'Green' cars a tough sell

Nov 14 - McClatchy-Tribune Regional News - Dan Gearino The Columbus Dispatch, Ohio

Hybrid vehicles are worth a little less green these days. And that might be a discouraging sign for automakers investing heavily in vehicles that run, in part or in full, on an electric motor. Resale values of the Toyota Prius and other gas-electric hybrids have taken a hit because of stable fuel prices and competition from newer compact cars. Hybrids are three of the four vehicle segments with the greatest drop in resale value this year, according to Kelley Blue Book, a vehicle-pricing guide. The resale value of the segment leader, the Prius, has dropped an average of 7.9 percent. The numbers are based on the selling prices of used vehicles from the 2007 through 2009 model years. "I just don't think there is the compelling argument that once existed for hybrid vehicles," said Alec Gutierrez, senior analyst of vehicle valuation for Kelley Blue Book. Sales of new Priuses are down 2 percent from last year. The model, with 115,065 new units sold through October, is seven times as popular as the next hybrid, the Honda Insight, so when its sales are down, the whole category takes a hit.

But the numbers come with caveats. Toyota sales have been slammed by safety recalls this year, and then inflated by heavy discounting. Those two factors make it difficult to say anything conclusive about the results.

"We remain bullish on hybrid technology throughout this decade," said Curt McAllister, a Toyota spokesman. "Toyota is committed to hybrids as the core of our advanced-technology developments. We know that gas prices have a tendency to affect demand for hybrids, but hybrid costs continue to decrease as performance improves, making them affordable for mainstream buyers."

One thing that can be said conclusively is that fuel prices have been stable for the past two years. Even with last week's spike to nearly $3 per gallon on average, prices have remained far below the $4 highs of mid-2008. Such prolonged stability has led analysts to suggest that this might be the long-term trend.

"We don't see a historically dramatic increase in fuel prices over the next 10 years," said Dave Sargent, vice president of global vehicle research for J.D. Power and Associates, a research group.

He said he wouldn't be surprised if prices rise a little, but he doesn't think they will double.

Last month, his organization issued a report saying global demand for hybrid and all-electric vehicles was overhyped. Sales are projected to reach 5.2 million units in 2020, which would be about 7 percent of all new-vehicle sales. That would be about three times the current market share, although it would still be little more than a niche.

The forecast was released as automakers are preparing to launch several of these types of models. General Motors will begin selling the plug-in hybrid Chevrolet Volt in selected markets this year. Nissan is introducing the all-electric Leaf.

Several startup companies are also entering the fray, including Coda Automotive, which will soon release its all-electric sedan. The company is seeking a federal loan to open a battery factory in Columbus.

As Sargent sees it, automakers and the U.S. government are wise to invest in new technology, but they need to be realistic about the short-term sales prospects.

Bandwagon jumpers

Despite the drop in demand, hybrid enthusiasts remain a devoted bunch.

"I really don't feel any different about it," said Aaron Carito, 30, an educational aide from southwestern Ohio. "The real reason I bought a Prius wasn't fuel prices, but the cost of ownership."

People like him were among the early adopters when Toyota and Honda introduced some of the first mass-market hybrids in the late 1990s. The vehicles run on battery power along with a gasoline engine.

Carito estimates he is still saving money with his Prius because he has lower maintenance costs than he did with conventional-engine vehicles, in addition to the fuel savings.

He draws a distinction between long-term hybrid owners and people who made a short-term response to fuel prices. "I think a lot of people jumped on the bandwagon when gas hit $4 per gallon," he said.

Some of the most formidable competitors for hybrids might be compact cars with conventional engines. New models such as the Chevrolet Cruze offer better fuel economy than their predecessors.

"There have been some significant technological improvements in just your standard, ordinary compact car that don't have the price premium of a hybrid," Gutierrez said.

A new Prius has a sticker price that starts at $22,800, which is substantially more than compact cars such as the Cruze, starting at $17,000, the Toyota Corolla, starting at $15,500, and the Honda Civic, starting at $15,600. (The prices do not include optional equipment that would add to the total.)

The price difference seemed less of a barrier in summer 2008, when fuel costs were peaking and some observers were saying that high energy prices were here to stay.

Since then, gasoline prices have fallen from the $4 highs to stay mostly in the $2.50 to $3 range. On Friday, the average price of a gallon of regular unleaded was $2.89 in central Ohio, according to AAA. A year ago, it was $2.49.

Rise of the trucks

While hybrids' resale prices have fallen, the value of full-size trucks has risen 16.5 percent this year, the most of any segment, according to Kelley Blue Book.

But Gutierrez cautions against drawing a connection between the fall of hybrids and the rise of trucks. He sees the change in hybrid values as a response to stable fuel prices and to the rising supply of hybrid options. Truck values, on the other hand, are largely a response to automakers' cuts in truck production over the past two years, which has led to a tight supply.

As truck production rises, he expects the resale value to stabilize.

For now, trucks are four of the five segments with the greatest increase in resale value. That includes hybrid trucks, up 6.7 percent, the only hybrid segment showing an increase in value this year.

dgearino@dispatch.com