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You can't fault the Japanese carmakers when it comes to timing. With gasoline prices averaging around $1.65 a gallon nationwide -- and over $2 in the Midwest -- Toyota Motor Corp. and Honda Motor Co. are launching superefficient hybrid-electric cars, which run on both electricity and regular unleaded gas and achieve more than 50 miles per gallon.
Are they that smart? In truth, it was serendipity, not strategy, that explains why these all-new, fuel-sipping cars -- the Toyota Prius four-door compact and Honda Insight two-seater -- are hitting the market at precisely the right time. "I'm absolutely sure it's luck," says auto industry analyst John A. Casesa of Merrill Lynch. "But in the long run, it's smart."
Good fortune or savvy, their moves are already starting to pay off. Honda has sold more than 1,600 Insights this year in the U.S. and recently hit a sales rate of 500 per month. That caused the company to boost production more than 50%, to 6,500 units a year. Toyota dealers started taking U.S. orders for the Prius on June 29 and already have more than 1,100 confirmed sales. Not bad, considering the technology is experimental for most consumers, not to mention that small cars are the industry's slowest sellers.
NO OUTLET NEEDED.
Give credit where it's due. Honda and Toyota brass may have had no more clue that fuel prices would take off than did their counterparts at General Motors, Ford, and DaimlerChrysler. To be fair, Ford will begin selling a hybrid sport-utility vehicle, the Escape, in 2003. But good things happen to companies that hustle to market with new ideas and cutting-edge technology. The Prius has already sold more than 35,000 units in Japan since its launch there in 1997. "It's part luck, but it's really smart planning," says Roland Hwang, transportation policy director of the Union of Concerned Scientists in Cambridge, Mass.
Both Toyota and Honda set out several years ago to design a car with the best fuel economy they could achieve. Honda claims the Insight gets 65 to 70 mpg. But buyers report that they're getting slightly better than 55 mpg. The Prius boasts fuel efficiency of 66 mpg based on its performance in Japan. Both use very small gasoline engines and an electric motor that gets recharged from the car's engine and braking systems, requiring no recharge from an electrical outlet. The downside: Both are very small vehicles and have less power on the road than the typical gasoline-powered autos.
Even so, demand for the cars is off to a stronger-than-expected start, especially for the low sales volumes that each company planned for. Honda originally figured it would sell 4,000 Insights this year, and Toyota predicted 12,000 Prius sales annually. But with gas prices spiking, "we've had a lot of calls for the Insight," says Rene Isip, general manager of Lute Riley Honda in suburban Dallas.
NET SALES ONLY.
Still, most buyers aren't pegging their purchase to sky-high gas prices. A lot of the action is pent-up demand from environmentalists and technophiles who yearn for the latest in automotive gadgetry. And with no domestic alternative, buyers have been turning to Toyota and Honda. The typical Insight buyer is a male engineer in his mid-40s who's interested in technology, says Robert Bienenfeld, Insight marketing manager. As for Toyota's entry, "A great majority of our Prius buyers live on the Internet," says Mark Amstock, Prius marketing manager.
Right now, the Internet is the only place to buy it. Toyota has taken orders from buyers who have already expressed interest in the car. But for the rest of the year, Toyota will sell the $20,450 Prius almost exclusively online. With production sold out through August, Toyota is worried that dealers will gouge buyers, Amstock says. That has already happened at some Honda dealerships, where buyers have paid several thousand dollars above the Insight's $19,000 sticker price to get a hybrid electric car.
It's too early to tell whether the demand for these clean, efficient cars will keep up after gas prices start to head down. But Honda and Toyota won't have a U.S. competitor for at least three years. In the meantime, the two Japanese carmakers are racing ahead in this new market.
By David Welch in Detroit, with Larry Armstrong in Los Angeles
EDITED BY BETH BELTON
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Copyright 2000, Bloomberg L.P.
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