Wired had an interesting piece on hybrid cars that implicitly asks just how much variety car companies should be offering (‘Forced Features’ Drive Up Hybrid Prices, Jan 28). The rough argument is that if one accepts that hybrid cars are socially good (and let’s not get distracted by whether anything with that many batteries can be good for the environment), shouldn’t they be configured and priced so that as many people as possible can buy one? According to the Union of Concerned Scientists, that ain’t happening:
Trouble is, most [hybrids] are packed with high-end features that inflate the sticker price. So says the Union of Concerned Scientists in its inaugural “Hybrid Scorecard,” a rundown of the gas-electric rides currently available in the United States. Although the union praises automakers for offering hybrids with excellent fuel economy and low emissions, it faults them for stuffing those vehicles with DVD players, keyless entry systems, heated power mirrors and other pricey gadgets. These features are standard equipment, not options, and add an average of $3,000 to the bottom line. That’s on top of the “hybrid premium” that typically adds three to four grand to cover the cost of the electric motor and battery pack.
“Consumers shouldn’t be forced to take features on the hybrids and pay thousands of dollars more because manufacturers don’t want to offer them a choice,” said Don Anair, a senior analyst in the vehicles program at the union. “People are looking for fuel-efficient vehicles, and they shouldn’t be forced to pay thousands more for them.”
Now the comeback from the auto industry is that, hey, we’re building what the public wants and there isn’t the overall volume to justify a lot of choice:
Although hybrids have enjoyed growing popularity, they’re still a tiny niche. Of the 10.5 million vehicles sold in the United States last year, 290,232 were hybrids — and almost half of them were Prius hybrids (.pdf). To put that in perspective, Toyota sold 356,824 Camrys in the United States last year, while Ford sold 413,625 F-series pickups. Given the relatively small number of hybrids, automakers can’t offer a smorgasbord of options, said Charley Territo, a spokesman for the Auto Alliance. The trade group represents 11 automakers, including the Big 3 and Toyota.
“Because of the volume of hybrid-electric vehicles being sold, they have to provide a vehicle that appeals to the widest number of consumers possible,” he said. And that means offering an array of features consumers expect, even if that means not everyone wants every one.
This is further backed up by the claim from Ford that while the base Fusion Hybrid costs $28,350, the base model only represents 13% of Fusion Hybrid sales. That is, the vast majority of buyers are willing to go above 28 grand to get the vehicle they want.
One suspects that while both parties have some truth on their sides, they are also both guilty of bending the facts to make their point. Let’s start with the scientists. It’s unclear to what extent they are cherry picking comparisons. They supposedly compared the Prius to the Matrix (another Toyota model) in order to determine that each Prius has $1,600 in “forced” features. The absolute base Matrix has an MSRP of $16,700 — of course, it is utterly stripped and doesn’t even have an automatic transmission. The base Prius starts at $22,800. One suspects that if one looked at a sales weighted Matrix, the gap between its price and features would be a lot narrower. For example, one of the nice things about the Matrix is that you can get it in an all-wheel drive configuration. Given that is fairly unique in that class of car, I suspect that option is one their more popular configurations but it bumps the MSRP to almost $21,000.
If the scientists cherry pick, the car company’s have to admit that they shape demand. The conventional Fusion starts at just under 20 grand and has a manual transmission. Good luck finding one of those in your preferred color. This also applies to the Civic and other cars discussed in the article. Yes, there are cheap cars out there in the sense that they exist in the brochure at the dealer. They are just unlikely to exist on the dealer’s lot. Some of this is many of the cheapest alternatives lack features most American’s value (like an automatic transmission). But I suspect it is also the case that dealers intentionally order cars with a few doodads (like heated seats) because they have a fatter margin and that creates a little more room to negotiate with the customer.
But is it good for everybody if car makers aim high with hybrids? I suspect that it is. If we take out the Prius, there are some 30 models of hybrids fighting for about 150,000 units of sales. That cannot justify too much variety. I also doubt that dropping a few grand in options is the difference between the status quo and a complete conversion of the market. Moving Americans to hybrids is generally about getting more Americans to buy smaller cars. Those buyers could afford bigger, more expensive cars than a base Matrix. If you want them to consider something the size of the Matrix, you need to entice them with some creature comforts. That is, you need to convince them that they are giving up only size, not giving up having a “nice” car.
The Wired article says that Honda standardizes an average of $3,000 in add-ons for the Civic Hybrid, and that the Union of Concerned Scientists thinks this is too high. I would be interested to see this figure compared to how much a gas Civic buyer chooses to add-on to their car.
My guess is that the average gas Civic buyer spends significantly less than $3,000 on add-ons. And to prevent cherry picking, I might expect Civic buyers to be more frugal than say Ford Fusion buyers, so the comparison would have to encompass all makes & models.
All things considered, my feeling is that consumers who buy hybrids are less price sensitive, so they may be more likely to go for add-ons. And I’m sure add-ons represent a high margin for OEMs, incentivizing them to load-up hybrids. I say less price-sensitive because unless gas is closer to $4/gallon, hybrid cost of ownership is generally than the gas-only counter-part, therefore buying a hybrid is economically irrational. And if you’re that, then why not go for the heated seats?
Finally, I’m curious about the ‘standard’ content for the upcoming GM Volt, my guess is that it will be heavily loaded with features.