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Move over SUVs; time is ripe for hybrids

By SHIHOKO GOTO, UPI Senior Business Correspondent   |   Aug. 17, 2004 at 12:19 PM   |   Comments

Once seen with trepidation as little more than a small-sized truck, SUVs are now very much part of the U.S. landscape, as those who would never venture further out than to do some grocery shopping and mall-hopping have eagerly snapped up Ford Explorers, Toyota Rav4s, and the likes over the past few years.

But the sight of a suburban soccer mom herding her kids into an SUV may become less common if oil prices continue to rise at their current pace.

Certainly, the cost of filling up a tank rising nearly 30 percent in just a matter of twelve months is becoming more and more of a factor for people to be worried about energy efficiency of their vehicles. Indeed, consumer research group J.D. Power and Associates found that sports utility vehicles sat on dealership lots for an average of 73 days during the month of July, 22 percent longer than the 60-day average SUVs had seen a year ago.

Moreover, the research group found that the number of days higher-end SUVs made by luxury manufacturers such as Mercedes-Benz and BMW increased even more, rising 47 percent from a year ago. Granted, the absolute number of days spent on the lot for luxury SUVs still remained lower than their less pricy counterparts, as they sat on lots for 50 days in July compared to 34 days a year ago.

J.D. Power also reported that the average SUV transaction price dropped 2 percent, or $620, in July compared to a year ago at a time when overall new vehicle prices actually rose slightly.

"The data clearly suggest the SUV segment is under exceptional pressure," said Tom Libby, senior director of industry analysis at Power Information Network, the group's research arm. "Higher gas prices and a renewed emphasis on cars by some of the OEMs (original equipment manufacturers) have both likely played a role in this trend."

Rather, many car analysts are expecting more consumer interest in energy-efficient cars, including hybrids that use both renewable energy and petroleum to keep its motor running, especially if oil prices continue to climb further south. And that could prove to be a big boom for Japanese auto makers, who have taken the lead in developing energy-efficient cars in a country that has to import all its crude oil supply and gas has never been cheap as a result. In fact, some car analysts expect the alternative energy vehicle market to be worth over $30 billion over the next few years.

Those findings, however, did not at all surprise Dorothy Gessling, a mother of a newborn and a five-year-old who currently drives a Honda CRV.

"I've never been eager to go to the gas pump, but with prices the way they are now, I'm loathe to see how much I have to pay when I leave," she said. "If I knew three years ago (when she bought her car) that gas prices could get so high, I would have gotten a Prius, I think," she added.

Prius is Toyota's signature energy-efficient car, which boasts environmentally-conscious celebrities such as Leonardo DiCaprio among its drivers. But while low-emission cars that run on both gas and rechargeable electricity have largely been purchased by so-called green consumers until now, demand for such automobiles is expected to rise.

Certainly, the fact that drivers of low-emission cars get a federal tax deduction of up to $2,000 for being environmentally friendly, in addition to saving money at the gas station by as much as 50 percent, the deal seems even sweeter.

To be sure, though a Prius or a Honda Civic Hybrid is about $3,000 to $4,000 more than conventional Corollas and Civics, consumers can potentially be more confident about recouping the costs in the long run.

Nationwide, sales of Prius, Honda's Civic Hybrid and Honda's Insight combined reached 7,277 in July and 6,082 in June. That compares to total sales of the three models reaching about 2,500 a year ago, and many car analysts expect sales to continue rising steadily.

At the same time, Honda and Toyota dominate the hybrid car market, and both manufacturers make all their hybrid cars in their Japanese factories. Meanwhile, Toyota is planning to increase its production of Prius by 50 percent by the beginning of next year. In fact, the Wall Street Journal reported last week that July marked the tenth straight month that Toyota's Prius was the car that moved out of dealerships the quickest.

Still, the Japanese auto makers shouldn't rest on their laurels just yet. Ford is expected to be introducing its hybrid Escape, a small SUV, by next month, even as there are reports of a dearth in U.S. supplier who are capable of producing components needed to manufacture hybrid cars.

© 2004 United Press International, Inc. All Rights Reserved. Any reproduction, republication, redistribution and/or modification of any UPI content is expressly prohibited without UPI's prior written consent.
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