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Detroit learning to love hybrids
Demand for gas-electric vehicles a sliver of the market, but it's a sliver Detroit can't ignore.
January 12, 2005: 4:45 PM EST
By Chris Isidore, CNN/Money senior writer

DETROIT (CNN/Money) - Once again, the North American International Auto Show in Detroit highlighted both the best and worst in fuel economy.

A few high points and low points, from a mileage standpoint:

Honda Motor Co. announced plans to lease a single fuel cell powered car to an actual customer as a show of commitment to new fuel technology.

DaimlerChrysler unveiled a concept car with not one but two gas-guzzling V-8 engines. The company also introduced a new diesel-hybrid

General Motors unveiled its latest breakthroughs in hybrid and fuel cell technology. It also debuted its latest Corvette, which has more horsepower than any other car the company has ever put on the road.

The fact is that automakers, both here and abroad, realize that American consumers are as split on their fuel economy views as they are in their red state/blue state politics. The fact that a record 55 percent of new U.S. vehicles purchased last year were light trucks, such as pickups, sport/utility vehicles and vans, is proof that the typical buyer thinks that automaker's fuel economy breakthroughs are just great as long as they can still power larger and larger vehicles.

But the waiting list for hybrid-powered small cars -- hybrids use both a gasoline engine and an electric motor to cut pollution and improve fuel efficiency -- is a sign that there is a growing demand for "green" cars.

Bob Lutz, GM vice chairman for product development, admitted during this year's show that the nation's No. 1 automaker made a mistake in underplaying hybrids. He said that even if there isn't an immediate business case to be made for alternative fuel vehicles and hybrids, it's not something automakers can afford to ignore.

Honda plans to be the first automaker to lease an experimental fuel cell car to a customer.  
Honda plans to be the first automaker to lease an experimental fuel cell car to a customer.

"From a strict business proposition, this is not where we would make an investment," said Lutz. "It's not clear that you'll ever be able to recapture the cost of a hybrid in the pricing. But what we forgot in the equation was the emotional aspect of it."

There are car buyers who judge the company's commitment to the environment, and to new technology, Lutz said, by the number of alternative fuel offerings, even if they're not rushing out to buy a hybrid themselves. The marketing advantage of having a stronger hybrid lineup probably justifies the investment in the technology itself, Lutz said.

"Whether the cars economically make sense or not, we cannot not be in that market," he said.

On the flip side, even automakers like Toyota, which says it is making a profit on its hybrid cars, says that selling the fuel economy and environmental advantages is not enough. That's why, when it comes out with hybrid versions of its full-size SUVs later this year, the Lexus LX-330 and the Toyota Highlander, it will be emphasizing more power, not better fuel efficiency, even though the hybrid engines should give the vehicles city mileage similar to a compact car.

General Motors revealed new advances in hybrid and fuel cells on its concept cars at this year's auto show in Detroit.  
General Motors revealed new advances in hybrid and fuel cells on its concept cars at this year's auto show in Detroit.

"People shopping for a luxury SUV don't have fuel efficiency or gasoline prices high on their list of concerns," said Toyota Motor spokesman Wade Hoyt. "If it was, they'd be shopping for something else."

Instead of fuel economy Toyota will be talking about how the hybrid SUV will have 270 horsepower rather than 240 in the standard V-6 version. The company doesn't anticipate it will be difficult to find demand for the 40,000 hybrid SUVs it expects to sell this year, Hoyt said, even though it plans to charge $3,000 to $5,000 more for the hybrid engine.

"We already have a waiting list of 11,000 buyers. Some will want to brag about the technology. Some will simply want the top of the line model," he said.

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Honda makes a similar pitch for its Accord which went on sale last month. The hybrid's gasoline engine is the same as that used in the standard Accord LX but, with the additional boost from an electric motor, the system produces 15 horsepower more while getting better mileage.

Even Toyota, the world leader in hybrid sales, will be lucky to sell 300,000 of the models this year worldwide. That would be less than 4 percent of its projected worldwide sales.

Still, even with that small share of the market for hybrids, auto industry experts agree with Lutz. The competition to be seen as a green car leader is not a race any of the major players can afford to sit out.

"There's a halo effect associated with hybrid vehicles," said Mark Bunger, analyst with Forrester Research. "More and more people in the auto industry are realizing consumers view this as an important technology and not just a fad.

"With every new technology, you've got innovators trying a product, then early adopters, followed by the majority," said Bunger. "It's not that the majority wants hybrids right now. But we're moving from innovators to the early adopters."  Top of page

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