Create a free Manufacturing.net account to continue

Automakers In Canada Focus On Hybrid Price Tag

After a decade of hybrids traveling Canadian roads, automakers understand they must tackle the pricing issue if hybrids are to expand beyond their market share of roughly two percent.

VANCOUVER (CP) -- When Honda's new Insight goes on sale next Wednesday -- Earth Day -- it will be the least expensive hybrid car available in Canada.

With a starting price of $23,900 (CAN) before taxes and delivery charges, the Insight is evidence automakers understand that after a decade of hybrids traveling Canadian roads, they must tackle the pricing issue if hybrids are to expand beyond their market share of roughly two percent.

"There's no question there's pressure amongst all manufacturers to bring the price down to a point where there isn't such a big premium," says Arch Wilcox, Honda Canada's vice-president of auto sales.

Motorists who want to be on the right side of Mother Earth have been forced to pay for the privilege when it comes to hybrids.

Whereas a conventional Honda Civic starts at around $17,000, a Civic hybrid rings in at $27,350.

Ford's new Fusion hybrid sedan is about $32,000, compared with just under $23,800 for a normal four-cylinder version. Buying the hybrid Ford Escape compact SUV will cost you an extra 10 large over the base model.

At just under 24 grand, the Insight undercuts Toyota's popular Prius, which it unapologetically resembles, by about $5,000.

An upgraded Insight, with options such as a navigation system and other goodies, will be priced at $27,500, still $200 below the asking price for a Prius.

Significantly, Insight also underprices Honda's own Civic hybrid. Wilcox admits it may cannibalize some Civic sales.

But it's part of Honda's strategy to broaden the market for hybrids and get more into the hands of people who like them but can't afford them.

Wilcox concedes the premium price helped kill the hybrid version of Honda's popular Accord sedan, which added electric drive to a V-6 motor.

"If you look at where the vast majority of hybrid sales are, they're all in the four-cylinder, three-cylinder area; they're not in the V-6 area," he says. "I think it was probably too premature."

Yet Toyota still sells the comparably sized Camry hybrid, which at $31,790 is $7,000 more than a base four-cylinder Camry.

Honda's research shows the so-called X and Y generations, which range in age from about 20 to late 30s, have a greater interest in hybrids than 50-something baby boomers. But the boomers buy them in far greater numbers because they have the money.

For Toyota, the key to expanding hybrids' market tire track is adding one to each car line.

"Wherever we've offered a vehicle in both hybrid and conventional trim, the hybrid accounts for about 25 percent of our sales," says Stephen Beatty, Toyota Canada's managing director.

Toyota now has three hybrids and is working on a hybrid version of its Yaris subcompact, while there are four hybrids in its luxury Lexus lineup, whose target market seems more willing to swallow the price premium.

Premiums are an even harder sell in Canada than in the United States, says Wilcox.

Canadians seem more willing to crunch the numbers to see if the added cost will pay for itself in fuel savings over the life of the car. The equation was fairly easy when gas was pushing $1.50 a litre, but now conventional fuel-sipping models seem to make more sense.

"So they will go to like a (Honda) Fit, where you get really good fuel economy without a hybrid rather than paying the premium for a hybrid," he says.

"So until we can get the hybrid down to, let's say, a price differential of a thousand to two thousand dollars, you're still going to see the four-cylinder gasoline engine still be the predominant vehicle."

"We really can't tell when that's going to happen, when that price will come down. It's really simply a matter of worldwide acceptance and increasing volume, because that's what it's all about."

Toyota, which will introduce a plug-in version of the Prius by the end of the year that will allow drivers to recharge at home, sees hybrids moving steadily across its lineup, which will improve affordability.

"But even generation to generation we're seeing significant changes in the cost of production of hybrid components," says Beatty. "That's allowing us to bring the overall cost of the technology down and makes it approachable in smaller cars."

There is, of course, a time-honoured method of getting a car you couldn't normally afford -- buy a used one.

The normal due diligence is required when shopping used, but there's less of a risk than might be supposed, considering the technology.

Hybrids' complex electronics have proven fairly robust and their battery packs -- which can cost upwards of $3,000 to replace and were thought to be a weak spot -- have shown surprising longevity.

"The number of batteries we have to replace is virtually minimal," says Wilcox. "They're lasting a lot longer than we thought, way past the (eight-year) warranty period."

A cruise through some Canadian used car websites turns up an admittedly small number of late-model hybrids at prices that largely erase the premium charged when new.

"The leasing companies are still afraid of hybrids," says Wilcox. "So if you go to lease a hybrid you get a very low residual (estimated value at the end of the lease) because they think the residual price won't be there."

More hybrids need to cycle through the market before used prices can be set confidently, he says.

"But we know that when a (Civic) hybrid comes back on the resale market it has virtually a normal depreciation precentage-wise as a four-cylinder Civic does. They hold their value very well."

More in Operations