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Are Hybrids "loss leaders" for Manufacturers?

SylviaSylvia Posts: 1,636
edited March 21 in Toyota
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  • gagricegagrice San DiegoPosts: 28,886
    And nearly the greenest on the planet - they earn a pass. The Union of Concerned Scientists says:

    So it is OK to stab you in the back as long as you use a Golden Knife. NO one is arguing that the Prius is not Green or even the Greenest. The debate is twofold. Why does Toyota limit the production if it is such a great car for the environment? Can they ever build it to be cost effective for the average car buyer? According to Toyota the average Prius buyer makes $100,000 per year. That is not a car for the regular family in America that makes closer to $40k per year. Until they can compete with even their own midsize cars for Total Cost To Own they will not have wide spread appeal.

    Manufacturing of the Prius according to your LCA charts was almost double the CO2, NOx & Particulate matter of a conventional ICE vehicle and 1/3 more SOx. To say they can manufacture the car here may not be true. Do you know for a fact that Ford is building the batteries, Electronics & Electric motors in the USA for the Escape Hybrid?

    Detroit workers are not the reason American cars are not as good, your opinion not mine. It is poor management that builds poor anything. They are cutting corners to keep up with the cheap labor used in the Pacific Rim. Toyota & Honda only assemble cars here with under paid American workers. The parts are shipped from all over the globe.
  • larsblarsb Posts: 8,204
    quote gagrice-Why does Toyota limit the production if it is such a great car for the environment?-"end quote

    They didn't "limit" the production. Who told you that?

    In the beginning, after the re-design of the Prius, they were hampered by limited battery production from their supplier. They have now ramped up and are building 100,000 Priuses this year.

    There are plenty of buyers right now, with the waiting lists getting depleted daily, and the cars are becoming more readily available.

    And by the way: it does not take "$100K a year" to afford a Hybrid, or I sure would not have one !! :)
  • gagricegagrice San DiegoPosts: 28,886
    They didn't "limit" the production. Who told you that?

    If they can double the production of a high profit vehicle like the Tacoma and not the popular Prius, what does that say to you? They can make all the excuses in the world. It is limited production because it is a "loss leader" vehicle. Until they ramp up production to meet demand that is what it is.

    Loss Leader Strategy

    The strategy of offering a product or service at a considerable discount and loss of profit in order to attract future business. A common practice when first entering a market, a loss leader's job is to introduce new customers to a service or product in hopes of building future relationships.
  • larsblarsb Posts: 8,204
    That it is a "loss leader" is just speculation. Toyota has never said that.

    Toyota says they make money on every Prius they sell:

    http://www.autowire.net/2004-43.html

    Toyota has been developing Hybrid technology for many years now - they have figured out how to reduce costs. (see the $40 billion in cash as proof)

    It's just sour grapes from the manufacturers caught with their pants down over Hybrid popularity - which is still on the upswing....:)
  • yerth10yerth10 Posts: 428
    gagrice wrote
    "According to Toyota the average Prius buyer makes $100,000 per year. "
    Thats 40 % of the Prius buyers, the other 60 % makes lesser.

    larsb wrote
    "They have now ramped up and are building 100,000 Priuses this year."
    100,000 is for USA and 180,000 Worldwide.

    On saturday (2/19), I saw an ad from dealer offering Prius-2005 for 21.7 K. Looks like its price is finally coming down.
  • gagricegagrice San DiegoPosts: 28,886
    Toyota says they make money on every Prius they sell:

    Do you Really think they would tell anyone if they were not making a profit on the Prius? Of course not that would be proof that it is just a PR move to look "green". Just like Honda. They bunch the HAH & HCH in with the Accord & Civic so it is difficult to know how many they are really selling. We know the Insight a truly technological marvel does not sell well even at $10,000 under what it costs to build them. Honda was in a bigger bind than Toyota. They were losing market share to the bigger Japanese giant. I don't think their hybrids are going to pay off for them. No one even knows they are out there. The Prius is different and that will always sell a few cars plus it has the Greenies all breathing hard.

    It is still a pure and simple case of being able to build a hybrid that can compete with other mainstream cars. So far they are not even close. As long as Toyota, Ford and Honda make them a "Loss Leader" they will have a hard time appealing to Joe Public. It may even backfire if "clean Diesels" make it to the market along with ULSD before they figure out they are fighting a losing battle.
  • larsblarsb Posts: 8,204
    quote gagrice-"They bunch the HAH & HCH in with the Accord & Civic so it is difficult to know how many they are really selling."-end quote

    No, they never try to "hide" anything. They have shareholders like any other public company - no car company "hides" their sales numbers! Here are the latest totals, the January 2005 Monthly totals for Honda Hybrids:

    www.prnewswire.com/cgi-bin/stories.pl?ACCT=109&STORY=/www/story/0- - - 2-01-2005/0002941950&EDATE=

    OK let me repeat this for the benefit of the newcomers:

    Honda had always said their plan is to be able to "put an IMA system in any car in their line." It is a different philosophy than Toyota, but Honda is a much smaller company, and is "engineer driven" whereas Toyota is more run by "marketing and business types."

    Honda is the Greenest car company in the world. How and why would they try to achieve that title if they were losing money hand over foot with the Hybrids? Makes no sense....

    How does anyone saying "Honda is greenest" put one single dime in the bank for Honda? It does not - selling profitable cars does that. Quoting Honda's CEO in January 2004: "But the strength of Honda's IMA hybrid technology is that it is transparent to the customer - lower in cost and easier to add to existing models. This led to the Civic Hybrid."

    That is not my assumption - it is a fact. No company can lose money on cars and stay in business for very long.
  • mirthmirth Posts: 1,212
    I believe Toyota now makes a profit on the Prius. The real questions are:

    1. How much profit per unit?
    2. How many billions is R&D did they have to spend to produce a hybrid?
    3. How much money did they lose on the first generation Prius?, which leads to question...
    4. How long, measured in decades, will it take for them to recoup the cost?

    As far as the Detroit bashing, is the rule that if you make one clean, fuel-sipping car, the Sierra Club then doesn't care if you make hundreds of thousands of polluting, fuel-guzzling SUV's and pickups?
  • larsblarsb Posts: 8,204
    quote mirth-"As far as the Detroit bashing, is the rule that if you make one clean, fuel-sipping car, the Sierra Club then doesn't care if you make hundreds of thousands of polluting, fuel-guzzling SUV's and pickups?-"end quote"

    I didn't see anyone bashing detroit - one other poster bragged about how well Detroit pays their people and I pointed out how that does not matter if you don't produce good vehicles....

    I think all the "greenie praise" heaped on the Prius is deserved. No one else took the bold step to produce a PZEV 4-door hybrid, and Toyota was bold enough to do so.

    Does that mean they get free passes for all the dirty models? Not in my eyes, it does not. But it does "catch them a little break" when you see that other companies COULD have made a Prius competitor and have not done so, other than Honda and now Ford's attempts.

    Worth noting: If Toyota DOES reach 100,000 Priuses sold this year, that will mean a WHOLE LOT of clean cars put on the road by them, in place of cars which would probably have been not as clean. More "greenie" points !! :)
  • gagricegagrice San DiegoPosts: 28,886
    the January 2005 Monthly totals for Honda Hybrids:

    I couldn't get the link to work. You can tell us. If you say they sold 20k this month I believe you.. Maybe not 20K...

    Honda is the Greenest car company in the world.

    The reason is they have never competed in the large car or truck market. Maybe they would not be so green with a big V8 in the lineup....

    "But the strength of Honda's IMA hybrid technology is that it is transparent to the customer - lower in cost and easier to add to existing models. This led to the Civic Hybrid."

    The Price difference is far from transparent. Maybe the HCH is close to the Civic that it closely resembles. Not the HAH, not even within screaming distance.
  • larsblarsb Posts: 8,204
    That link is kinda screwy....Here are the totals for the Honda Hybrids in January 2005:

    Insight: 7 (that's not a misprint)
    HCH: 1,169
    HAH: 805

    That's on pace to barely equal 2004, not surpass it. So I'll be forced to admit that Hybrid sales have "flattened" out for Honda, still going up for Toyota and Ford.

    Hopefully Honda has some good marketing in mind...:)
  • gagricegagrice San DiegoPosts: 28,886
    There has to be hybrids for people to flock to

    That is a good point. I don't think they are flocking to them because they do not pencil out a savings for those that are on a budget. Honda is not overwhelmed by buyers. The Prius is an oddball and appeals to the upper middle class. It has nothing to do with saving money. It is prestige and feeling green. I think they are reaching saturation of the market. There are dealers in the country sitting on even the Prius. We should see them drop under MSRP very soon. At Invoice a case can be made for saving money owning one.
  • larsblarsb Posts: 8,204
    The Hybrids are available, indeed !!

    All the Hybrid car makers are building the Hybrids as fast as they can and they are selling. The "waiting list" phenom is not over for Toyota Prius cars.

    Ford is selling Escapes like mad, with word of mouth getting around that they DO perform well in the MPG category, as promised.

    A taxi company in San Francisco just put 15 Escape Hybrids into their fleet, bceause at 36 MPG City, they double the MPG of the Crown Vics they replaced. One driver said he is now only spending $8 a day on gas versus $22 before the Escape. The drivers, who pay for their OWN fuel, expect to save up to $2000 a year in fuel alone !!

    The Hybrid wave is just beginning - not ending....Lexus RX400h in April, Highlander later this year, newly redesigned and more efficient 2006 Civic Hybrid in late Fall....:)
  • kernickkernick Posts: 4,072
    So, as you can see in the following article, the demand for new autos is increasing.

    http://www.chinadaily.com.cn/english/doc/2005-02/05/content_41547- 3.htm

    Besides the 15 confirmed sales in SF, how many hybrid units were sold this year. How many are planned for next year? Is that more or less than the growth in vehicle production? I don't know those answers for sure. I'm giving you the opportunity to show us when hybrids will make an impact, with the metric say 50% of all vehicles made or on the road are hybrids. Put some links up here that say Ford is planning on making 250K hybrid Escapes next year. It doesn't do much good if they're making 5,000. How many hybrids can Toyota and Honda manufacture next year and the year after?
  • yerth10yerth10 Posts: 428
    Hybrids have been there for only 7 years and dont expect them to capture 50 % of the market. 2004 was the real breakthrough year as the HEV's had 100 % growth with the advent of 5-door vehicles like Prius-II & Escape Hybrid.

    Expect another 100 % this year. At some point of time HEV will start eating into regular Gasoline vehicle sales.

    That some point depends on both the Hybrid Tech & Oil Prices.
  • kernickkernick Posts: 4,072
    I think all we can expect is a 5%-10% increase per year for now, since it seems to be taking a long time for the general public to "get" the concept of Hybrids.

    me: I have a degree in engineering, and I'm just finishing a graduate degree in management. I get how a hybrid works, and I get how much it costs and how much you save, and base it on the time-value-of-money. Either way I look at a hybrid, I don't see an advantage to buying one. If I wanted an economy car, I can buy a Corolla for many thousands less and getting fairly close real-life mpg.

    And my business and economic background tell me the reason that hybrids aren't available is that the companies lose money on each one, as electrictoy's article points out on P.2. Basically the manufacturers are demonstrating the technology but the economics do not allow them to produce mass quantities of hybrids, at prices that would allow them to earn a profit.
  • gagricegagrice San DiegoPosts: 28,886
    Basically the manufacturers are demonstrating the technology but the economics do not allow them to produce mass quantities of hybrids, at prices that would allow them to earn a profit.

    I think that is exactly right. The big question is can the automakers ever build a hybrid and make it cost effective? I know several cities that have the hybrid buses are questioning the higher cost. How much more is it worth for a slight improvement in mileage and air quality. I think we are talking diminishing returns with the hybrids.

    Remember the EV-1 mandate cost us and GM a couple Billion dollars and it is on the crap heap. It is a hard picture for me to get out of my mind.
  • larsblarsb Posts: 8,204
    " at prices that would allow them to earn a profit." - Pure speculation.....

    Toyota insists they are making money on Priuses, and with 40 billion in the bank, I would not doubt them !!! (compare checkbooks with them, anyone of you)

    http://home.businesswire.com/portal/site/google/index.jsp?ndmView- - - Id=news_view&newsId=20050124005186&newsLang=en

    "..Toyota has long since kicked the Japanese habit of chasing sales and market share at the expense of profit." Toyota's profits for fiscal year 2003 exceeded those of GM, Ford, DaimlerChrysler, and Volkswagen combined."

    "TOKYO Toyota Motor on Wednesday appointed Katsuaki Watanabe, a cost-cutter and purchasing specialist, as its new president at a time when the biggest challenge facing the world's most profitable carmaker is how to keep a good thing going."

    http://www.iht.com/articles/2005/02/09/business/toyota.html

    Question for all you "conspiracy" types:

    Why are car makers building Hybrids, if not to make money?

    What reasonable business would WASTE/LOSE/THROW AWAY money for the sake of "demonstrating technology?" ( Other than concept cars, which are basically an advertisement. )

    Hybrid cars ARE making money for companies, from the sticker prices on up - in service calls, repeat buyers, free advertising for people who LOVE their hybrids (most of them), etc.

    No company can stay in business losing money....Toyota has been making Priuses (from R&D to now) for 10-12 years now. THEY would have cut their losses a LONG TIME AGO if they were losing money !!

    PS
    Go google "prius" +profits +toyota and read some of the stories. If Toyota is losing money on anything it would be a miracle.
  • gagricegagrice San DiegoPosts: 28,886
    Toyota's profits for fiscal year 2003 exceeded those of GM, Ford, DaimlerChrysler, and Volkswagen combined."

    All that says to me is Toyota buyers are bigger fools than those that buy from the Big 3.

    Why are car makers building Hybrids, if not to make money?

    You are kidding right? They are trying to look "GREEN" and it is working. They have fooled a lot of people. I think you posted the article that stated, Toyota spent 2 billion on the Prius that they were going to spend on advertising, and it paid off. That does not mean they are making a profit. If they were making a profit we would see plants going up INSTANTLY as they are doing to capture more of the PU truck market.
  • larsblarsb Posts: 8,204
    Oh, umm, yes, all Toyota buyers are fools...Um Hum...And what do YOU see in that inkblot right THERE?

    What it BACK HERE IN REALITY indicates is that Toyota is better at making, selling, and marketing cars than ANY other company in the world. Their Hybrids are a big part of that now and in the future, to get back on topic !!

    No company pours 2 billion dollars into something to LOOK GREEN !! That's just a completely ludicrous thought. E-mail that thought to Toyota corporate and see what they respond, after they stop laughing on the way to the bank.....:)
  • larsblarsb Posts: 8,204
    OK Gary, let's assume they ARE just "trying to look green."

    Let's assume they are doing that to impress the environmental movement.

    So let's say that ALL the members of GreenPeace, etc. etc. ALL are impressed with the Prius and EVERY ONE OF THEM goes and buys one.

    OK, now Toyota has impressed "greenies" to the point that the greenies are buying cars which are LOSING TOYOTA MONEY on every sale.

    You see the fault in the logic? Why try to impress anyone by selling a car to them which will LOSE you money? Makes no sense.

    The Prius "looks green" because it IS GREEN. Not the greenest car on the planet, but it makes anyone and everyone's Top 5...........:)
  • gagricegagrice San DiegoPosts: 28,886
    No company pours 2 billion dollars into something to LOOK GREEN !!

    I'll bet they spent 10 times that in advertising last year. Car companies spend many billions of dollars on advertising. The Prius was an advertising gimmick and now they are not sure what to do with it....
  • gagricegagrice San DiegoPosts: 28,886
    Why try to impress anyone by selling a car to them which will LOSE you money? Makes no sense.

    Honda says the Insight costs them $30k to manufacture. They sell for $20k, How does that relate?
  • larsblarsb Posts: 8,204
    Quoting Gary-"The Prius was an advertising gimmick and now they are not sure what to do with it...."

    ( nothing I could say could ever improve my arguments better than everyone just reading that again. 'nuff said. )
  • Larsh, it sure gets frustrating dosn't it to try to cover all the endorsments that so many car mags keep preaching as to the accolades that TOYOTA's PRIUS has deservedly achieved. The nay-sayers just don't get it. The satisfaction of this new generation hybrid has been, in a simple word, FANTASTIC. Anyone who owns one will tell you that the Prius has been a "10" on Bo Derek like list of better cars. It's not perfect but Dang! It's close. Why anyone would assert that Toyota is gimmic driven is missing the talents of this hybrid. Gas is presently going up and Toyota is supplying more hybrids with great warrantees. I guess it'll take 20 yrs to convince the nay-sayers.
    Culliganman(REMEMBER..PRIUS STANDS FOR GOING B/4)
  • gagricegagrice San DiegoPosts: 28,886
    I guess it'll take 20 yrs to convince the nay-sayers.

    Not even close. When Toyota builds enough so that they are not a novelty and are priced competitively with other midsize cars. I will believe it is not a charade on the part of Toyota to look good. For a company that builds 6 million plus cars a year, to have a model that is popular since, what did you say 1998 in Japan, and only build 120k units world wide. Something ain't right. I don't see a shortage of Tacoma PUs, yet they are building a plant in San Antonio to build an additional 120k per year. So far they have not even announced where they are going to build a plant for the Prius and it is in short supply. They are upping the production to 15k units per month world wide. I realize most of them will be sold here where we have very few choices. I'll bet they don't sell many in the UK where gas is very expensive.
  • rfruthrfruth Posts: 630
    20 yrs, na, the'll never be convinced - heck there are people that would prefer a carburetor and a cassette player to what we have now. So the future of hybrids is bright just not for the retro crowd.
  • gagricegagrice San DiegoPosts: 28,886
    I guess you are addressing 99% of the car buying public. According to my calculations the hybrids did not make a one percent sales dent this year. Even if all the wait lists were filled it would not reach 1%. That makes most of the US retro. It is even a higher percentage in the EU where hybrids are not even considered a viable option. Funny with the high price of gas. Maybe they are smarter than us.
  • kernickkernick Posts: 4,072
    Go google "prius" +profits +toyota and read some of the stories.

    me: OK. Here was one of the first that wasn't run by a Prius or Toyota group.

    http://www.thecarconnection.com/index.asp?article=7269

    "But the giant skeleton in every HEV's closet is COST. Anyone who has any idea what these dual powertrain components really cost will know that Toyota is stretching credibility to claim that even the simpler Echo-based Gen I Prius was profitable at its $20k price. By contrast, the '04 is a unique, high-content car on a dedicated platform, and its nickel-metal hydride (NiMH) battery pack probably costs a quarter of its (still) $20k base price."

    you: What reasonable business would WASTE/LOSE/THROW AWAY money for the sake of "demonstrating technology?

    me: plenty, if it's only a small part of their business. In the auto industry there are ways to make money even when you lose on a certain model. For years GM has lost money with $6K rebates (or whatever was necessary to move them) on $15K Cavaliers. Why? Because of CAFE. It allowed them to sell lower mpg Cadillacs, Vettes and other such profitable cars. If you want other non-auto examples consider any retail store that has lose-leader ads on their front-page. The "$300 computers, (limit 10 in small print)" and such.

    you: No company can stay in business losing money....Toyota

    me: You're taking 1 comment and reaching the wrong conclusion. No one said Toyota was losing money; there's a difference to the statement of Toyota is losing money on the Prius. Toyota does a wonderful job of selling vehicles without discounts.
    You yourself just mentioned how much money Toyota has. The Prius can lose money for Toyota simply because they get the free-advertising effect, and it brings people into the showroom or their website, and many of those people when they find out they can't afford or will have to wait for a hybrid, buy an Echo, Corolla, or Camry.
    Similarly, but on the opposite end of the auto world, it does not really matter to Chevy or Dodge whether the Vette and Viper which sell in relatively small numbers ever covers the hundreds of millions of $ spent in R&D or tooling for those cars. They are built for prestige purpose of the brand.
  • kernickkernick Posts: 4,072
    For a company that builds 6 million plus cars a year, to have a model that is popular since, what did you say 1998 in Japan, and only build 120k units world wide.

    me: I totally agree. From experience I've never seen a company react so slowly, and that lends credence to the reports such as I just listed from the Car Connection.
    If you have a car that you can sell at MSRP, you would make an amazing amount of money. If a typical $22K Camry is discounted to $18K and Mfg. costs of $17K, Toyota's made $1,000. If the Prius had the same MSRP/cost $22K/$17K, but sold at MSRP, the profit is 500% higher!
    If that were true, I guarantee you the executives at Toyota would be converting Camry plants to Prius production; within 1 year! Or buying any vacated autoplants and restarting them for Prius production.

    The Prius sure looks like a loss-leader to me too.
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