Hybrid Sales Increasingly Mirror the Overall Market
June 14, 2007

As hybrid vehicles increase in volume and proliferate in models, the segment looks increasingly like any other vehicle segment in the marketplace and mirrors the overall market.

Fueled by record gas prices, hybrid sales in May hit an all-time high of 2.9 percent of the U.S. market, or a total of 45,095 vehicles. That makes the segment bigger than some car companies in volume and market share. Sales of every individual hybrid model increased from April to May.

What has changed is the long lines to buy hybrids and the exorbitant price premiums charged for them. An increase in the number of models and increased volumes of those models are providing consumers with more choice and bargaining room at the dealership so the huge price premiums are largely gone.

Instead, transaction prices generally are dropping and incentives overall are climbing, following the trend of the entire market, according to Edmunds.com’s analysis.

Mirror Image

The average transaction prices for hybrids as a category followed the overall market. The transaction prices of the average hybrid and the average new vehicle are close and the lower percentage change is almost to the decimal point, according to Edmunds.com’s analysis:

· The average transaction price for new vehicles overall slid by 1.8 percent from $28,244 in April to $27,739 in May;

· The average transaction price for hybrid vehicles slipped 1.3 percent from $27,531 in April to $27,182 in May.

Reinforcing that all hybrids are not created equal in the eyes of consumers, incentives varied, depending on the category of hybrid, again mirroring the overall market:

· Smaller, less expensive hybrids that emphasize fuel-efficiency saw incentives decrease, due to strong demand, and in some cases, tight supplies. The segment in total saw a drop in Edmunds’ Total Cost of Incentives (TCI) calculation by 36.3 percent to an average of $511 a vehicle. Days-to-turn is below industry average;

· Smaller, less expensive cars and SUVs have had incentives decline in the past three months, causing transaction prices to edge higher since March, because of strong demand and tight supplies;

· Higher-priced hybrids that focus on performance more than on fuel-efficiency have higher incentives. Across the segment, the TCI on performance hybrids increased 7.0 percent to an average of $2,107 per vehicle, from April to May. Days-to-turn is at or above industry average; some models have days-to-turn in the triple digits;

· In the overall market, demand for large and luxury SUVs as well as full-size trucks is soft, prompting manufacturers to boost incentives.

Toyota Prius: Cut Price, Double Sales

The Toyota Prius, the best-selling hybrid, is an intriguing story.

In April, Toyota significantly lowered prices for select equipment on Prius hybrid models. The price reductions ranged from $600 to $2,000, in equipment packages, some of which were slashed by half.

Toyota came up with the price reductions to replace the incentives that had been on the Prius. The TCI on the Prius was $669 in May compared with $1,004 in April. The price reductions also helped offset the federal tax rebate on the Prius, which dropped to $788 on April 1 from $1,575.

The result, not surprisingly, was that transaction prices fell, to $23,984 in May from $24,224 in April. However, sales nearly doubled; Toyota sold 24,009 Prius models in May, up from 13,056 in April.

In contrast, Toyota’s other hybrids reinforce that consumers prefer smaller, inexpensive and highly fuel-efficient hybrids more than higher-priced, performance-oriented, luxury ones.

Sales of the Toyota Camry Hybrid and Toyota Highlander Hybrid are up significantly, though transaction prices dipped and TCI is climbing. In fact, the Highlander Hybrid had the highest TCI of any hybrid in May, at $3,161, up from $3,084 in April. Yet days-to-turn is in the 30s.

Sales of the Lexus hybrid models, the GS 450h and RX 400h, edged somewhat higher, transaction prices fell and incentives are mixed –- down to nearly nothing on the GS and up marginally on the RX. Days-to-turn on the GS, however, is in the triple digits, suggesting higher incentives are on the horizon. Days-to-turn on the RX is about 30 days.

Worldwide, Toyota hit the 1 million sales mark globally for hybrids last week.

Ford: New Models Marketed

Spruced-up product and some marketing are paying off for Ford in higher sales of its Ford Escape Hybrid and Mercury Mariner Hybrid.

The already-released 2008 models got an exterior makeover, the interior was improved in terms of appearance and functionality, and extra insulation was added for a quieter ride. Side and head curtain airbags are now standard, as are automatic climate control and an MP3 player input jack. The optional navigation system was revamped as well.

In addition, Ford has been featuring the hybrids in its national advertising.

As a result, sales of the Escape Hybrid climbed to 2,680 in May from 1,890 in May. The average transaction price dipped only slightly from to $27,953 from $27,997 in April. TCI dropped 43.2 percent to $650 from $1,145.

Similarly, Mercury Mariner sales rose to 534 units from 385 in April; the average transaction price dipped to $29,632 from $30,237. TCI dropped to $951 a vehicle from $1,744 in April.

And dealers nationwide are screaming for more. Days-to-turn of the Ford Escape Hybrid is just 21 days, suggesting many dealers have none. Days-to-turn on the Mariner Hybrid is higher at 40 but still low. 

Nissan: First Hybrid

Nissan, generally lukewarm on hybrids, introduced its first one -– the Altima hybrid –- this year in limited markets.

Nissan sold 821 Altima Hybrids in May compared with 483 the month before. The average transaction price dropped some $1,000 between the two months, to $25,059 in May from $26,416. TCI on the Altima Hybrid was $923 in May.

Honda: Accord Hybrid Goes Away

Honda announced last week that it has ended production of the current Accord hybrid and the next-generation Accord, due this fall, will not include a hybrid version. The Accord Hybrid, which focused on performance more than fuel economy, was an experiment that failed.

The numbers on the Accord Hybrid are an unexplainable mishmash. Sales increased to 439 in May from 318 in April. In some months this year, sales have been only in the 200s.

Oddly, the Accord Hybrid was the only hybrid to see transaction price increase from April to May -– to $29,679 from $29,397. Yet, the TCI also climbed -- to $1,980 from $1,593 in April. And days-to-turn on the Accord Hybrid is in the triple digits.

Short-term Hybrid Outlook

Sales of the less-expensive, fuel-efficiency-oriented hybrids are expected to be extremely strong this summer, according to Edmunds.com’s analysis of consumer purchase intent. The analysis measures increases and decreases in consumer intentions based on their shopping behavior on Edmunds.com.

Large increase in consumer purchase intent, suggesting higher sales in the next couple of months, are being seen right now on the Toyota Prius, Camry and Highlander hybrids, Ford Escape Hybrid, Mercury Mariner Hybrid and Nissan Altima Hybrid.

Long-Term Hybrid Outlook

What will be interesting to watch is the fall introduction of the Chevrolet Tahoe and GMC Yukon hybrids that use the industry’s first two-mode hybrid system, developed by General Motors with DaimlerChrysler and BMW. Chrysler will introduce the two-model hybrid versions of the Dodge Durango and Chrysler Aspen early next year.

Will consumers who really want a large SUV turn to the hybrid versions to save fuel? Or will they turn away from hybrids that are large SUVs?

While it’s not clear where the hybrid market will peak, it is safe to say we’re not there yet -– not even close.

A recently released report from UBS and Ricardo predicts diesel and hybrid sales will hit 2.7 million a year by 2012, or about 15 percent of the U.S. light vehicle market. Hybrids will be at 1.2 million sales a year; diesels at 1.5 million.

Automakers plan to launch numerous hybrids in the U.S. the next few years. In fact, the April issue of Ward's AutoWorld reported that U.S. buyers could have at least 25 hybrid-electric vehicles to choose from by the 2009 model year, barring any cancellations of programs. That's about double what's available to consumers now.

Posted by Michelle Krebs at 6:49 AM under Analysis , Featured , Technology | Comments (3) | digg this | Seed Newsvine