October was a tough month for hybrid vehicles in the United States. Sales were down almost 20% from last month, and hybrids accounted for only 1.5% of sold vehicles— compared to a high of 1.8% last August. But before we start writing an obituary for hybrids, we should consider that October was a down month throughout the auto industry: sales of all types of vehicles fell by 10% in October. In the broader context, things look more promising for hybrids. Sales are up 10% compared to October 2005, and the growth in hybrid sales remains well above the growth rate of the overall vehicle market.
Two factors may have affected some hybrid shoppers this October. First, gas prices continued their four-month-long decline, falling to an average of $2.29 per gallon in October. Second, tax credits for buyers of Toyota hybrids were halved this month, a change that remains in effect until April 2007, when credits for Toyota vehicles will be reduced further.
Undoubtedly, one or both of these changes in the economics of the hybrid purchase turned off some potential buyers. But neither offers a complete explanation for October's sales numbers. Gas prices matter, but our analysis shows only a moderate correlation between monthly hybrid sales and gas prices. (The correlation weakens considerably for big-sellers like the Toyota Prius.) Nor are tax credits the raison d'etre for many hybrid purchases. Some Toyota hybrids experienced 30% sales drops this month, but the Prius (which offers the largest tax incentive relative to purchase price) saw a much lower decline.
What matters to many hybrid buyers—particularly those who are sustaining sales of the Prius—has little to do with cost savings. Research shows that hybrids stand for bigger ideas, including preserving the environment, gaining independence from oil companies and foreign oil-producing regimes, and being savvy about the latest technology. The more efficient a hybrid is relative to conventional vehicles, the more strongly it connects with these ideas. Thus, high-efficiency, high-mileage vehicles like the Toyota Prius, Toyota Camry, and Honda Civic are selling at the highest volumes—regardless of gas prices. In contrast, lower-mileage, performance-oriented hybrids like the Honda Accord and Lexus RX 400h are selling at lower volumes, and have seen substantial sales declines from 2005 levels.
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