Green Energy: Why Hybrids Still Need Government Motors

If more than a dozen years of uninspiring hybrid car sales are any predictor, a new generation of even more expensive plug-in electric models now coming on the market, such as General Motors' (GM) Chevy Volt and Nissan's Leaf, will be a tough sell with consumers.

U.S. sales of hybrids are projected to decline for the third year in 2010, and will account for less than 3 percent of all auto sales. For American automakers, the news gets worse: More than half of all those sales were Toyota (TM) Priuses, and Uncle Sam bought almost a fourth of the GM and Ford Motor (F) hybrids, according to government data obtained by Bloomberg News. "The lesson learned is that it isn't easy to make these vehicles mainstream," says Brett Smith, who specializes in alternative vehicles at the Center for Automotive Research, an independent group in Ann Arbor, Mich. "They are still not near the point where they are cost-competitive in the market."

President Barack Obama has committed more than $11 billion in funds to support the technology and has set a goal of 1 million electric cars on the road by 2015. With hybrids struggling for market share, that target looks daunting.

A traditional hybrid such as the Prius, which starts at about $21,650, uses electric motors and batteries to supplement the gasoline engine and doesn't need to be plugged in. By contrast, Chevy's Volt, expected to fetch $41,000, can drive fully electric for 35 miles at a cost of about $1.50 a day. GM says it aims to sell about 10,000 of the cars through 2011 and 45,000 in 2012. Nissan's Leaf, with a sticker price of $32,780, will run about 73 miles on a single charge, and the company expects to sell as many as 25,000 in the U.S. during the first year. Ford will join the fray late next year with its first all-electric passenger car, a Focus compact.

U.S. sales of hybrids and electric cars are projected to be 2.2 percent of passenger vehicles that will be sold globally this year, J.D. Power and Associates (MHP) in Troy, Mich., said in an Oct. 27 report. That may rise to 5.2 million units in 2020, the report says. Since Honda Motor (HMC) introduced the first model in 1999, U.S. hybrid sales have totaled about 1.8 million, or about 1 percent of the 175 million vehicles sold in that period.

These cars aren't bargains: Hybrids cost about $3,000 to $5,000 more than a comparable conventional gasoline-fueled car, Smith says. The premium is $10,000 to $20,000 for plug-ins such as the Volt and Leaf, he says. The General Services Administration, which runs the government's fleet, bought at least 14,584 hybrid vehicles in the last two fiscal years, or about 10 percent of total purchases, according to the data obtained by Bloomberg. About 3,100 of the government's hybrids were paid for out of the 2009 economic stimulus package, says Sara Merriam, a GSA spokeswoman. The federal government buys hybrids almost exclusively from U.S. companies, and Merriam says the government's purchases will increase. At some point, carmakers will be forced to confront the question of viability, says Jeff Schuster, director of forecasting at J.D. Power. "For this technology to be accepted," he says, "it needs to be done without a government crutch."

The bottom line: As the next generation of plug-in cars comes online, a decline in hybrid sales doesn't bode well for their success.

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