Hybrid-Happy?

By Mark Clayton, Christian Science Monitor. Posted May 19, 2005.

Actress Cameron Diaz and Roy Jefferson, a retired government accountant from Fargo, N.D., have something in common: They both love their hybrid gas-electric cars that get 50-plus miles per gallon.

"I laugh when I go by the gas stations" without filling up, says Mr. Jefferson, an octogenarian.

The growing enthusiasm for hybrids is rattling the faith of America's automakers, who have long believed that consumers don't care about fuel efficiency. And it has opened the door to a new theory that hybrid cars — long predicted to be a niche market and a way station to future hydrogen autos — are themselves the answer to revolutionize the fleet and trim the nation's surging dependence on foreign oil.

For proponents of energy independence in the United States, the current level of dependency is worrisome. Last year, 56 percent of the nation's oil -- some 11 million barrels a day -- came from abroad. That's far more than the one-third share imported during the first oil crisis of the 1970s. And it's halfway to the two-thirds share projected for 2025, if nothing changes.

To reduce that dependence will require a massive modernization of America's transportation fleet, especially more efficient passenger cars and light trucks. So are hybrids up to the task?

Most auto analysts still say no, since an enormous number of hybrids would have to be sold over more than a decade to have a real impact. Still, demand for hybrids, the Prius in particular, is so strong that customers are waiting weeks to get one. Some used 2004 Priuses are selling for thousands of dollars more than the cost of a new one. On Tuesday, Toyota announced it would begin building its first North American hybrid car in 2006 at its Georgetown, Ky., plant.

The numbers are turning some heads.

"I was a huge skeptic," says Walter McManus, an auto industry researcher at the University of Michigan's Transportation Research Institute in Ann Arbor. "But I've basically crossed over to the dark side. You can't argue with the market reaction." He estimates Toyota, Honda, and others will sell at least 1.2 million hybrid vehicles by 2010 -- about 7 percent of the US market - and possibly much higher.

If all U.S. cars (not including light trucks) were Priuses today, the nation would save 15 percent more oil than it received from the Persian Gulf in 2002, writes energy-efficiency guru Amory Lovins in his recent book Winning the Oil Endgame.

Of course, a sudden switch is virtually impossible, since there are roughly 235 million cars and light trucks on the road in the U.S. today. Less than one-tenth of 1 percent of those — some 200,000 — are hybrids. So the speed of the conversion will determine how much imported oil the nation might save.

"In our view the hybrids represent a long-term trend toward a dramatically more efficient fleet," concluded consulting firm Booz Allen Hamilton in a 2004 report.

For example: If consumers keep snapping up hybrids and automakers begin to integrate the technology throughout their product lines — including pickup trucks — then hybrids might quickly reach 20 percent of new vehicle sales by 2010 and 80 percent by 2015, according to another Booz Allen Hamilton report. That's the most optimistic of three scenarios the management consulting firm laid out. In the "high adoption" scenario, hybrids would save 2 million barrels of gasoline a day by 2015; in the "medium adoption" scenario, 800,000 barrels of gasoline.

Other estimates vary widely. Hybrids could be 10 percent to 15 percent of new vehicle sales by 2012, the Department of Energy's Oak Ridge National Laboratory concluded in a report last summer. Together, hybrids and efficient "clean diesels" could be 40 percent of new car sales by then if the technologies are widely adopted, it said.

But with gasoline use increasing 1.7 percent a year through 2025, hybrids' impact on oil consumption will be small, according to the latest outlook by the US Department of Energy. It predicts only 1.1 million hybrids will be sold in 2025. Even in the most optimistic case, assuming rapid adoption of hybrid and other car technologies, the U.S. would still chop only 172 million barrels of oil a year by 2025 — about 2.5 percent of expected oil imports that year. On the other side, Mr. McManus predicts more hybrids will be sold in 2010 than the DOE's 2025 estimate.

So who's right? Consumers are eager. Last month, 49 percent of new-car buyers, the highest level ever, had changed their mind or were thinking strongly about buying a vehicle they would not have considered because of gas prices, according to a survey by Harris Interactive and Kelley Blue Book.

"We're going to have many, many choices," says Ron Cogan, editor and publisher of Green Car Journal, a monthly magazine devoted to energy-efficient and environmentally friendlier cars. "Hybrids are here right now. They're quite clearly the next big thing. To look off into the future for hydrogen is not giving enough credit to what we have here and now."

Nissan plans to offer a hybrid version of its popular Altima model using Toyota technology next year. Even GM says it will soon offer "mild hybrid" technology that stops a car's motor while stuck in traffic — and automatically restarts it. At least 17 hybrid-electric models will be available in the US market by 2006 with 38 forecast by 2011, market research company J.D. Power and Associates reported in February.

Even so, the company is not bullish about hybrids. "Despite the significant growth in the number of models and annual sales over the next five years, we anticipate hybrid market share to reach a plateau of about 3 percent near the end of the decade," writes Anthony Pratt, a senior manager at J.D. Power, in the report.

Conventional wisdom holds that the long-expected growth of hybrids will be slow. Skeptics abound.

"They make a nice story, but they're not a good business story yet because the value is lower than the cost," said Carlos Ghosn, chief executive of Nissan Motor Co., at the National Automobile Dealers Association convention in New Orleans in January.

Even McManus — the hybrid cynic-turned-believer — has serious doubts about how big an impact even a massive surge in hybrid sales will have on reducing America's oil dependence. His analysis, for instance, shows a "rebound effect." For every 1 percent decline in the cost of fuel, Americans drive 1.85 percent more.

Another factor working against hybrids' overall impact on cutting oil imports is the rising number of vehicles on American roads. The fleet grows about 1 percent a year. "I can't imagine a circumstance where we can reduce it enough to cut a significant portion of what we get from over there," McManus says.

Nevertheless, with gasoline prices at more than $2 a gallon, Detroit auto executives seem to be changing tack. Hybrids could be everywhere in the future, if hybrid is defined broadly as any vehicle that uses more than one method of providing power to the tires, some say.

"If you think about the 15- to 20-year time frame, you could argue that all vehicles are going to be hybrids," Michael Tamor, manager of Ford Motor Co.'s Sustainable Mobility Technologies, reportedly told a conference of the Society of Automotive Engineers in February. Meanwhile, the head of GM, Robert Wagoner, has recently said hybrids are important after all. The company is said to be seeking access to Toyota's hybrid technology.

"All we've been hearing for 15 years is that consumers don't care about fuel efficiency, that they care more about cupholders than fuel economy," says Bradley Berman, editor and publisher of Hybridcars.com. "I would say that fuel economy is the new cupholder."

If hybrids do indeed become the "next big thing," with a bigger impact on U.S. oil consumption than is still today widely believed, it probably won't be because of eco-celebrities like Ms. Diaz, but because of a shift by masses of ordinary Americans, Mr. Cogan says.

Unlike Diaz, who has her own environmental show on television, Mr. Jefferson, is an avowed Republican who doesn't at all mind drilling for more oil in Alaska's wildlife refuge. Still, three years ago he decided he wanted something different in a car. And he liked the idea of cutting pollution a bit - and helping the U.S. rely less on foreign oil, too. So he bought a Toyota Prius.

What does he think of hybrids? Are they the next big thing that will help America get free from imported oil? "I'm no scientist," he says. "But I wouldn't bet against it."

Mark Clayton is a staff writer for the Christian Science Monitor.

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