$2.50 a gallon gas? Not a problem

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Some automakers see hybrid vehicles as the bridge to a fuel cell-powered future coming in the next decade or so. But Toyota Motor Sales USA sees hybrids as here to stay.

"Today customers pick their accessories. Tomorrow they will pick their hybrid system," says Jim Press, Toyota exec VP-chief operating officer. The war in Iraq, combined with high pump prices and media attention, has whetted consumer appetites, especially on the coasts, for the hybrids that average 50 miles per gallon.

"We're begging for more product," says John Hanson, national manager of corporate communications at Toyota.

Mr. Hanson adds that sales have risen every year since Prius' July 2000 North American debut, with growth fueled by the Mideast instability. "We're on track for more than 20,000 units this year," he says. "It's the combination of $2.40-gallon gas prices and the political situation in the Mideast, along with the highest level of media interest ever, that's raised awareness of the public to hybrids."

But it's still only a two-horse race between Toyota and American Honda Motor Co. The $19,995 Toyota Prius and Honda's $20,550 Civic Hybrid are the U.S.' leading combined electric-gasoline-powered, low-emission hybrid cars. That picture could change as General Motors Corp. enters the fray, vowing to dominate the hybrid truck segment, to this point uncharted territory.

staggered plan

GM says by 2007 it will offer three hybrid technology systems, covering more than 12 popular models. So far, GM has announced a staggered plan for hybrids, slating first its parallel hybrid trucks, the full-size Chevrolet Silverado and GMC Sierra for commercial fleets later this year. Consumers will see the hybrids on showroom floors next year. Other GM entries will include the 2005 Saturn Vue.

Ford Motor Co. comes out of the chute with the first full hybrid small truck, the Escape Hybrid SUV, available to the fleet market this fall and in dealerships by summer '04. Ford says it's partnering with its agency, WPP Group's J. Walter Thompson USA, Detroit, on advertising for the new Escape.

DaimlerChrysler Corp. said this month it would roll out its Dodge Ram truck with a diesel-electric hybrid powertrain in late `04.

GM and Ford's hybrid plans represent a major change in direction from conventional gasoline engine cars and trucks. But neither Ford nor GM sees hybrids as a long-term solution. They call hybrids a "bridge" program to fuel cells or hydrogen energy.

"The hybrids are a medium-term bridging strategy to the hydrogen economy," says Thomas Stephens, VP-powertrain at GM.

Don't expect huge ad support for the hybrids. These fuel-sipping wonders are still less than 1% of the total automotive market and almost have to sell themselves.

Import automakers sold the hybrids at a loss after their U.S. debuts, due to expensive R&D costs for hybrid technology. But they're finally recouping costs and say they're selling every unit.

Before war drums started beating, Toyota targeted 300,000 total worldwide Prius unit sales cumulatively by 2005. Global sales have climbed steadily, from 20,000 since its 1997 debut in Japan, to more than 120,000 cumulatively through March, with the U.S. representing 70% of global sales, Toyota says.

An overhauled, peppier Prius debuts at the New York Auto Show this week, priced at $21,000.

Toyota's Lexus RX 330 sport-utility hybrid will arrive in dealerships in fall `04. The SUV will feature an optional V6 Hybrid Synergy Drive system, claiming 50 mpg fuel efficiency, plus it creates fewer emissions than any conventional SUV.

Dealers in California, a bellwether state, paint a positive sales picture for Honda's Civic Hybrid, the first hybrid to be introduced as a mainstream vehicle last April.

"We're selling them as fast as they get here," says dealer John Hawkins at Metro Honda/Acura in Montclair, Calif. He adds that the war has helped fuel-efficient hybrids get on radar screens of a broader buyer base-beyond early adopters who love gadgetry and are environmentally aware.

Mr. Hawkins adds: "Honda is a product that does well in difficult times. People flee to what's quality and makes sense. Early adopters are going for it, but it's not all one type of buyer or age group anymore."

Honda's Insight was the first hybrid released in North America. Insight, still in production, debuted in December 1999, seven months earlier than Prius. By the end of '02, Insight, getting about 700 miles on one tank of gas, was selling about 2,215 units monthly. Automakers agree that the car's two-seat capacity and consumer misperceptions about a need to plug in hybrids have stymied sales.

This year, Honda set a modest target of about 24,000 total Civic Hybrid sales in North America and will continue advertising through independent Rubin Postaer & Associates, Santa Monica, Calif. Last year, Honda spent only $515,000 to roll out the Civic Hybrid, according to Taylor Nelson Sofres' CMR.

There's no need to advertise much, say Honda marketing executives. "Our sales have set new records every month for the last five to six months," says a Honda spokesman. "We constantly look at our marketing efforts and see where it's best to allocate our resources."


Hybrids haven't typically been hot sellers, but at the same time, ad support has been lackluster. And hybrids suffer from consumer misperceptions about how they work, along with high costs. The big marketer, Toyota, spent about $13 million on Prius advertising last year, compared with $60 million on its hot selling compact Corolla, according to CMR.

Toyota marketing leaders say ad support will increase tremendously as Toyota morphs the hybrid technology onto its light trucks and other car lines, including the Highlander.

"Ad budgets will reflect major increases for next-generation vehicles, and you will see marketing and radio [support] get much stronger," Mr. Hanson says. Toyota will be "highly visible at launch" with the new Lexus hybrid SUV, he adds.

A big chunk of Prius' '02 budget went to a humorous "Applause" TV spot targeting those techie early adopters. The 30-second spot from Publicis Groupe's Saatchi & Saatchi, Torrance, Calif., shows chimps in the jungle cheering and dancing when they see Prius is earth-friendly.

Saturn, meanwhile, is planning a campaign to identify "hand-raisers," for Vue, a hybrid that debuts next year as a `05 model, says a Saturn spokeswoman. Saturn would not provide details, but says it will tap its agency, Omnicom Group's Goodby, Silverstein & Partners, San Francisco, to handle its advertising next year. An early prototype Vue previews at the New York Auto Show.

An independent J.D. Power & Associates survey of 5,000 people, released in January, suggests consumers would consider buying a hybrid or diesel as their next vehicle. But decisions were tied to gas prices. Considering a scenario where fuel prices rose above $2.50 a gallon, 56% of consumers said they would select a diesel-power vehicle, while 38% would purchase a hybrid vehicle.

Consumer acceptance of hybrids appears tied to doubts about performance and their more expensive price tags. Analysts suggest automakers have a huge education job on their hands, and must be willing to sacrifice profits in the early stages.

"The challenge is to get people to believe the vehicle performance will be the same as conventional engines," says Walter McManus, industry analyst for Power.

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