Will Hybrid Cars Ever Be Profitable? Yes.

Necessity is the mother of all invention. The most successful products are justly so because they fulfill the needs or wants of the consumer. Hybrid vehicles are no exception. If any of us have faith in the capitalist system within whose bounds we live, then the laws of supply and demand should reign unquestioned and hybrids will be profitable in the long-run.

Daniel Indiviglio, a writer for the Atlantic Online, cites GM vice chairman Bob Lutz saying, “Hybrids are generally too expensive to produce, given what customers are willing to pay, for the vehicles to ever be profitable.” Mr. Lutz also claimed, “hybrid vehicles will probably never be profitable and are unlikely to ever comprise more than ten percent of the U.S. auto market.” GM is not exactly a leader in hybrid or other forms of environmentally friendly vehicles; this accounts for his readiness to censure it.

Can Mr. Lutz speak so boldly after his company needed to be bailed out by the U.S. Treasury Department, which now owns 61 percent of it? Hubris always precedes the fall, and it seems that our pride still remains.

The plague of pride is endemic to America. The pride that understandably stems from decades of technological superiority will ultimately erode America’s spirit of innovation. Already, America is observing a decline in erudite scholars of science and mathematics, the engines of progress. Consequently, it may not be so surprising to hear pessimistic outlooks on hybrid technology, an area that America’s car manufacturers are particularly weak in.

With the introduction of any new product or service, the corporation has to endure “pioneering costs.” There is also the important consideration of practically amortizing the research and development costs over a variable number of years, which can affect the profitability numbers of its progeny.

How can companies utilize the existing manufacturing infrastructure to build these new Priuses and Insights relying on new technologies? What is the most efficient protocol to follow in their assembly? How do we market these things to people of gas-squandering cultures?

While making hybrid cars is expensive, many governments have lessened the blow by offering economic incentives to boost demand for hybrids. Consequently, hybrid sales have proven to be an engine of profits for Toyota.

Both Honda and Toyota have been making profits of about $3,100 per hybrid, a profit margin nearly equivalent to that of conventional gasoline-driven vehicles. The market system dictates the rules of the game. Some companies looked at hybrid technology and saw a hurdle; others saw dead ends. But as time has shown and will continue to show, fortune favors the bold.

Andrew Charles Wong is a fourth-year business economics major. He can be reached at andrewcw@uci.edu.