Can These Hybrid Cars Save Detroit?

Congress and the CEOs

To highlight their newly-expanded commitment to hybrids, Ford CEO Alan Mulally, General Motors CEO Rick Wagoner and Chrysler CEO Nardelli are all arriving in Washington in hybrids. The move also might help diffuse anger about the three taking individual private jets last time to ask for a taxpayer-funded bailout.

GM's Wagoner took three vehicles for the journey from Detroit, with most of the trip spent in the Chevy Malibu Hybrid. He also traveled in the Cobalt XFE, the highest fuel-economy car that GM sells, and the E-85 Buick Lucerne, which runs on ethanol. Wagoner also will drive a test version of the Chevy VOLT before testifying.

Ford's Mulally was reported driving a Ford Escape hybrid, and Chrysler's Nardelli took the Aspen.

Those three cars can be seen as prime examples of the challenges the automakers face.

For instance, a conventional Ford Escape starts at $20,100 and gets 22 miles per gallon in the city and 28 on the highway. The hybrid version of the Escape starts at $29,305 and gets 34 miles per gallon in the city and 31 on the highway.

That $9,000 sticker- price difference can be a major stumbling block for consumers. The Chevy Malibu has a $4,000 price difference between its conventional and hybrid models.

The Gas-Price Factor

The automakers might start ramping up hybrid production, but it doesn't mean that drivers will buy them.

"The problem is, in the short-term, if gas prices stay low, there won't be any demand for these vehicles," said Ron Harbour, an auto industry analyst with consulting firm Oliver Wyman.

Harbour said that larger Americans, in particular, may be turned off by smaller cars, even if they are fuel-efficient.

"I'm 6 foot 3. There's not much motivation for me to buy a small Ford Fiesta if gas is a $1.69 a gallon," he said.

Historically, large vehicles have been the most profitable. Meanwhile, fuel-efficient vehicles rely on expensive technologies and are, therefore, less profitable for automakers.

"The government wants all the automakers to move in the direction of smaller, more fuel-efficient vehicles … [but] they're very cars that make the least amount of money," Harbour said.

But Gregg Lemos-Stein, a credit analyst at S&P who covers the automobile industry, said that for some there is an appeal to the hybrid that goes beyond price.

"There's also the good feeling you get for being more attentive to the environment," Lemos-Stein said. "It's kind of like a badge of pride that you are doing the right thing and burning less gas."

The Prius Effect

The hybrid cars are still a very small segment of the market for Ford, GM and Chrysler.

But having just one hit hybrid can help a carmaker's whole line of vehicles.

"Toyota has benefited greatly from the halo effect of being known as a producer of environmentally-friendly cars," Lemos-Stein said.

The rest of Toyota's lineup is not necessarily any better than Ford's, for example. But because of the Prius, Lemos-Stein said, many consumers think they are.

GM is hoping for that type of success with the Chevy VOLT.

The company is rushing the car through design and testing, hoping to get it to market in two years. The car is expected to travel up to 40 miles a day just on its electric battery and then use a gasoline-powered engine for further journeys.

But even if the VOLT becomes a top seller, Lemos-Stein said it takes years to recoup the development costs and turn a profit on the car.

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