Make Vrooom For The Hybrids

One

of the bewildering questions in the auto industry is how high gas prices would have to climb before Americans dump their gas guzzlers for more fuel-efficient cars. The issue comes to a head every time prices spike at the pump, whether because of turmoil in the Middle East, a lack of refinery capacity or old-fashioned opportunism in anticipation of a surge in demand. That's the scene now, with oil futures hitting record levels and gas prices averaging nearly $2 per gal. nationwide just as the summer driving season kicks off. If you just spent $75 to fill up your Chevy Suburban, you might even be one of those folks swearing they're gonna dump the hog for more of a fuel sipper.

If so, you're in luck. A fleet of fuel-efficient hybrid and clean-diesel models is arriving at dealerships over the next few months — and they aren't your typical tin-box green machines. Automakers are delivering what seemed unthinkable just a few years ago — midsize cars and SUVs with the horsepower, performance and size that Americans expect, plus improved fuel economy. Hybrid cars are propelled by a combination of a gas engine and an electric motor — a complicated technology that still draws blank stares, even though hybrids have been on the market for nearly five years. The latest versions, however, might be summed up by Ford's motto for its first hybrid SUV, an Escape, due in August: "No Compromise" (see review).

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Ford's rivals are sending similar signals. Chrysler is coming out with a diesel Jeep Liberty this summer, equipped with a four-cylinder 2.8-liter engine that the company claims will perform like a V6, with a 25% improvement in fuel economy (it will be sold in only 45 states because of antismog restrictions on diesel passenger vehicles). Lexus plans to deliver a hybrid version of its luxury RX330 SUV, the 400h, this fall. And Honda says by year's end it will sell a hybrid edition of its V6 Accord that will outperform the standard version in fuel economy and pickup. "We want to sell it on the basis of advanced technology and performance," says Honda spokesman Andy Boyd. That's a novel pitch for a hybrid. Only two years ago, such cars were small and underpowered and, with their oddball designs, seemed destined to appeal mainly to environmentalists, technology buffs and Hollywood stars, who won p.r. points for driving them.

Will hybrids go mainstream? Detroit economists are skeptical, arguing that it would take $4-per-gal. gas to significantly shift new-car buyers toward hybrids or other more fuel-efficient cars. The new hybrids will probably be priced a few thousand dollars above their conventional cousins; about $2,500 is typical now. (The Federal Government is offering a $1,500 tax deduction this year.) It's unclear whether consumers will want to spend the extra bucks if the fuel savings turn out to be minimal. But there's reason to believe that gas prices may not fall after the traditional summer spike, and oil-industry experts say we could be in for permanently higher prices if a surge in demand, notably from India's and China's hot economies, outstrips supplies.

At the moment, $2-per-gal. gas has sent the sale of hybrids zooming like a roadster. April was Honda's best month for its hybrid Civic (3,341 sold), and that followed a record-setting March. Toyota has a 20,000-order backlog for its critically acclaimed Prius and predicts a 50% sales increase over last year, to 50,000 units. All told, hybrid sales are expected to more than double this year, to 100,000. That's a tiny fraction of the U.S. market for new-vehicle sales, forecast to be around 17 million this year. But it's still good business. Some Honda and Toyota dealers say customers are paying several thousand dollars more than the sticker price for a hybrid now. "If we could get all we could sell, it would be our best-selling model," says Steve Curtis, a sales manager at Landers Toyota in Little Rock, Ark. A typical scene at a dealership: folks come in, see the Prius, notice its EPA fuel-economy rating, take it for a spin and get hooked. But in reality, drivers rarely achieve the advertised 55 m.p.g. in combined city-highway driving; 43 m.p.g. is more like it. (The discrepancy results from EPA testing methods.) So far, that doesn't seem to be crimping demand.

At General Motors, company executives are once again deflecting charges that the firm is missing out on a hot new market and will have to play catch-up. GM has for years been publicly dismissive of hybrid cars. In January, vice chairman Bob Lutz described hybrids as "an interesting curiosity" and said, "We will make some," but added that they didn't make much sense with gasoline at $1.50 per gal. Gas prices are up 30% since then, but GM officials insist their strategy has not changed. The focus is still on delivering hybrid versions of SUVs and pickups while devoting the bulk of GM's future-power-train research into a commercially viable hydrogen-fuel-cell vehicle, which the company says is on track for 2010. (Ford was slow, too, having to license some technology from Toyota for its hybrid Escape.)