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A New Wave of Hybrids is Coming to North America; Are We Ready?

June 28, 2004

With at least 15 new-vehicle introductions expected during the next three model years, hybrid-electric vehicles (HEVs) appear poised to take the North American market by storm, according to CSM Worldwide. Never before have consumers been offered such a wide selection of hybrid-electric-powered vehicles, and the influx of new products suggests a correlating surge in consumer demand and hybrid purchases. CSM Worldwide, an authority on automotive market intelligence and forecasting, questions whether the market truly is ready and cites key challenges for HEVs. "A new wave of HEVs is coming to North America, but there are hurdles facing significant HEV market expansion," said Lindsay Brooke, senior manager of market assessment at CSM. "There will be many more hybrid vehicle choices, but if the OEMs build them, will customers come? The price of fuel, the price of the hybrid-electric option, and a healthy degree of public skepticism about the real-world benefits and reliability of this new technology are issues that will need to be overcome." Americans say it hurts to pay $2 per gallon of gas, but the price of fuel in North America is low when compared to the rest of the world. In addition, Americans spend a smaller share of their income on energy-related costs now than during the last 25 years. These low fuel prices will be a challenge to HEV market penetration. Retail prices of motor fuel are expected to remain relatively low on an average yearly basis compared with Europe and Japan, which means that, unlike those regions, fuel-costs are not strong enough to push consumers towards hybrids or other fuel-efficient alternatives. Another challenge to many upcoming HEVs will be the retail price. Most hybrids will be offered as an option to a conventionally powered vehicle and will carry a price premium. Will buyers opt for the hybrid version costing thousands more? According to CSM, it will be difficult to sell these vehicles in volume without a significant, sustained fuel price increase or major purchase incentive such as a tax rebate. In order to gain wide acceptance in North America, HEVs will have to prove themselves robust and reliable. They will have to be priced attractively, and automakers will have to educate customers on the real-world performance of hybrids, which deliver their best fuel efficiency in stop-and-go driving.
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