Risky hybrid business

The Toyota Prius Hybrid


SCOTT JAGOW: Today, Hyundai said it's gonna start mass producing hybrids in 2009. It's a bit of a risky move, getting into the hybrid business. It's costly, and even though U.S. sales boomed last year, now they're starting to slow down. David Welch of BusinessWeek Magazine is with us. David, why aren't the hybrids moving as fast?

DAVID WELCH: Well it's still a very small niche. There's a core buyer who really loves hybrids but penetrating the mass market has been incredibly difficult because economically they just don't make sense yet. You buy a hybrid Honda Accord, there's a $3,300 premium over a V6- powered regular old Honda Accord and you even have some pretty aggressive incentives. Toyota started offering lease deals as cheap as $219 a month to move the Prius, which has been the hottest hybrid.

JAGOW: Well I can see how Toyota might be able to afford bringing the price down, but what about the domestic automakers?

WELCH: Yeah, see, and this is really an issue: Who sells the most hybrids? It's Toyota. They can afford to do a program like this that's sort of a loss-leader to get the technology out there. GM and DaimlerChrysler and BMW have teamed up to share the costs of developing these things. GM has a flood of hybrids coming out next year, mostly in their large SUVs. You know, it'll be interesting to see how aggressively they push it and how many they sell. Ford had planned to originally get more aggressive with hybrid launches, because of their financial situation they've had to pull back on that.

JAGOW: From the consumer's perspective, with these discounts are we reaching a point where it makes economical sense to buy a hybrid?

WELCH: It may. It depends how low they go. With that lease deal, I think it absolutely does. The problem is I sort of think that none of the other automakers are gong to be able to afford to sell hybrid technology at a deal that is that aggressive. You know, Ford is launching the new Escape and they dropped the price by $600, but that's still roughly a $2,500 or $3,000 premium on top of the regular Escape, which still, at $2.50 a gallon, puts you at eight-plus years to make that pay off. So you just have to get the cost of these things down and there's no really quick way to drop the cost. Roughly half of that big premium of $3,000 or more that consumers pay is for the battery technology. You know, the more modern batteries that are made out of cheaper raw materials than the current nickel metal hydride batteries and that's a few years away. So it's gonna be a while before hybrids are seen as just another like, say $1,000 option on top of the regular car you buy.

JAGOW: Alright David, thanks so much.

WELCH: Sure.

JAGOW: David Welch is the Detroit Bureau Chief for BusinessWeek.


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