More Fuel Efficient Engines and Stable Oil Prices Lowering Demand for Hybrids

In what can only be described as a sign of the times, the big news from the 2012 American International Auto Show could well be the lack of new hybrid models being launched. Automakers have turned their focus away from alternative fuel vehicles and are now concentrating on more fuel efficient gas-powered vehicles.

The new Cadillac ATS sedan is a prime example of this emerging trend.  The ATS features a fuel-efficient turbo-charged four-cylinder gasoline engine that delivers 270-hp.

Ford Motor Company also appears to be moving away from hybrid technology and focusing instead on its fuel efficient Ecoboost engines. The automaker recently announced that it has shelved its plan to develop a hybrid version of the Escape Sport Utility Vehicle.

A lack of enthusiasm among consumers has led to slower than expected sales of hybrid vehicles which has forced automakers to adapt in order to stay competitive.

According to Booz & Company vice president Scott Corwin, the higher cost of ownership associated with hybrid vehicles may be at the root of the problem. Corwin asserts, “Consumers are rational and they understand the cost of ownership.”

In 2011, U.S. hybrid auto sales fell to 2.2 percent, down from 2.4 percent the previous year according to LMC Automotive.

Over the past few years, a number of automakers have made great strides in making smaller, more powerful and more fuel-efficient gasoline engines, which has made it harder to justify the higher cost of hybrid vehicles.

Consumer Reports’ Auto Test Center senior director David Champion uses the Honda Civic to illustrate the dilemma automakers face.  A Civic equipped with a conventional gasoline engine gets a combined city / highway 32 mpg. The Civic Hybrid delivers a combined city / highway 44 mpg.  The EPA estimates that the hybrid version saves consumers $322 per year in fuel costs.  But, at today’s fuel prices, it would take more than six years for those savings to offset the higher sticker price of the hybrid version.

Reid Bigland, president of Chrysler Group’s Dodge brand doesn’t expect U.S. consumers to be receptive to hybrid autos as long as oil prices remain relatively low.  Bigland said, “The delta you get in fuel-economy lift with a hybrid is continuing to shrink because of the efficiencies with the internal combustion engine.”

Chevrolet vice president of U.S. marketing Chris Perry said that, although the Volt plug-in hybrid draws consumers into dealer showrooms, sales have been disappointing.  In 2011 Chevrolet sold fewer than 8,000 Volts.

Automakers had hoped that high demand for hybrid vehicles would help them meet the more stringent fleet-wide fuel efficiency averages of 54.5 mpg by 2025 mandated by the Environmental Protection Agency. Most now agree that the anticipated demand for hybrids will not materialize absent significantly higher prices at the pump.

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