Winds of change for Prius demand

Interesting article from CNN/Money comments on the fact that after 3+ years of robust demand, it is now a buyer’s market for the Toyota Prius.

Prius was the second hybrid released in the US, second to Honda’s now discontinued and largely impractical 2-seater the Insight, although it was originally first in Japan. Apparently sales are now slowing right after Toyota committed to increasing inventory by 70%, no doubt prompted by the surge in interest last year as oil prices climbed out of control. Economists were vindicated: there is price elasticity after all, even when price fluctations in the late 1990s showed no signs of stemming the consumer fascination with SUVs. This time the spikes following 2005 hurrican season did lead to renewed focus on fuel economy– when GM Is advertising one of their trucks as “best fuel economy V8 full-size in its class” you know that expectations have been reset. (Is that akin to being the fastest unicorn?) Prius was there to capitalize on the demand. According to the statistic from the article, in its halcyon days the average Prius sat on the dealer lot for 5-11 days compared to 33 days for Toyota average across US and industry record of 66 days. As one who participated in a Prius search last fall, this blogger can attest that in metropolitan areas that figure was closer to zero-days: most vehicles were already spoken for by the time they were loaded on the 18-wheeler for transit.

What is different now? Part of it is the car became a victim of its own success, an arguemnt also rasied here. The tax incentive for hybrids is a function of the sales and after Sep 30 it was cut in half last year, because Toyota exceeded the target. It will go down another 50% again in April and October of 2007 based on projected sales volume. Other hybirds have not enjoyed nearly as robust sales and maintain the full credit. (Tying the amount to units moved does make sense: after all the incentive exists to motivate consumers to buy and healthy volumes indicate that consumers need little extra convincing.)

On the economics side, fuel prices retreated and the initial over-reaction corrected itself. On the other hand as critics pointed out, extra cost of purchasing hybrid technology is unlikely to be recouped in fuel savings, suggesting that for most consumers the decision was one of ecological statement– or a case of bad mathematics.

What does this mean Toyota? Advertising for one– that would be a first since 2000, as it never required much publicitiy for a niche vehicle aimed at buyers already in the know. There is also incentives, 0% financing and probably an end to price gouging by Toyota dealers who were capitalizing on demand last year. In short, shrinking profit margins across the board and more Priuses on the road. In this case what is bad for Toyota, is good for the environment.


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