Toyota: How the Hybrid Race Went to the Swift

Toyota (TM ) not only makes more profit than any other automaker but also enjoys the best reputation for producing clean-running, fuel-efficient vehicles. Its gas-electric hybrid Prius is a public relations juggernaut and the centerpiece of a lineup with an average fuel efficiency of 28.9 miles per gallon, second only to Honda's fleet average. General Motors Corp. (GM ) and Ford Motor Co. (F ), which sell more pickup trucks and SUVs than Toyota, lag behind in fuel economy, with averages of 24.6 and 24.1 mpg, respectively, for their fleets.

As Toyota prepares to motor past Ford as the world's second-largest carmaker, it has become a textbook case on how a green reputation delivers a competitive edge. In the five years since the Prius' U.S. debut, Toyota's brand value has surged by 47%, to $28 billion, according to Interbrand. In the same period, Ford has been beset with numerous troubles, including a failure to meet its goals for SUV mileage gains or to exploit its well-regarded Escape hybrid. Its brand value fell 70%, to $11 billion.

How did Detroit blow it? More than anything, through inertia. For 20 years, GM and Ford earned outsize profits on supersize trucks and SUVs. And following the infamous failure of GM's EV1 electric car, a high-tech, high-cost econo-box seemed like anything but a good bet.

Detroit simply didn't see the potential for Toyota's odd little electric-gas car when the Prius made its debut in Japan 10 years ago. When energy prices spiked, Toyota was ready with a high-tech offering that many consumers embraced. Today, even if hybrids aren't exactly cost-effective, consumers keep buying them. From a few thousand sold in the U.S. in 2000, Toyota expects to move 250,000 hybrids next year. "We didn't appreciate the image value of hybrids," concedes GM's research and development chief, Larry Burns. "We missed that."

There's an ironic side to all this. In the U.S., GM sells more models that get more than 30 mpg than any other carmaker. And two Ford SUVs, the Expedition and Explorer, go farther on a gallon of gas than do Toyota's like-size models. "Toyota's fame for hybrids allows consumers to believe every one of its vehicles is the most fuel-efficient in its category—even if it isn't," says marketing consultant Dan Gorrell.

Now, GM has announced a plug-in Saturn hybrid and an advanced plug-in electric Chevy car. Both come ahead of any similar moves from Toyota. But GM has also set and missed such goals in the past. The value of green, it seems, only accrues when the rubber meets the road.

By David Kiley

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