Image: Mercury Mariner hybrid
Mercury
Income tax credit for buyers of hybrid vehicles can be as much as $3,000 on a vehicle like the Mercury Mariner Hybrid.
By
updated 1/23/2008 10:53:55 AM ET 2008-01-23T15:53:55

Hybrids are still niche vehicles, but at their current rate of growth, they could dominate the roads in another five or 10 years.

U.S. hybrid sales jumped more than 34 percent to a total of 338,851 in 2007, according to CNW Marketing Research in Bandon, Ore. The only other vehicle segment that grew faster than hybrids in 2007 was what CNW calls “budget cars.” Sales of these small, inexpensive models, which include the Chevrolet Aveo, Honda Fit, and Toyota Yaris, grew at an astonishing rate of nearly 48 percent.

With rising gas prices and higher fuel economy standards mandated by the federal government, analysts expect hybrid technology to proliferate in the coming years. “You’re going to see wider availability of hybrid powertrains as options on more and more vehicles,” says David Wurster, president of the Bloomfield Hills, Mich.-based market research firm Vincentric. “I don’t think they’re going to be the ‘unique’ vehicles for much longer because it’s going to become commonplace technology.”

With new models entering the market and their popularity expected to rise, CNW predicts that 1.1 million hybrids will be sold annually by 2010.

Though their numbers continue to swell, hybrids still carry a premium for the added hardware, usually electric motors and a battery pack, estimated on average to be $3,000 over the cost of their conventionally powered equivalents. But unless this figure drops dramatically or gas prices take another large leap, some feel the price differential will continue to be a barrier to hybrids' widespread acceptance. “It comes down to the old adage that there’s no free lunch,” says John Wolkonowicz, a senior market analyst with Global Insight in Detroit. “You can build vehicles that get better fuel economy and with reduced emissions, but there’s a cost connected to all that.”

To help soften the financial blow and spur sales, the federal government provides an income tax credit for buyers of hybrid vehicles. This credit can be as much as $3,000 on a vehicle like the Ford Escape Hybrid or Mercury Mariner Hybrid. However, these credits are phased out once an automaker sells 60,000 hybrid vehicles.

The tax credits have already expired for Toyota and Lexus models and are in the process of being phased out for the Honda Civic Hybrid. The Civic Hybrid’s credit was cut in half to $1,050 on January 1, and will be reduced to $525 after July 1. Hybrid vehicles from automakers that haven’t met the sales quota will continue to qualify for a full tax credit through 2008. Currently, this includes the Ford Escape Hybrid and Mercury Mariner Hybrid.

The lack of  tax incentives doesn’t seem to have hurt the Toyota Prius’ popularity, however, with 181,221 units sold in 2007 for an increase of nearly 70 percent over 2006, according to CNW. The Prius remains the most popular hybrid in the U.S. by an astronomical margin. The second most sold hybrid in 2007 was another Toyota, the Camry hybrid, at 54,492 units.

This year, hybrid powertrains are being fitted into some of the most unlikely vehicles: full-size SUVs. The Chevrolet Tahoe Hybrid and GMC Yukon Hybrid are now available, and hybrid versions of the Cadillac Escalade, Chrysler Aspen, and Dodge Durango go on sale late in 2008 as 2009 models.

“This is probably one of the toughest market segments to break through with a hybrid,” says Lonnie Miller, director of industry analysis at market research firm R.L. Polk and Company in Southfield, Mich. “We don’t understand what’s driving GM’s decision to build them, but it’s a very good litmus test for the broad-based acceptance of hybrids if the pickup buyers really take to it.”

General Motors, which produces the Escalade, Tahoe, and Yukon hybrids, is also launching hybrid versions of its full-size pickup trucks, the Chevrolet Silverado and GMC Sierra, in the fall. Both were sold in “mild-hybrid” versions in 2005 and 2006. They're called "mild hybrids" because they didn’t include an electric motor to help with propulsion and simply used a revised starter system to shut down the gasoline engine when idling. This saved an average of just one mpg.

The new hybrid SUVs and pickups will use a complex “two-mode” hybrid system that was co-developed by General Motors, BMW, and the former DaimlerChrysler. GM expects a 25 percent boost in combined city/highway fuel economy over the gasoline-powered versions, which amounts to about a 4-mpg improvement.

A short test drive of the Chevrolet Tahoe Hybrid left us intrigued. The burly truck basically drives like a Prius around town, using only its electric motor at low speeds, but it can still haul and tow heavy loads thanks to its potent V8 gasoline engine.

The same two-mode hybrid technology used in the Tahoe and Yukon hybrids will be mated with a smaller engine (a V6 instead of a V8) in a smaller vehicle, the 2009 Saturn Vue Green Line. A Vue Green Line is already on sale, but includes a mild hybrid system with an electric motor and battery pack that gives limited assistance to a four-cylinder gasoline engine. The same powertrain is used on the 2008 Chevrolet Malibu Hybrid and Saturn Aura Green Line.

Other new hybrids on the horizon include versions of the midsize Ford Fusion and Mercury Milan sedans, the compact Hyundai Accent and Kia Rio, and even two new Honda hybrids. Also look for the flagship Mercedes-Benz S-Class sedan, the diminutive Smart, and the Audi Q7, Porsche Cayenne, and Volkswagen Touareg SUVs to get the hybrid treatment by the end of the decade. Porsche also has announced a hybrid version of its new high-performance sedan, slated to go on sale in a few years.

GM hopes to start selling the first mass-produced plug-in hybrid by 2010, as either the Saturn Vue Green Line with plug-in capability, or the futuristically styled Chevrolet Volt. The Volt, in particular, has the potential to achieve triple-digit fuel economy as it will run solely on electricity and use a small gasoline engine as a generator of sorts to recharge the battery on the fly. GM anticipates a 40-mile range on electricity alone and says that its batteries can be recharged by plugging them into a regular household electric outlet.

The only catch is that the Volt requires advanced lithium-ion batteries (like those in cell phones and laptop computers, only much larger) that have yet to be fully developed for automotive use. The biggest issue is that they can overheat and cause a meltdown.

Still, if Chevrolet can deliver on its promises and sell the Volt for less than $30,000, there’s little doubt it will be a true breakthrough. “If the technology is there, the Chevy Volt could be the next big thing,” Wurster says.

Our list of Hottest Hybrids (see the “slide show” link above) includes a rundown of all hybrid vehicles newly introduced in 2008.

© 2007 ForbesAutos.com

Discuss:

Discussion comments

,

Most active discussions

  1. votes comments
  2. votes comments
  3. votes comments
  4. votes comments

Data: Latest rates in the US

Home equity rates View rates in your area
Home equity type Today +/- Chart
$30K HELOC FICO 4.30%
$30K home equity loan FICO 5.10%
$75K home equity loan FICO 4.53%
Credit card rates View more rates
Card type Today +/- Last Week
Low Interest Cards 10.96%
10.96%
Cash Back Cards 16.45%
16.45%
Rewards Cards 15.99%
15.99%
Source: Bankrate.com