By Roland Jones Business news editor
msnbc.com
updated 5/21/2008 1:14:57 PM ET 2008-05-21T17:14:57

With the price of gasoline hitting daily records and the shaky economy hitting consumers in the pocketbook, a sport utility vehicle that seats eight and gets over 20 miles per gallon would seem to be a promising product.

But even with the price of gas nearing $4 a gallon, early indications suggest car buyers are not warming to the industry’s first full-size, hybrid gas-and-electric-powered SUVs.

When they were launched in the fall of 2007, the Chevy Tahoe Hybrid and the hybrid GMC Yukon seemed like good options for consumers who wanted to pack a big family into a SUV and still save on fuel.

The Tahoe, for example, promised up to 21 mpg in city driving and 22 on the highway — a 50 percent improvement over the conventional version. The two-mode hybrid was named the 2008 Green Car of the Year at last year’s Los Angeles auto show.

But although the Tahoe and Yukon hybrids are still new, early sales figures suggest Americans are not buying them in large numbers the same way they are stampeding toward smaller, fuel-sipping cars, according to Jesse Toprak, executive director of industry analysis for Edmunds.com, an automotive Web site.

The reasons include the cost of the vehicles, which both have a starting price above $50,000, putting them beyond the budget of most middle-class car buyers.

Another issue is the stigma attached to driving a large SUV, which in the current age of heightened awareness about climate change and record gas prices is seen as wasteful, especially in environmentally conscious states like California, Toprak said. To counter this view, GM has plastered the vehicles with “hybrid” labels, he added.

“The first Tahoe and Yukon hybrids trickled out in February, and they had their first full month of sales in March when only a few hundred units were sold. That’s not very impressive, but maybe there’s a distribution issue,” Toprak said.

John M. McDonald, a spokesman for GM in Detroit, said the automaker is pleased with the initial sales of the Tahoe and Yukon hybrids. Combined, the two vehicles have sold 1,000 units over the past two months, he said, with half those sales coming in April.

By contrast, GM sold 8,139 regular Tahoes in April and 4,838 conventional Yukons.

“When you consider that these are SUVS and they cost over $50,000, and the fact that we’re in a slowing economy, we are very pleased with sales so far,” McDonald said. “We think this is a very good reaction, and it shows there’s a market for these vehicles.” Video: A SUV catch-22

Still, Toprak said he expects GM to fall short of its projected combined annual sales of between 10,000 and 15,000 units of the new hybrid SUVs. With a starting price of $50,490 for the Tahoe hybrid and $50,945 for the Yukon hybrid, the two vehicles are overpriced, he said, especially compared with just over $30,000 for a conventional Yukon.

Only those customers who really want a large car for their family or other reasons and also are highly environmentally conscious are going to be willing to pay the premium for a hybrid version, he said.

“The typical large SUV owner living in the middle of the country is price sensitive and unlikely to pay for a SUV with $10,000 price premium,” said Toprak.

Toprak points to Toyota’s Highlander Hybrid SUV as an example. It costs about $7,000 more than the conventional Highlander, and in terms of sales it failed miserably, he said. To push it off dealers’ lots Toyota was forced to come up with extremely generous incentives, he said.

“We are learning that when you sell a hybrid version of a vehicle to the mass market it needs to make sense on paper,” Toprak said. “The segment of people who really care about the environment, that’s a small market, and to get significant sales you really have to go after the middle-class family. That segment will care most of all about how much money they can save, and that’s why GM needs to lower the price of these SUVs to more realistic levels.”

The Toyota Camry and Camry hybrid, for example, are priced about the same, he continued, making for a simple decision for price-sensitive sedan buyers who want a hybrid to save on fuel or to be more environmentally friendly.

Another difficulty for GM is that many “recreational” full-size SUV buyers — those who buy a large car mainly for  recreational uses, such as towing a boat — have mostly left the market because high gas prices have made the cost of owning and running a large SUV too expensive, said Tom Appel, associate publisher of “Consumer Guide: Automotive,” a guide for car buyers.

“The problem here is you have the Tahoe hybrid costing over $50,000 on the one hand, but on the other you can save $15,000 and buy one of GM’s crossover SUVs, like the GMC Acadia or the Buick Enclave. They have lower sticker prices, just as much interior volume and our testing shows they get about 17 miles per gallon, which is close to the mileage of these hybrid SUVs,” he said. “So unless you need the power for towing, it’s hard to justify the extra cost of the big hybrids.”

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