Tuesday, March 17, 2009

Hybrid Car Sales Drop Through the Floor

It's a great idea. Making a car that generates a part of its own power as well as running on gasoline is a dream come true to millions of motorists. Imagine motorcycle milage in a family car. The Los Angeles Times reports in the following paragraphs that the of transforming the American highway has hit a speed bump

Americans have cut back on buying vehicles of all types as the economy continues its slide. But the slowdown has been particularly brutal for hybrids, which use electricity and gasoline as power sources. They were the industry's darling just last summer, but sales have collapsed as consumers refuse to pay a premium for a fuel-efficient vehicle now that the average price of a gallon of gasoline nationally has slipped below $2.

"When gas prices came down, the priority of buying a hybrid fell off quite quickly," said Wes Brown, a partner at Los Angeles-based market research firm Iceology. "Yet even as consumer interest declined, the manufacturers have continued to pump them out."

Last month, only 15,144 hybrids sold nationwide, down almost two-thirds from April, when the segment's sales peaked and gas averaged $3.57 a gallon. That's far larger than the drop in industry sales for the period and scarcely a better showing than January, when hybrid sales were at their lowest since early 2005.

Although the LA Times describes the problem very well, I believe that they are mistaken about the causes.

I rented hybrids on a few occasions. It is so seldom that I need a car that a motorcycle takes care of about 90% of my family's transportation needs. A car is a major expense. I crunch numbers before I buy a car. There are four components of car expenses.

1) How much does it cost?
2) How much is gasoline?
3) How much is insurance?
4) How much are repairs and how easy is it to find parts?

The hybrid car cuts down a lot on gas expenses . Unfortunately, the high price cancels out the gain. I calculated that it would take over ten years to recoup my savings fro buying a hybrid. That estimate does not take repairs into account. If the government is in the business of handing out money, they might to well to subsidise large rebates on hybrid cars to lessen the differential between regular cars and the fuel efficient variety. Most people are trying to save money. Only a small minority are willing to pay more for "going green". Eventually, the automobile manufacturers will have to adapt to people's budgets.

I heard about a car that was designed to be legally classified as a motorcycle. It has two wheels in front and one in back. It seats four people and doesn't tip easily. Because of its legal classification, it is insured as a motorcycle. If I could find a hybrid version of this at a reasonable price, it would fit my economic equations perfectly.

Unfortunately, the auto industry seems very unresponsive to the needs of the public. So much energy is focused on creating desire through advertising that existing needs are being ignored. If the automotive industry would listen to the public, they might find that there is money to be made.

I would like to see some creative thinking in Detroit. Unfortunately, the government is throwing money at problems rather than facilitating and subsidising solutions.

Anyone who has driven for more than ten years knows that gas prices are volatile. Whether gas is two dollars or five dollars, everyone wants to pay less for gas. But no thinking person will spend an extra dollar to save a quarter. The socially minded consumer is not in the majority. Most of us are also driven by self interest. We are more interested in saving money than saving the planet. A little creativity could harmonise these considerations and turn hybrids into a mainstream market trend.

The auto industry could save itself and the nation a lot of pain by listening as well as talking. Creating needs through advertising has its place. But it must be combined with finding the needs and desires of the public.

We should not wait for the next spike in fuel prices to drive automotive innovation. I looked at my family budget. I crunched the numbers and made choices, just like millions of other American families. This is what the auto manufacturers should do as well. Hopefully they will do it soon.

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