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U.S. Government Supports Hybrid Sales As Consumer Demand Declines

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On: Tue, Nov 30, 2010 at 10:20AM | By: Sherry Christiansen

U.S. Government Supports Hybrid Sales As Consumer Demand Declines

In recent automotive news, consumer hybrid sales are declining for the third consecutive year, which has prompted the U.S. government to step up to the plate. The U.S. General Services Administration, which runs the government fleet, purchased over 14,000 fleet hybrids over the past two years. That number translates to around 10% of the total 145,000 hybrid vehicles sold in 2 years.

President Barack Obama's administration hopes that purchasing close to a quarter of the hybrid vehicles sold by GM and Ford will help to balance out the lack of consumer demand. GSA purchased 64% of Chevy Malibu hybrid models and 29% of Ford Fusion hybrids in 2009. GSA also bought about 14% of Ford Escape hybrids. The range of prices paid by the government for the hybrids was from $23,072 to $47,079.

It seems that this technology, which has been costly for automakers to develop, may have failed to gain popularity in today’s marketplace. Businesses and government agencies also plan to purchase all electric vehicles and hybrid plug-ins soon to be launched by automakers.

“At some point, the reality is that for this technology to be accepted, it needs to be done without a government crutch,” said Jeff Schuster, director of forecasting at J.D. Power & Associates in Troy, Michigan. “But without a huge gas-price increase or further government demand, the natural demand just isn't to be there.”

In fact, according to Sara Merriam, spokesperson for the agency, approximately 3 in l00 of the hybrids GSA purchased were paid for from funds originating from the economic stimulus package. Most of the 2009 hybrid sales occurred after Obama entered office in 2009.

“This is the beginning,” Merriam said. “Our main goal is to increase the fuel efficiency of the federal fleet. The other goal is to drive the market toward cleaner technologies. It's in the early stages of the government acquiring more hybrids and in larger quantities.”

According to J.D. Power; hybrids and electric cars sales are projected to be around 954,000 units this year—2.2% of the 44.7 million passenger vehicle market. In 2020 Powers states that number may rise to 5.2 million units.

“The lesson learned is that it isn't easy to make these vehicles mainstream,” said Brett Smith, who specializes in alternative propulsion vehicles at the Center for Automotive Research in Ann Arbor, Michigan. “They are still not near the point where they are cost-competitive in the market.”

“It is good that the government leads by example,” Dan Becker, director of the Washington-based Safe Climate Campaign, said in an interview. “At a time when we're just beginning the era of the hybrid, it's a positive sign that the government is stepping up to the plate and helping build that market.”

The newest technology in hybrids includes all electric plug-in vehicles such as the Chevy Volt by General Motors, and Nissan’s Leaf which will be launched in late 2010.

The Obama administration reports a goal to have at least a million plug-in electric cars on the road by 2015 and more than $11 billion in tax credits and support for technology has been allotted. One problem is that plug-ins are even more expensive than other hybrids ($3,000 to $20,000 more). If gas prices remain stable, buyers may not be able to justify paying so much more than a combustion engine vehicle, even with the extra incentives offered by the government.

Alan Mulally, Ford CEO, stated: “You have to have a business that doesn't need all these government incentives,'”

Karen Hampton, a Ford spokeswoman, said: “Incentives have a role to play when you're trying to get new technology off the ground or change behaviors, but it's not meant to be a permanent part of the business equation.”

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