Here Come the Low-Mileage Hybrids

The introduction by Ford this month of a hybrid SUV marks the end of the beginning of the long-evolving saga of the hybrid electric vehicle. After more than two decades of public and private initiatives, the hybrid is in the marketplace. And how. Since 2000 the demand for hybrids has grown by a remarkable 88 percent per year. Every American, German and Japanese car company will introduce at least one hybrid model in the next two years.

The demand for hybrids exceeds supply. Toyota has a nine-month backlog of orders for its Prius and recently raised its price by several hundred dollars.

To date, incentives have been used to enable the auto industry to move the hybrid from R&D to commercialization. The federal tax deduction for hybrids is structured to disappear as car companies begin selling hybrids at a profit. The deduction drops from $2,000 in 2003, to $500 in 2006, and then to zero. Early in 2004 Toyota announced it was making a profit on sales of the Prius.

Now we need to design incentives that encourage certain kinds of hybrids. Government incentives today rarely distinguish among hybrids. To qualify for most federal and state incentives, including tax incentives, priority for purchasing for government fleets, free parking and access to HOV freeway lanes, a vehicle simply must be equipped with both an engine and electric motors for propulsion. Period.

Equating a hybrid with a high-efficiency car was sufficient so long as a hybrid was a high-efficiency car. The hybrid Honda Civic and Toyota Prius met this standard. The Japanese companies transformed modestly efficient vehicles into outstandingly efficient ones.

But the introduction of the Ford Escape ushers in the era of low-mileage hybrids. The hybrid Escape's overall fuel economy is better than other vehicles in its class but is still only half that of the Prius or Civic. Chevrolet's new hybrid trucks, the Sierra and Silverado may get little more than 20 mpg.

The mileage situation is, if anything, even worse than this because the new hybrids don't get significantly better mileage on the highway. A hybrid can shut off its engine when idling and can use its battery and electric motor to accelerate. Thus it achieves markedly better mileage in stop-and-go city driving than on the open highway. That's where the fuel economy comes from. For example, the Prius achieves 60 mpg in city driving and 51 mpg on the highway. On the open road a hybrid Escape gets mileage no better than that of several other vehicles in its class, like Toyota's RAVA4. And yet one suspects that hybrid SUVs and pick-up trucks will primarily be used outside of cities.

This creates a fascinating challenge for Ford's advertising agency. Nine out of 10 ads for SUVs or trucks show vehicles bouncing along a tortuous mountain trail, charging through the mud, or speeding through magnificent desert vistas. Will Ford's ads depict its new hybrid in situations where its technology truly shines (i.e. in congested city traffic)? Or will it tout the fact that its hybrid has the equivalent of 255 horsepower under the hood compared to only 240 for the regular Escape, even though when it uses this horsepower its overall environmental impact is no different from that of the regular Escape? Sadly, to ask the question is to answer it.

As we enter the era of low-mileage hybrids, governments need to redesign their incentives to channel engineering know-how in technological directions that achieve social and environmental goals. One way to accomplish this is to require qualifying hybrids to be high-efficiency cars.

Some states and cities already do. Some, like Arizona and Georgia, require the qualifying hybrid to achieve a fuel economy much better than the average of its vehicle class. Some require an absolute minimum mileage. Connecticut calls for 40 miles per gallon. San Jose, Calif. allows free parking for hybrids that get at least 35 mpg.