Anyone who's shopped for a Toyota Prius knows that the gas – electric sedan comes complete with a 'hybrid premium': a theoretical surcharge included in the manufacturer's suggested retail price. Although there's considerable debate on this point, it is possible for a mileage-conscious Prius driver to save enough money at the pumps to recover the extra cost of purchasing a hybrid– eventually. But no matter how the customer makes out, Toyota still comes out on top. This despite the fact that the cost of developing and manufacturing hybrid technology– batteries, drivetrain, controls, brakes, etc.– means that Toyota makes a loss on every single Prius sold. But by losing the battle, they win the war.
It's no secret that hybrids get a lot more media attention than actual sales. Gas may be cresting $3 a gallon, but Americans still love their big cars, pickup trucks and SUV's. And while manufacturers love the profits on these large vehicles, they've all got to meet federal Corporate Average Fuel Economy (CAFE) standards. Otherwise, the automaker must pay large fines. [Since 1983, the EPA has collected $650,831,288.50 in CAFE fines from BMW, Jaguar, Mercedes, Porsche, VW and others.] The US Energy Policy and Conservation Act of 1975 currently dictates that an automaker's US passenger cars must achieve a combined fuel economy average of 27.5 mpg. The combined average for their 'light trucks' (that's SUV's and pickups) must be 21.6 mpg.
So, Toyota can sell as many gas-guzzling Tacomas, Tundras and Sequoias as they like; they just have to sell enough fuel-sipping vehicles to maintain the required fleet average. In other words, Toyota and its compliancy-seeking competitors aren't trying to make big profits on little cars; they're trying to lose as little money as possible on small cars so they can make as much money as possible on big, profit-rich vehicles. To meet the CAFÉ regs., Toyota prices their smallest models at a loss– and then adds discounts, finance deals and incentives that cost even more. Prior to the Prius, Toyota's pushed the less-than-thrilling Echo with deep discounts and heavy incentives and attractive financing offers.
Seen in this light, the Toyota Prius was a stroke of genius: a vehicle that boosts the company's CAFÉ numbers to SUV-sustaining levels AND generates enormous positive PR for the brand. Somehow, no one other than a few tree-hugging environmentalists and Chevy's PR department seems to notice that Toyota's mileage on their other products lags behind the industry leaders. The social opprobrium attached to selling SUVs that are bigger and thirstier than a Chevy Tahoe (and probably more profitable) slides right off Toyota, because they're the leaders in hybrid technology. In one brilliant marketing move, Toyota has transformed their money-losing small car operation into a priceless marketing campaign.
And yet, as always, physics trumps bullshit– er, marketing savvy. Even with Toyota's hidden subsidy, the Prius is simply too heavy, complicated, expensive and yes inefficient to quickly and easily justify its premium price. Recent media focus on the discrepancy between hybrids' real world mileage and the official EPA numbers only reveals part of the truth. If consumers considered the fact that the Prius uses every non-hybrid trick in the book to raise its fuel efficiency (de-contenting, skinny tires, lightweight materials, etc.), if they compared like-for-like (the Prius vs. a similarly equipped, same-sized gas-powered car with equivalent horsepower), they'd see that the efficiency gap between competing propulsion technologies is narrower still.
The expansion of hybrid technology into large and heavy cars and trucks highlights this conflict between political/moral concerns and plain old physics. For example, EPA numbers suggest that the hybrid-powered Lexus RX400h 2WD SUV gets eight more combined mpg's than the gas-engined RX330 2WD. But if you "downsize" the vehicles' EPA numbers to real world experience– a process which doesn't lower the RX330's fuel economy as dramatically– the difference between the two Lexi is a lot less impressive. The truth is that short of cold fusion, there's no way a heavy hybrid will deliver mileage significantly better than a smaller and/or smaller-engined gas-powered vehicle. Of course it's also true that the new hybrid SUV's are a boon to their manufacturer.
The profits on Toyota's Lexus 400h hybrid-powered SUV takes their hybrid strategy to the next level. In the vehicle's rarified market demographic, the consumer pays the entire cost of the hybrid modifications. When that's the case, there's no way that the average owner will ever recover the extra cost of the hybrid. Given the likely cost of battery replacement and repairs in later life, there's little chance the original owner can recover any of the costs when selling or trading the car. But they can still feel virtuous and politically correct while driving a large luxury SUV. As Toyota's hybrid sales prove, sometimes perception is all.
Join the conversation
Latest Car ReviewsRead more
Latest Product ReviewsRead more
- Max So GM will be making TESLAS in the future. YEA They really shouldn’t be taking cues from Elon musk. Tesla is just about to be over.
- Malcolm It's not that commenters attack Tesla, musk has brought it on the company. The delivery of the first semi was half loaded in 70 degree weather hauling potato chips for frito lay. No company underutilizes their loads like this. Musk shouted at the world "look at us". Freightliners e-cascads has been delivering loads for 6-8 months before Tesla delivered one semi. What commenters are asking "What's the actual usable range when in say Leadville when its blowing snow and -20F outside with a full trailer?
- Funky D I despise Google for a whole host of reasons. So why on earth would I willing spend a large amount of $ on a car that will force Google spyware on me.The only connectivity to the world I will put up with is through my phone, which at least gives me the option of turning it off or disconnecting it from the car should I choose to.No CarPlay, no sale.
- William I think it's important to understand the factors that made GM as big as it once was and would like to be today. Let's roll back to 1965, or even before that. GM was the biggest of the Big Three. It's main competition was Ford and Chrysler, as well as it's own 5 brands competing with themselves. The import competition was all but non existent. Volkswagen was the most popular imported cars at the time. So GM had its successful 5 brands, and very little competition compared to today's market. GM was big, huge in fact. It was diversified into many other lines of business, from trains to information data processing (EDS). Again GM was huge. But being huge didn't make it better. There are many examples of GM not building the best cars they could, it's no surprise that they were building cars to maximize their profits, not to be the best built cars on the road, the closest brand to achieve that status was Cadillac. Anyone who owned a Cadillac knew it could have been a much higher level of quality than it was. It had a higher level of engineering and design features compared to it's competition. But as my Godfather used to say "how good is good?" Being as good as your competitors, isn't being as good as you could be. So, today GM does not hold 50% of the automotive market as it once did, and because of a multitude of reasons it never will again. No matter how much it improves it's quality, market value and dealer network, based on competition alone it can't have a 50% market share again. It has only 3 of its original 5 brands, and there are too many strong competitors taking pieces of the market share. So that says it's playing in a different game, therfore there's a whole new normal to use as a baseline than before. GM has to continue downsizing to fit into today's market. It can still be big, but in a different game and scale. The new normal will never be the same scale it once was as compared to the now "worlds" automotive industry. Just like how the US railroad industry had to reinvent its self to meet the changing transportation industry, and IBM has had to reinvent its self to play in the ever changing Information Technology industry it finds it's self in. IBM was once the industry leader, now it has to scale it's self down to remain in the industry it created. GM is in the same place that the railroads, IBM and other big companies like AT&T and Standard Oil have found themselves in. It seems like being the industry leader is always followed by having to reinvent it's self to just remain viable. It's part of the business cycle. GM, it's time you accept your fate, not dead, but not huge either.
- Tassos The Euro spec Taurus is the US spec Ford FUSION.Very few buyers care to see it here. FOrd has stopped making the Fusion long agoWake us when you have some interesting news to report.
When I am driving my volt my normal 20 miles a day at max, will I be spending money on gas? Noooooooooooooooooooooo When I am not getting that smelly stuff all over my nice shirt and slacks. Will I be spending money on gas? Nooooooooooooooooooooo When I am not spending money on gas. I will not be helping out those folks that think we should disappear from the face of the earth. And, I can tell them to put gas where the sun don't shine!