By AnnaMaria Andriotis
Car sales are up again, but despite rising gas prices, few consumers are buying hybrids. Instead, they’re choosing less fuel-efficient – and less costly — subcompacts and mid-size vehicles.
March sales rose 22% from the previous month and 13% from a year ago to an annualized rate of 14.3 million vehicles, according to data released today by Edmunds.com. Experts credit rising gas prices as a leading factor for this spike in consumer demand. Sales of subcompact cars and mid-size cars made up 24% of total market share in March, up three percentage points from a year ago – the biggest growth in any category, according to forecasts by Kelley Blue Book. But despite the large swings in gas prices, hybrid sales have barely budged: they made up just 2.1% of market share last month, almost unchanged from a year ago. Of the 1.4 million cars that sold last month, less than 30,000 of them were hybrids. “Interest in hybrids is not as high as one would think especially in light of high gas prices,” says Jesse Toprak, vice president of market intelligence at TrueCar.com.
Hybrids were supposed to thrive as gas prices skyrocketed and consumers looked for ways to lower their costs at the pump. But that demand hasn’t materialized largely because of their cost. Typically, a hybrid car will cost $1,000 to $4,000 more than the same car with a conventional gas engine, says John O’Dell, a senior editor at Edmunds.com. And in some cases the hybrid version could cost a whopping $30,000 extra.
It takes years for a driver to recover that premium, often longer than he or she might intend to own the car. At $4 a gallon, they’ll need four to 12 years to break even on most average hybrid models, according to Edmunds.com. For instance, the best-selling hybrid, the Toyota Prius – which just recorded its best month since 2007 — costs $6,000 more than the comparably-equipped gas-powered Toyota Corolla. At $4 a gallon, the buyer who drives about 15,000 miles a year would need seven years to break even and start seeing a payback in gas savings. That drops to six years if gas prices hit $5 a gallon but rises to nine years if gas prices fall to $3 a gallon.
The premium on some luxury hybrid cars is so high some drivers might never break even. The BMW ActiveHybrid 7 costs about $98,000 compared to the non-hybrid BMW 7 Series at roughly $80,000. At $4 a gallon, a driver would need 33 years to break even. With the Lexus LS 600h L that’s priced at $106,000, they’ll need a lifetime – 87 years – to break even when compared to the non-hybrid Lexus LS 460 that runs about $77,000.
To be sure, drivers can recover their costs much faster with some hybrids. At $4 a gallon, the Ford Fusion Hybrid has the quickest payback period – four years – when compared to the regular Ford Fusion. The same is true for the hybrid Honda Insight when compared to the non-hybrid Honda Fit, according to Edmunds.com. In the luxury market, the hybrid Lexus CT 200h is actually cheaper by $3,700 than its counterpart, the non-hybrid Lexus IS 250.
Beyond the sticker price, consumer psychology has also contributed to lagging hybrid sales. O’Dell says consumers get accustomed to rising gas prices and as a result put off purchasing a hybrid until gas prices rise even further. Now, he says, gas prices will need to reach $5 to $7 a gallon before consumers turn to hybrids in droves.
Also, incentives to buy hybrids are limited. While some cash-back and cheap financing opportunities exist, they’re not as common as they are on larger cars, says Toprak. In part, that’s because manufacturers’ have a limited supply of hybrid vehicles and their profit margins are smaller on these cars.
Still, car analysts remain optimistic that hybrid sales will rise in the future. New federal fuel economy requirements will go into effect in four years, and they’ll likely raise the fuel economy standards that car manufacturers will have to meet. To make that happen, more manufacturers will likely roll out hybrids and those with existing hybrids will probably produce more units, which in turn should bring their prices down, says O’Dell.