The Hybrid Dilemma

Toyota Motor’s Hybrid Prius is a big success. In June, the company sold 17,756 of these cars, bringing sales to 94,503 units for the first half of the year. The Prius is a winner; but that’s not the case for Toyota’s (nyse: TM – news – people )other hybrids. Prius accounts for two-thirds of Toyota’s sales volume in hybrids, even though the company makes five other hybrid vehicles, three of which it sells under its luxury Lexus brand. Honda Motor (nyse: HMC – news – people ), one of the pioneers in hybrid technology, recently announced that it was dropping its Accord hybrid. Its Civic hybrid six-month sales, which equal 17,141, are fewer than Prius sales for the month of June alone. Other manufacturers’ hybrids have not been big sellers, either. Ford Motor (nyse: F – news – people ) has sold only 11,444 of its Escape sport utility hybrids in six months, and only 2,028 of the Mercury Mariner version. Nissan’s (nasdaq: NSANY – news – people ) hybrid Altima sedan is a half-hearted effort, as it is not even distributed nationally. News source: Forbes Besides fuel economy, people buy hybrids to make a social statement about energy and the environment. It does not hurt that the Environmental Protection Agency rates the Prius at 48 miles per gallon in the city, 45 on the highway. Yet I think that the major factor behind the success of the Prius is that it looks like nothing else on the road. All the other hybrids on the market, such as the Toyota Camry hybrid, cost thousands of extra dollars, and yet look almost identical to non-hybrid models bearing the same nameplate.The Prius is a small car, similar in capacity to Toyota’s conventional little sedan, the Corolla. The hybrid Prius costs $8,000 more than a Corolla, but since the two vehicles look different, consumers shop one against the other. Even with Fuel at more than $3 per gallon, consumers have a hard time justifying paying an extra $2,000 to $4,000 more than they’d pay for the similar-looking vehicle sitting across the showroom.This fall, GM and Chrysler will offer their new hybrid technology–different from Toyota’s–in full-size SUVs. I do not know what the add-on price will be. My guess is $3,000 to $5,000 for the hybrid Tahoe or Durango. Again, these vehicles will be more efficient, but will look just like the non-hybrid versions; I am not sure how many people will be willing to pay the extra price.Honda’s hybrid-only small car, the Insight two-seater, was a total flop–the company pulled it from the U.S. market. The company is working on a design for a unique hybrid model about the size of a conventional sedan. This car should arrive in a couple of years, at which point we will get a better idea if the Toyota’s design strategy with the Prius is what consumers want.The best chance for serious growth for hybrids may be the “plug-in” hybrid, a car that runs modest distances on batteries alone and can recharge those batteries off the power grid. The problem, so far, is finding batteries that will do the job.While Toyota loves hybrids, and intends to have a hybrid version of almost everything it builds, the remainder of the industry, even Honda, is not as enthusiastic. Several manufacturers are dabbling with hybrids, but they are also covering their bets with diesels and other technologies.The Detroit three (General Motors (nyse: GM – news – people ), Ford and DaimlerChrysler (nyse: DCX – news – people )), for example, all promise to put diesels in their regular pickup trucks within three years. If they work well, it is hard to see why diesels, which can provide a 25% increase in fuel economy over Fuel motors, would not be viable in larger SUVs.GM has just said it will have diesel offerings in a few passenger cars, including a Cadillac and a Saturn, by 2010. One concern: The diesel option could be costly if companies build the motors abroad and import them.At about the same time, Honda says it will start selling a small car in the U.S. with a four-cylinder diesel. Also tantalizing is Honda’s claim that its new diesel will not need costly emissions-control equipment, which has been one of the problems holding back the expansion of diesels in the U.S. market.Ford talks about twin turbo additions to Fuel engines that will give them diesel-like fuel economy. This is “now” technology, not something in the distant future, such as hydrogen-powered fuel cells.Of course, another way to save fuel is to make cars smaller and lighter, regardless of the power-train technology. Detroit has always connected small with cheap. But richer people, it may turn out, are willing to pay a higher price for a car with great fuel economy, even if it is small. Examples are the Prius and the Mini.Going small would mark a significant change in America’s car thinking here, if it is indeed happening. Our tradition always has been “bigger is better.” What does seem certain is that the most common hybrid approach, converting a standard vehicle by adding fancy batteries and an electric motor, creates even less excitement than the minivan did.