(BN) Obama Bolsters U.S. Hybrid Auto Sales in Waning Consumer Market


Obama Bolsters U.S. Hybrid Auto Sales in Waning Consumer Market
2010-11-23 05:01:00.23 GMT

By Angela Greiling Keane and Jeff Green
Nov. 23 (Bloomberg) -- President Barack Obama's
administration has bought almost a fourth of the Ford Motor Co.
and General Motors Co. hybrid vehicles sold since he took
office, accelerating federal purchases as consumer demand wanes.
The U.S. General Services Administration, which runs the
government fleet, bought at least 14,584 hybrid vehicles in the
past two fiscal years, or about 10 percent of 145,473 vehicles
the agency purchased in that period, according to sales data
obtained by Bloomberg under a Freedom of Information Act
request. In fiscal 2008, hybrids accounted for less than 1
percent of government purchases, the data showed.
The government is boosting investment in a technology that
has failed to win broad acceptance after more than a decade in
the marketplace. Consumer sales of hybrids are headed for their
third consecutive yearly decline. Government agencies and
businesses have said they also will purchase all-electric models
being introduced by automakers including GM.
"At some point, the reality is that for this technology to
be accepted, it needs to be done without a government crutch,"
said Jeff Schuster, director of forecasting at J.D. Power &
Associates in Troy, Michigan. "But without a huge gas-price
increase or further government demand, the natural demand just
isn't to be there."

Stimulus Money Used

About 3,100 of the hybrids purchased by GSA were paid for
out of $300 million that the agency received from the 2009
economic stimulus package, said Sara Merriam, a spokeswoman for
the agency, in an interview. Another 5,600 were bought with
proceeds from selling older cars in the government fleet, she
said. A majority of fiscal 2009 hybrid sales came after Obama
took office in January 2009.
"This is the beginning," Merriam said. "Our main goal is
to increase the fuel efficiency of the federal fleet. The other
goal is to drive the market toward cleaner technologies. It's in
the early stages of the government acquiring more hybrids and in
larger quantities."
The models purchased by the government ranged from $23,072
to $47,079, according to the data.
The government paid an average of $5,281 less for its
hybrid vehicles than sticker prices at a dealership, according
to a comparison of the GSA purchase data with prices collected
by Edmunds.com, a consumer information website.
Global sales of hybrids, plug-in hybrids and electric cars
are projected to be 954,500 vehicles, or 2.2 percent of the 44.7
million passenger vehicles projected to be sold this year, J.D.
Power said in an Oct. 27 report. That may rise to 5.2 million
units in 2020, according to the report.

Not Cost Competitive

"The lesson learned is that it isn't easy to make these
vehicles mainstream," said Brett Smith, who specializes in
alternative propulsion vehicles at the Center for Automotive
Research in Ann Arbor, Michigan. "They are still not near the
point where they are cost-competitive in the market."
Toyota Motor Corp. sold the first hybrid Prius in Japan in
1997 and Honda Motor Co. introduced the first hybrid to the U.S.
in 1999. Total U.S. hybrid sales since then have been about 1.8
million, or about 1 percent of the 175 million cars and trucks
sold during that period. More than half of those hybrids were
Prius models.
The U.S. government buys hybrids almost exclusively from
Ford and GM. It bought only 17 Prius models and five of Honda's
Civic hybrids in the past two years. Chrysler Group LLC stopped
making hybrids in 2008 after about two months of production.
The government purchased about 64 percent of GM's Chevy
Malibu hybrid models and 29 percent of all Ford Fusion hybrids
manufactured since Obama took office in 2009, the data show. GM
stopped making the Malibu hybrid in 2009 after lack of consumer

Leading by Example

GSA also bought about 14 percent of Ford Escape hybrids.
Obama leased a hybrid Escape for himself in May 2007, before he
was elected president. He turned it in this year because he's
rarely allowed to drive.
"It is good that the government leads by example," Dan
Becker, director of the Washington-based Safe Climate Campaign,
said in an interview. "At a time when we're just beginning the
era of the hybrid, it's a positive sign that the government is
stepping up to the plate and helping build that market."
The next wave of new technology vehicles are so-called
plug-in hybrids and electric models. GM's Chevrolet Volt, which
has a gasoline engine primarily for charging the battery, and
Nissan Motor Co.'s full-electric Leaf go on sale later this
year. Ford's Transit Connect electric delivery van is already on

Plug-In Goals

Obama has set a goal of 1 million plug-in vehicles on the
road by 2015 and has committed more than $11 billion in taxpayer
funding to help support the technology.
GSA has accepted bids for contracts that may supply 100
electric delivery vehicles from a Ford dealership in Minnesota
and Smith Electric, an affiliate of Washington, England-based
Tanfield Group, the agency said on its website.
Hybrid and electric vehicles can be $3,000 to $20,000 more
expensive than gasoline models, Smith said. The U.S. offers as
much as $7,500 in tax credits for the purchase of plug-in
vehicles and about a dozen U.S. states offer additional
Hybrid and electric vehicle technology only makes sense if
it can stand without government support, Ford Chief Executive
Alan Mulally told Detroit-area supplier executives in a Nov. 8
speech that was closed to the media.
"He was saying, 'You have to have a business that doesn't
need all these government incentives,'" Karen Hampton, a Ford
spokeswoman said, recounting the talk. "Incentives have a role
to play when you're trying to get new technology off the ground
or change behaviors, but it's not meant to be a permanent part
of the business equation."

For Related News and Information:
For top transportation news: TRNTOP <GO>
For news about hybrids: NSE HYBRID GM IN WIRE <GO>

--With assistance from Keith Naughton and Bill Barlow in
Southfield, Michigan; Alan Ohnsman in Los Angeles and Nicholas
Johnston and Matt Bok in Washington. Editors: Bernie Kohn,
Andrea Snyder

To contact the reporters on this story:
Angela Greiling Keane in Washington at +1-202-654-1287 or
Jeff Green in Southfield, Michigan, at +1-248-827-2945 or

To contact the editor responsible for this story:
Bernie Kohn at +1-202-654-7316.