April 14, 2006

FREE PRESS WASHINGTON BUREAU
NEW YORK -- Slower sales of several gasoline-electric hybrid vehicles have forced Honda Motor Co. to consider cutting production.

With only Toyota Motor Corp. and Ford Motor Co. committed to a wide deployment of hybrid technology, a number of automakers at the New York International Auto Show sounded lukewarm about the prospects for future models.

After torrid sales of the Toyota Prius and Honda's Civic hybrid over the past couple of years, many automakers believed U.S. consumers would demand enough vehicles with improved fuel economy to justify the extra costs of the hybrid systems. Some even considered the loss they might take at selling hybrids below cost as an investment in environmental public relations.

But so far, no hybrid model has drawn demand similar to the Prius, which is among the most popular vehicles on the market.

"Everybody seems to think the market has softened," said Jed Connelly, senior vice president of Nissan North America, which plans to launch a hybrid version of the Altima sedan this year. "But nobody really knows. Aside from the Prius, nothing is seemingly selling at expectations."

Hybrid sales are up 37% so far this year, to 48,686 vehicles, as new models hit the market. But concerns about hybrid sales have grown as some models began to linger in dealer lots for months. According to data from J.D. Power & Associates, the average Ford Escape hybrid sold in March had sat on dealer lots for 61 days, about twice the average for a regular Escape. Hybrid Honda Accords had sat for 90 days, three times longer than typical Accord models.

Dick Colliver, executive vice president of Honda's U.S. sales arm, said the company was considering cutting production of its Accord hybrid sedan and had made no decision on building a new version of its two-seat Insight hybrid sedan. Sales of the Accord hybrid are down 51% through March compared with a year earlier.

"We've had to reevaluate our position with the vehicle," Colliver said.

While many hybrids attract customers based on fuel economy, Honda tuned the Accord hybrid for power, leaving it with mileage similar to the four-cylinder version but a price tag that can be $5,000 more than a V6 model.

"We as manufacturers and you in the press sold hybrid technology as a fuel-efficient alternative," Colliver said. "There was a consumer backlash, or maybe a push back, when we came with the V6 technology, and Toyota's experiencing the same thing.

"We have to continue to do research to determine where the best package for that hybrid technology will be in the marketplace."

Earlier this month, Ford began offering zero-percent loans to buyers of its Ford Escape and Mercury Mariner hybrids. Cisco Codina, Ford's group vice president of marketing, sales and service, said buying a hybrid had become a "less emotional, more rational" decision, and that the zero-percent deal had boosted sales.

Ford has committed to building 250,000 hybrids a year by the end of the decade, and has said it will offer hybrid variants in half its model lineup. Mark Fields, the head of Ford's North and South American business, said the company was sticking with its goal, saying, "our job is now to work down the cost curve."

"The original hybrid buyers wanted to make a statement and had the funds to make a statement," Fields said. "Most customers come into a dealership with a monthly payment in mind."

Of all automakers, Toyota remains the most ardent booster of hybrid technology. The company has set a target of selling 1 million hybrids a year by early next decade and is launching a hybrid version of the best-selling Camry sedan later this year.

Bob Carter, general manager of Toyota's Lexus luxury division, said Lexus' hybrid models have been well received by customers.

"Long term, we see hybrids as being an optional powertrain available throughout our model line," Carter said. "There is no decline in hybrid demand."