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Prius Tax Break May Not Last Long

Toyota's hybrid may soon reach the limit on the number of vehicles covered by the program.

January 14, 2006|David Colker | Times Staff Writer

If you want a tax break on a new hybrid car, you may have to act fast.

Tax credits for fuel-sipping gasoline-electric cars or sport utility vehicles could total as much as $3,400 -- but the award program starts phasing out once an automaker sells 60,000 vehicles. That could quickly shut out many buyers of the market-leading Toyota Prius.

The federal government, which issued guidelines Friday for auto manufacturers that wish to have their vehicles certified for the program, is promoting the credits as a potential boon for the fledgling market for hybrids. Since the first ones went on sale in the U.S. in 1999, they have grown to just more than 1% of total vehicle sales.

American automakers, still trying to catch up to Toyota Motor Corp., may stand to gain the most from the program.

"It could drive more business to the domestics," said Chintan Talati, spokesman for automotive information service Edmunds.com, "because they will be able to offer the tax credit incentive for a longer time."

Treasury Secretary John W. Snow promoted the credits Friday at a Ford Motor Co. research center near Detroit.

"Development and use of hybrid vehicles is a key step toward reducing gasoline consumption," Snow said.

The tax benefit was mandated by the sweeping energy bill that was signed by President Bush in August and went into effect Jan. 1.

Toyota's Prius, the fastest-selling hybrid in the U.S., already is in short supply at dealers. The Japanese automaker, which also sells two hybrid SUVs, expects its hybrid sales to hit the 60,000 mark in the first half of this year.

And although that would mean fewer tax credit incentives to offer customers, Toyota spokesman Xavier Dominicis said, the company would consider it something of a badge of honor.

"It would validate the value of hybrid technology that we have been putting in our cars," he said.

All told, 212,000 hybrids were sold in the U.S. last year, accounting for 1.3% of cars and light trucks, according to J.D. Power & Associates. The gas-stingy vehicles have caught on, despite higher sticker prices than comparable models, but the Prius is the hottest hybrid.

Last year Toyota sold 146,560 hybrids, outselling rival Honda Motor Co., which offers Accord, Civic and Insight hybrids.

Ford also sells hybrid Escape and Mercury Mariner SUVs; the automaker estimated Friday that buyers could qualify for tax credits of as much as $2,600.

Hybrid sales could jump to 280,000 in 2006, said Anthony Pratt, a J.D. Power forecaster. But the tax credit will be only a minor reason for the sales jump.

"People still tend to determine what car to buy based on their monthly car payment," he said. "They would not see any of the tax credit until at least April 2007 when they file their return."

For automakers, the tax law has caused a few headaches.

Last year Honda sent letters to the Internal Revenue Service asking the agency to issue the tax credit determinations as soon as possible.

"This whole thing about the tax credit being 'up to' $3,400 is not very helpful for customers," Honda spokesman Marcos Frommer said. "We need to be able to give a list to our dealers, telling them just what they can say."

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