Hybrids: A Harder Sell

A few months ago, while eagerly researching my family's purchase of a new vehicle, I delved into hybrids. In my family, we like the idea of driving a hybrid and getting better gas mileage, but given the cost of gas and the amount that we drive, we couldn't justify the additional expense. Your mileage may vary, but recent reports suggest we weren't alone in our decision.

In the broader market, hybrids have been hot. Honda (NYSE: HMC  ) and Ford (NYSE: F  ) have had some notable successes, but no company has been as successful as Toyota (NYSE: TM  ) and its Prius model.

Part of the Prius' success stems from its unique styling and engineering, and a hybrid design that is more robust than competitors' offerings. Given strong Prius sales, conventional wisdom has held that bringing hybrid technology to other existing models would only add to Toyota's success.

An Australian newspaper, The Age, is reporting just the opposite. Hybrid siblings of conventional models such as the Toyota Highlander are not selling nearly as well -- at least not in Japan, the only location mentioned in the story. Why the soft sales? It seems customers are making a direct comparison to the conventional model, and can't justify the nearly 20% cost increase. The story also mentions that this trend bodes poorly for the coming hybrid Camry, and I tend to agree; my wife and I came to the same conclusion.

This is an interesting tidbit of information for investors, because developing entirely new hybrid models is considerably more expensive than modifying existing designs.

I still believe that hybrids will work over time, slowly getting cheaper as their technology improves. However, that doesn't guarantee that the companies selling hybrids will perform well as investments. There's simply no reason to believe that hybrids will sell materially more cars, or that one car company can distinguish itself solely with hybrid technology. In short, keep your eye on the technology, but don't go overboard thinking hybrids are the next big thing.

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NathanParmelee has no financial interest in any of the companies mentioned. The Motley Fool has an ironclad disclosure policy.

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