what Brown calls a “get-the-hell-out-of-my-way” size and shape.

SOURCE: Ottawa Citizen

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