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Toyota Motor Corp
Procter & Gamble Co/The
Ford Motor Co
When Doug Hacker decided he needed a car that was light on gas, he figured a Toyota (TM) Prius hybrid was the way to go. Many of his co-workers at Procter & Gamble’s (PG) soap research lab in Cincinnati drove Priuses and bragged about getting more than 50 miles per gallon. After a little research of his own, Hacker made a surprising discovery: While more costly hybrids still win the mileage competition, he could save more money by buying a Ford (F) Fiesta powered by a technology that’s been around for 151 years—the internal combustion engine. That’s because the efficiency of conventional engines has improved so much that the mpg gap is closing, making it harder to justify paying more for gas-electric hybrids.
“I was surprised to see that cars like the Fiesta were actually about a nickel cheaper to run per mile than the Prius,” says Hacker. He bought a Fiesta for $16,400 instead of a $23,015 Prius. He’s averaging 37 mpg, which he says is on par with the real-world mileage of his Prius-driving friends who don’t take extreme measures to boost their mpgs. (“To get 50 miles per gallon, some dress like Eskimos because they don’t want to turn the stinking heat on,” says Hacker.)
As automakers use new and not-so-new technology to wring efficiency from traditional motors, gasoline-electric hybrids are falling out of favor. Hybrids fell to 2.2 percent of the U.S. auto market last year, from 2.4 percent in 2010, after peaking at 2.8 percent in 2009, says researcher LMC Automotive. The reason is simple: Consumers don’t want to pay as much as $6,000 extra for a hybrid when they can get 40 mpg on the highway in a standard car, such as a Chevrolet Cruze or Hyundai Elantra. And even more conventional cars with hybrid-caliber mileage are coming this year, thanks to advancements that enable engines to burn fuel up to 20 percent more efficiently. “Internal combustion engines are giving hybrids a run for their money,” says Mike Omotoso, a hybrid forecaster at LMC.
Combustion’s comeback is running head-on into the auto industry’s ambitious plans to roll out an array of electrified vehicles in coming years to meet more stringent federal fuel economy regulations. The number of hybrids, plug-in hybrids, and electric vehicles on the U.S. market will nearly quadruple by 2020 to 153 offerings from 40 last year, LMC forecasts. But with buyers showing a preference for gas-sipping regular cars, automakers may rethink the need to stock their showrooms with so many hybrids, which aren’t nearly as profitable because of their costly technology. “It does have a chilling effect in the short and medium term” on development of vehicles that run on something other than old-fashioned gasoline, Omotoso says.
Ford Motor, for instance, is dropping the hybrid version of its Escape SUV after seven years of slim sales. Instead, the automaker will offer two fuel-efficient gasoline engines this year that nearly match the 34 mpg the gas-electric version got in the city, says Derrick Kuzak, Ford’s product development chief. Explains Sherif Marakby, director of Ford’s electrification programs and engineering: “Thirty-four miles per gallon is a great number, but people are really looking for something much higher in a hybrid. They’re looking for something in the 40s. And now you can get 40 mpg highway without a hybrid.”
Everyday engines are being enhanced by modern technologies such as electronic controls, eight-speed transmissions that keep engines operating in their optimal range, and direct fuel injection that allow gas to burn more efficiently. Combine those with tried-and-true technologies like turbo-chargers, and automakers can improve mileage and horsepower simultaneously.
Such breakthroughs—not slow-selling hybrids—explain why gas mileage of all new vehicles sold in the U.S. last month hit an all-time combined city/highway average high of 23 mpg, according to the University of Michigan Transportation Research Institute. “You’re no longer asking people to make tradeoffs, like accepting anemic performance to get better fuel economy,” says Jeremy Anwyl, an analyst for Edmunds.com.
The advancements also allow carmakers to sell more power in a smaller package. The Chevy Camaro and Ford Mustang muscle cars each offer V6 engines that generate more than 300 horsepower—output once produced only by bigger, more fuel-thirsty V8 engines. A year ago, Ford didn’t equip its F-150 pickup with anything smaller than a V8. Since Ford began offering high-power, higher-mileage six-cylinder engines, trucks with the smaller engines have accounted for more than half of F-150 sales. Cars and trucks equipped with four-cylinder engines rose to 49.7 percent of U.S. sales in the first nine months of 2011, from 47 percent the previous year, according to LMC.
Some carmakers say it’s not worth introducing a hybrid with less than 45 mpg. Ford’s updated Fusion hybrid due later this year will boost city mileage to 47 mpg, up from 41 mpg on the current model. “As internal combustion vehicles are increasing their fuel economy, there’s more pressure on hybrids to increase their fuel economy to create a substantial enough gap to make a compelling case for the pocketbook,” says Sage Marie, a product planner at Honda Motor, where hybrid sales have fallen.
Toyota Motor, whose Prius accounted for 51 percent of all hybrid sales in the U.S. last year, rejects the notion that conventional engines are a threat. “That position is absolute nonsense,” says Bob Carter, Toyota’s group vice president of U.S. sales. Although Prius sales fell 3.2 percent last year, which Carter blames on supply declines after Japan’s tsunami, Toyota expects record sales this year as it adds a Prius wagon and a plug-in electric model. Fiesta owner Hacker isn’t convinced. “A lot of people get a Prius just because they want to be green,” he says. “I just wanted the most economical car.”
The bottom line: Gasoline-powered cars are making headway against hybrids, which saw U.S. share slip to 2.2 percent last year from 2.8 percent in 2009.