Obama Bolsters U.S. Hybrid Auto Sales in Waning Consumer Market

Ford Motor Co. Fusion Hybrid
The government purchased about 29 percent of all Ford Fusion hybrids manufactured since Obama took office in 2009. Photographer: Craig Ruttle/Blomberg News

President Barack Obama’s administration has bought almost a fourth of the Ford Motor Co. and General Motors Co. hybrid vehicles sold since he took office, accelerating federal purchases as consumer demand wanes.

The U.S. General Services Administration, which runs the government fleet, bought at least 14,584 hybrid vehicles in the past two fiscal years, or about 10 percent of 145,473 vehicles the agency purchased in that period, according to sales data obtained by Bloomberg under a Freedom of Information Act request. In fiscal 2008, hybrids accounted for less than 1 percent of government purchases, the data showed.

The government is boosting investment in a technology that has failed to win broad acceptance after more than a decade in the marketplace. Consumer sales of hybrids are headed for their third consecutive yearly decline. Government agencies and businesses have said they also will purchase all-electric models being introduced by automakers including GM.

“At some point, the reality is that for this technology to be accepted, it needs to be done without a government crutch,” said Jeff Schuster, director of forecasting at J.D. Power & Associates in Troy, Michigan. “But without a huge gas-price increase or further government demand, the natural demand just isn’t to be there.”

Stimulus Money Used

About 3,100 of the hybrids purchased by GSA were paid for out of $300 million that the agency received from the 2009 economic stimulus package, said Sara Merriam, a spokeswoman for the agency, in an interview. Another 5,600 were bought with proceeds from selling older cars in the government fleet, she said. A majority of fiscal 2009 hybrid sales came after Obama took office in January 2009.

“This is the beginning,” Merriam said. “Our main goal is to increase the fuel efficiency of the federal fleet. The other goal is to drive the market toward cleaner technologies. It’s in the early stages of the government acquiring more hybrids and in larger quantities.”

The models purchased by the government ranged from $23,072 to $47,079, according to the data.

The government paid an average of $5,281 less for its hybrid vehicles than sticker prices at a dealership, according to a comparison of the GSA purchase data with prices collected by Edmunds.com, a consumer information website.

Global sales of hybrids, plug-in hybrids and electric cars are projected to be 954,500 vehicles, or 2.2 percent of the 44.7 million passenger vehicles projected to be sold this year, J.D. Power said in an Oct. 27 report. That may rise to 5.2 million units in 2020, according to the report.

Not Cost Competitive

“The lesson learned is that it isn’t easy to make these vehicles mainstream,” said Brett Smith, who specializes in alternative propulsion vehicles at the Center for Automotive Research in Ann Arbor, Michigan. “They are still not near the point where they are cost-competitive in the market.”

Toyota Motor Corp. sold the first hybrid Prius in Japan in 1997 and Honda Motor Co. introduced the first hybrid to the U.S. in 1999. Total U.S. hybrid sales since then have been about 1.8 million, or about 1 percent of the 175 million cars and trucks sold during that period. More than half of those hybrids were Prius models.

The U.S. government buys hybrids almost exclusively from Ford and GM. It bought only 17 Prius models and five of Honda’s Civic hybrids in the past two years. Chrysler Group LLC stopped making hybrids in 2008 after about two months of production.

The government purchased about 64 percent of GM’s Chevy Malibu hybrid models and 29 percent of all Ford Fusion hybrids manufactured since Obama took office in 2009, the data show. GM stopped making the Malibu hybrid in 2009 after lack of consumer demand.

Leading by Example

GSA also bought about 14 percent of Ford Escape hybrids. Obama leased a hybrid Escape for himself in May 2007, before he was elected president. He turned it in this year because he’s rarely allowed to drive.

“It is good that the government leads by example,” Dan Becker, director of the Washington-based Safe Climate Campaign, said in an interview. “At a time when we’re just beginning the era of the hybrid, it’s a positive sign that the government is stepping up to the plate and helping build that market.”

The next wave of new technology vehicles are so-called plug-in hybrids and electric models. GM’s Chevrolet Volt, which has a gasoline engine primarily for charging the battery, and Nissan Motor Co.’s full-electric Leaf go on sale later this year. Ford’s Transit Connect electric delivery van is already on sale.

Plug-In Goals

Obama has set a goal of 1 million plug-in vehicles on the road by 2015 and has committed more than $11 billion in taxpayer funding to help support the technology.

GSA has accepted bids for contracts that may supply 100 electric delivery vehicles from a Ford dealership in Minnesota and Smith Electric, an affiliate of Washington, England-based Tanfield Group, the agency said on its website.

Hybrid and electric vehicles can be $3,000 to $20,000 more expensive than gasoline models, Smith said. The U.S. offers as much as $7,500 in tax credits for the purchase of plug-in vehicles and about a dozen U.S. states offer additional incentives.

Hybrid and electric vehicle technology only makes sense if it can stand without government support, Ford Chief Executive Alan Mulally told Detroit-area supplier executives in a Nov. 8 speech that was closed to the media.

“He was saying, ‘You have to have a business that doesn’t need all these government incentives,’” Karen Hampton, a Ford spokeswoman said, recounting the talk. “Incentives have a role to play when you’re trying to get new technology off the ground or change behaviors, but it’s not meant to be a permanent part of the business equation.”