When gas prices were in full ascent, nearly every major automaker announced big plans to increase production of hybrid gas-electric vehicles. But the cost of a gallon of gas has started to recede, and the price of a barrel of oil has dropped from nearly $150 a barrel to below $120. At the same time, the new car market has shrunk by millions of units. These factors raise questions about cash-strapped carmakers’ ability to look past the short-term economic picture and maintain their commitment to hybrids.
If auto executives look only at short-term figures, it appears that hybrids have lost their allure. Domestic sales of hybrids in July dropped 6 percent compared to last year, and year-to-date hybrid sales are down 1.6 percent compared to 2007. Even sales of the Toyota Prius, the most popular hybrid car, slid by 7 percent in July.
In the larger view, total sales of light duty vehicles dropped 13.2 percent in July, and have declined 10.5 percent during the first seven months of the year. Meanwhile, despite the downturn in Prius sales—mostly because Toyota does not have enough inventory to meet demand—the Prius was the tenth most popular passenger car in July. Sales of the Honda Civic Hybrid rose by 38 percent compared to last year. Declines in the hybrid market mostly came at the expense of SUV hybrids and luxury hybrids.
In this light, it seems that troubles in the North American auto market have more to do with a failure of automakers to produce fuel efficient vehicles than with general economic woes. While hybrids might serve as the much-needed counterweight to declining sales, success in the hybrid market will take executive resolve—and cash commitments to produce and market new models.
Unfortunately, cash is running low for the domestic automakers. General Motors announced a $15.5 billion loss Friday, the third-worst loss in the company’s history, several times larger than analysts had projected. GM stock finished down 84 cents, or 7.6 percent after the announcement, which, however troubling, is still well above the stock’s 52-week low. The good news for GM investors is that the majority of the losses stemmed from onetime charges and expenses that were essentially unavoidable. The bad news is that nobody is sure how long it will be before the company reports a profit.
Though General Motors may be taking the worst of an auto market that has declined by 10 percent through July, no company has been immune. Toyota, despite being on pace to surpass GM’s 77-year reign as the world’s leading auto-seller, has lowered its global sales projection from 9.85 million to 9.5 million. Ford, which most analysts consider better positioned to lead American automakers into the small car era, announced an $8.7 billion loss weeks ago.
Nobody knows how far and how quickly gas prices will rise and fall. The best economists can’t predict when the economy might turn around. But until it does, carmakers with a long-term commitment to hybrids will be best positioned to survive those ups and downs.