Government incentives for hybrid car adoption and market competition

Hybrid Cars

From an individualistic perspective, hybrid cars may not make a great difference for consumers wishing to buy them to save money on gas. However, collectively hybrid cars can help reduce environmental problems. Government must take steps to incentivize the buying of hybrid cars to make them 'worth it' to consumers.

What are hybrid cars?

Hybrid cars are called 'hybrids' because they contain two engines. A hybrid car "features a small fuel-efficient gas engine combined with an electric motor that assists the engine when accelerating. The electric motor is powered by batteries that recharge automatically while you drive" ("Hybrid cars," Earth Easy, 2012). The reason that hybrids use two engine models is that they are designed to balance both the strengths and the weaknesses of gas and electric motors. Electric motors turn off completely and do not waste energy during idle time. They also burn less gas at lower speeds than standard gas motors. However, at higher speeds, gas motors are actually more efficient. Most drivers drive at a variety of speeds. So, during in-town driving or rush hour traffic, electric mowers are more efficient, but gas motors function better at highway driving (Dunn 2006).

"There are two types of gasoline-electric hybrid cars: the parallel hybrid and the series hybrid. In a parallel hybrid car, a gasoline engine and an electric motor work together to move the car forward, while in a series hybrid the gasoline engine either directly powers an electric motor that powers the vehicle or charges batteries that will power the motor" ("Hybrid cars," Earth Easy, 2012). The use of hybrid technology also eliminates one of the most common downsides of buying a hybrid car: what happens if it runs out of a charge. "Another benefit of having the gas motor is it charges the batteries while it's running" (Dunn 2006).

The Japanese automotive company Toyota remains the most widely-recognized leader in hybrid manufacturing. Honda and Toyota were the earliest companies conducting research in the field when American car companies dismissed the idea of hybrid technology. The result of Japanese manufacturer's diligence was the Toyota Prius and the Honda Insight. U.S. car makers lagged behind in hybrid research as well as production. The GM Mercury Mariner, for example, required GM to "license over 20 separate technologies from the Japanese" (Dunn 2006). American car companies released hybrids not to sell, but to satisfy Corporate Average Fuel Economy (CAFE) regulations. "Current standards mandate that average mileage of the fleet of cars sold by an automaker should be 27.5 mpg. This means that if an automaker sells one hybrid car that gets 60 mpg, it can then sell four less efficient cars - like SUVs and trucks - that only get 20 mpg" (Dunn 2006). "Despite years of ridicule from the rest of the auto industry, Toyota has defied conventional wisdom and built hybrid cars because they believe in them. In fact, Toyota's long-term business model is significantly hedged to hybrid cars" ("2012 hybrid cars: Has interest really declined," Hybrid Cars, 2012)

Pros

So why get a hybrid? From an individual perspective, hybrids may not be a great deal. But "even a small increase in fuel economy makes a large difference in emissions over the life of the car. Also, in large cities were pollution is at its worst, they make an even larger difference since they produce very little emissions during low speed city driving and the inevitable traffic jams" (Dunn 2006). From a societal perspective, hybrids fulfill an important function. "A hybrid cuts emissions by 25% to 35% over even the most fuel-efficient gas-powered models" (Dunn 2006).

Some car companies have attempted to answer the question of the problem of high repair costs of hybrids by offering financial rewards. "The Honda Insight has an eight-year/80,000-mile warranty on most of the power train, including batteries, and a three-year/36,000-mile warranty on the rest of the car. The Toyota Prius has an eight-year/100,000-mile warranty on the battery and hybrid systems and a three-year/36,000-mile warranty on everything else" (Dunn 2006). The ability to drive as a single passenger in an HOV (high-occupancy vehicle lane) is another benefit hybrid drivers can often enjoy, which can be a valuable saving of time for commuters hurrying to work.

The government has extended some tax incentives in the past to drivers to buy hybrids in a manner that could have a salutary effect upon the environment, such as $3,400 tax break at one point, although it only applied to the first 60,000 vehicles produced annually by the manufacturer (Dunn 2006). However, given the substantial risks and the questionable long-term fuel efficiency rewards provided by hybrid cars, the value for the consumer of a relatively moderate tax break for an expensive car is questionable.

Despite the science behind how much can be saved by using hybrids, it is worthy of note that many hybrids have been purchased because of the perception that they are more fuel-efficient, and in some circles, because of their symbolism of environmental consciousness. When gas prices begin to spike in 2008, hybrids became trendy and waiting lists were necessary to obtain the vehicles. Many celebrities were seen driving hybrids, as a way of signaling their concern about the environment (Weismann 2008).

However, hybrid sales began to decline in 2011, as the price of gas began to moderate slightly. "2011 hybrid sales were down largely because of a new crop of small cars, such as the Hyundai Elantra and the Chevy Cruze, offered increased fuel economy at a cheaper-than-hybrid price" ("2012 hybrid cars: Has interest really declined," Hybrid Cars, 2012). Consumers, reflecting upon the relatively modest savings in terms of price conveyed by hybrids instead elected to purchase these smaller, cheaper gas vehicles that were also fuel-efficient. Although the economy is still largely perceived as being on shaky ground, American car consumers also traditionally do not 'hold onto' their cars particularly long, which may mean the may not enjoy the full price savings conveyed by hybrids over the long-term, unless the government provides incentives to encourage them to do so.

Conclusion

Sales of hybrid cars seem to be at least temporarily trending downward, but Toyota, once again defying conventional wisdom, appears to be betting that they will remain popular over the long-term. Until recently, in terms of sales "there was Toyota and everyone else. The Prius alone is around half of ALL hybrid sales. Add in the rest of Toyota's hybrids, including the Lexus ones, and it simply isn't even worth talking about 2nd place" ("2012 hybrid cars: Has interest really declined," Hybrid Cars, 2012). Toyota expects that hybrid sales will increase 60%, despite the temporary downturn, thanks to the increasing price of gas ("2012 hybrid cars: Has interest really declined," Hybrid Cars, 2012).

The fact that the Prius is so easily recognizable as a hybrid car may ironically be one of its selling points -- while some car drivers find the car ugly, the fact that it is so obviously a hybrid vehicle is an incentive to purchase a car that so ostentatiously 'seems' green. The 'green halo' for some consumers is another important reason to buy an electric car, but only the more affluent can be concerned about image to such a great degree -- poorer consumers must take into consideration the cost, and that is why it is so important that there are tax incentives to ensure that it is really 'worth it' for the average consumer to buy a hybrid.

However, subsidizing the purchase of hybrids with tax breaks will not mean the subsidization of Japanese cars in the future -- American manufacturers are finally making serious ventures into the fuel-efficiency market that offer real, alternative fuel cars. The most notable example has been GM's Chevy Volt. However, sales for the Volt remain low because of its exceedingly high price tag, and GM is not planning upon increasing production to meet demand ("GM not adding second shift at auto plant," Green Auto Blog, 2011). To improve the environment, offering tax incentives substantial enough to help ordinary consumers buying more standard hybrids may be the most effective way to boost demand, reduce emissions, and encourage other car companies besides Toyota to increase their fleet of hybrids in a meaningful fashion. When concern for the environment is not strong enough to override cost concerns for consumers, government intervention is necessary to protect the environment.