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Analyst Backtracks on Hybrids

Philip Gott lowers his initial forecast as advances in diesel change the auto market.

October 05, 2006|John O'Dell | Times Staff Writer

Sticker shock -- compounded by what might be called odometer shock -- has turned off many would-be buyers of gasoline-electric hybrid vehicles. And that has prompted an influential analyst to reduce his forecast for the growth of hybrids in the global auto market.

Sometimes-stiff price premiums and disappointing real-world fuel economy are taking some of the luster off hybrids just as diesel engines are starting to shine, Global Insight Inc. forecaster Philip Gott said.

Gott, who previously predicted that hybrids of all types would account for as much as 90% of the U.S. auto market by 2025, said in a new report that they would rise in that time frame to no more than 12% of the global market, including 12% to 15% in the U.S. They currently account for less than 2% of the market here.

If Gott misread the tea leaves, as he acknowledged in a recent interview, that was because the brew changed along the way.

At the time of his initial forecast in 2001, hybrids were quite new and motorists believed that the vehicles would achieve their federally estimated mileage in real-world driving.

Repeated reports from users and outside testers, notably Consumer Reports magazine, have since shown that many hybrids get 20% to 30% lower mileage than government estimates. That's largely because the vehicles are most efficient in heavy stop-and-go traffic and less efficient in high-speed highway driving that makes up about half of most motorists' travel.

Many owners of Toyota Motor Corp.'s popular Prius, rated at 60 miles per gallon in the city and 51 mpg on the highway, say they typically average 40 mpg to 45 mpg in daily use. Still, most hybrid models deliver 25% to 30% better fuel economy than their counterparts equipped with conventional gasoline engines.

That's not good enough to enable most owners to save enough at the fuel pump to justify a hybrid's higher purchase price, said Gott.

"I was in California the other day, and it was funny to see all the Priuses running in the HOV lanes," he said of the sedan, one of the hybrids allowed to use California's high-occupancy-vehicle lanes with only one person aboard. "That's when they are least efficient."

At the same time, diesels, long considered too dirty and smelly for general use, have become cleaner.

Newly developed emission-control technologies can be expected to make diesel engines the fuel-efficiency choice of most automakers in the next decade, said Gott, director of the Boston-based think tank's automotive consulting practice.

Diesel fuel economy equals or bests that of most hybrids, he said, and the engines add a smaller premium than hybrids do at dealer lots.

The improvements are being made possible by a combination of cleaner diesel fuel, new emission filters and refinements in the way diesel engines burn fuel, Gott said.

One reason diesels can gain so quickly is that engines using the fuel have been encouraged for years in Europe, where most European and American automakers have spent heavily to develop the technology.

By contrast, few automakers other than Toyota and Honda Motor Co. of Japan and, to a lesser degree, Ford Motor Co. and General Motors Corp. in the U.S., have invested heavily in hybrids.

Diesel engines are entering a new era in which they can meet the same emission standards in the U.S. as gasoline engines.

Honda and DaimlerChrysler's Mercedes-Benz unit each announced passenger vehicle engines last month that could meet California's 2009 diesel emission standards, considered the toughest in the world.

Honda has said it intends to make diesels an important part of its overall market strategy, using them in mid-size cars and trucks, for which their high mileage and power can provide the most efficiency.

Gott predicted that diesels, currently installed in about 45% of passenger vehicles sold in Europe but in less than 3% in the U.S., would capture 65% of the European market and as much as 12% of U.S. sales in the next two decades.

In 2001, the analyst had believed that hybrids "were going to be the panacea," he said.

But Gott said he now believed that fewer motorists would be willing to pay the higher prices automakers charged for hybrids -- these days about $2,000 to $9,000 more than for comparable gasoline vehicles -- when they could spend less to get a diesel delivering equal fuel economy and greater power.

Toyota, which is betting heavily on its hybrid strategy, has said it can eliminate the price differential as sales increase.

Diesels typically add $1,500 to $5,000 to the price of a passenger vehicle.

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