The Once Hot Prius Falters As Gas Prices Fall

Jonathan Keyes surveyed the Santa Monica Toyota dealership the other day and was surprised by what he saw. Row upon row of unsold Priuses, Toyota's supposedly hot-selling hybrid.

"When I came into the lot, I won't lie," he told us. "I was absolutely surprised. I thought that maybe I could just test drive [a Prius].

"But the car salesman who was helping me said, 'which one do you want?'"

It is a scene that is being replayed across the country these days, as consumers, once accustomed to paying more than the sticker price and waiting half a year for a Prius, are now being told to take their pick, which could bring better deals for those looking to purchase the hybrid car.

"There's no question that demand for the Prius is not as high as it was, say, a year ago," explained Jesse Toprak of the auto Web site Edmunds.com.

There are several reasons for this, but the main one involves the price of gasoline.

All summer long, when you couldn't find a Prius to save your soul, the price of a gallon of gasoline hovered in the neighborhood of $3. But steady declines in gas prices have brought the average price per gallon down to around the $2 mark -- and that's a problem for Prius.

"The No. 1 reason people will buy this vehicle is gas mileage," said Brian Weinberg, general manager of Grossinger's Toyota in Chicago.

Toyota anticipated strong market demand and ramped up Prius production -- pushing supply past demand. Today, it takes an average of 30 days to move a Prius off the lot. Adding to the glut, Toyota responded to repeated consumer complaints that they just couldn't find the car. Unfortunately for dealers, Toyota's response came a tad late.

More Supply? Prepare for the Deals

Sales of Prius have been flat for a year, but according to Jim Press, president of Toyota Motor North America, that's no problem.

"Now we can start to satisfy consumer demand and start to sell in the mainstream," Press contended. "Obviously, what we're trying to do is to bridge from the vehicle that was attractive to environmentally conscious customers to the mainstream."

To do that, Toyota dealers will be doing something unprecedented -- they will be offering incentives to Prius customers. The incentives, offered by specific dealers as need be, involve loans and leases, as well as dealer discounts from the sticker price.

"We're now in a more normal situation where demand and supply reflect reality and that requires marketing," Press said.

The question though is whether Prius is more than a niche vehicle, whether it can expand to the mainstream as Press wants. It will be difficult. For one thing there is plenty of competition, not only from other hybrids but also from cheaper, gas-saving vehicles now on the market. Vehicles like Toyota's own Yaris, Nissan's Versa, and Honda's Fit.

"You might as well just get a four-cylinder regular car for $16,000 or $17,000 and get very similar gas mileage to those hybrids without having to pay the premium price," said Toprak.

There is also the fact that the federal tax credit for the purchase of hybrids is being phased out this year just as the Environmental Protection Agency is due to come out with revised mileage calculations -- a double whammy.

The EPA figures are designed to better reflect driving habits of motorists. Bad news for Prius and the hybrid fleet as a whole.

Today on the sticker of a new Prius you will read EPA mileage of 60 miles per gallon in the city and 51 mpg on the highway. But the new EPA figure is expected to be no higher than the mid-40s for either.

Toyota insists that's a good thing. The Prius will get the mileage it's always gotten, Press insisted, and there won't be any customer disappointment about not getting 60 mpg. But selling a 30 percent reduction in miles per gallon will be daunting even for the marketing wizards at Toyota.

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