Toyota hopes to cut hybrid premium in half
By James R. Healey, USA TODAY
NEW YORK — The president of Toyota Motor says he has told his engineering chief to find a way to cut in half the price difference between fuel-efficient gas-electric hybrids and similar gasoline models.

Katsuaki Watanabe also said here Monday that Toyota will sell 1 million hybrid vehicles a year worldwide by early next decade, up from a planned 300,000 this year, about 60% in the USA. And he said Toyota is developing fuel-efficient diesel-power vehicles for the U.S. market but "not in the short term."

Watanabe's remarks were at a briefing for Wall Street investment analysts and members of the business media.

Toyota's intentions are significant because it is big enough and respected enough in the USA that rivals often must match what Toyota does. Watanabe's remarks suggest that other automakers must begin to aggressively slice the costs of developing hybrids so they can, in turn, cut prices.

And it appears there will be no immediate pressure from Toyota to develop clean-burning diesel vehicles, which use 20% to 40% less fuel than similar gas models and can be tuned to pollute less than gasoline engines.

Honda Motor, which is the No. 2 hybrid seller in the USA, said it will remain price-competitive with Toyota. Honda's hybrid system is simpler than Toyota's and that should mean lower costs "that can be transferred to the customer," spokesman Chris Naughton says.

Hybrids use less fuel than similar gasoline-only vehicles, but they are priced at least $3,500 more. That means owners might never save enough on gas — even at today's prices — to make up for the premium.

"My goal is to reduce that difference to one-half the current levels, but I cannot say what the time frame for that would be," Watanabe said. He made it clear, though, that Toyota is moving rapidly.

"I have given instructions to Mr. Takimoto to do that," he said, referring to Masatami Takimoto, executive vice president in charge of Toyota's worldwide research and development. "I assume Mr. Takimoto must be racking his brain about how to do that," Watanabe said, acknowledging that hybrid components are much more expensive than gasoline engines.

One way to cut costs would be to make hybrid components in the USA instead of shipping them from Japan. He said that was possible but not likely soon.

Beyond the hybrid premium, Toyota dealers have been getting an average $800 more than the sticker price for Prius hybrids the past six to eight weeks because fuel prices have sparked demand, says Art Spinella of CNW Marketing Research. "Dealers are getting pretty much whatever they want in their local markets for Priuses," he says. He thinks Toyota could double Prius demand if it cuts the hybrid premium in half.

Toyota's most recent U.S.-market hybrids are positioned as the high-end models — more power and features than similar gas vehicles — and are priced about $5,000 more than their gasoline counterparts.

"The mind-set has changed. Used to be somebody would pay $2,000, $3,000 more for a big V-8 and the macho and muscle and squealing tires that went with it," said Jim Press, president of Toyota Motor Sales USA. "Now, at least in some places, people pay the premium for the (hybrid's) image of being concerned about a clean environment, contributing to their children's future health and depending less on foreign oil."