Posted By
AUSTIN POWERTRAIN
on
7/30/2010 4:57 PM
[WEBMASTER'S NOTE: Asked to provide some input for our website on a recent announcement by Ford, Austin Powertrain provided the webmaster with two potential posts. He preferred the first, for its concise expression of his views. It read, in its entirety, “Hi, the Lincoln MKZ Hybrid is awesome. I want one soooo bad! NOT.” For a thorough analysis of Ford’s plan to forego a price premium on the hybrid version of the Lincoln MKZ, see below.]
ARTICLE #2 - THE LONG VERSION
Ford recently touted that the Lincoln MKZ Hybrid, going on sale this fall, will be priced at $35,180, which is the same sticker price that will appear on the conventional gasoline-powered MKZ. Some journalists and bloggers reacted with surprise when this news came out, but my first thought was, "So what? It should be the same price as the regular MKZ."
If Ford had announced that the price of the Ford Fusion Hybrid was being aligned with that of a Fusion equipped with a standard 2.5L 4-cyl engine, then maybe I would have been a little more surprised. The Fusion Hybrid uses a 2.5L engine, which is the same engine displacement available on the $20,000-$24,000 entry-level Fusion. In regard to engines, we can compare apples to apples and it’s obvious that one Fusion with a 4-cyl and another with a 4-cyl mated to a hybrid system should not be the same price. The hybrid technology, along with some upgraded standard features, raises the price to around $29,000. If Ford had announced it was offering a Fusion Hybrid for $24,000, then yeah, I’d have been surprised by that.
I’m not really all that wowed that a Lincoln MKZ Hybrid is available for the same price as a standard gas-powered model, because the base MKZ is equipped with a 3.5L V6 and comes with pretty much all the luxury amenities Ford has to offer. The MKZ Hybrid will feature the same 2.5L Atkinson-cycle engine as the Fusion Hybrid, and will be handsomely equipped, just like the standard MKZ with a V6. In this case, it’s an apples-to-oranges comparison in regard to engines. The 3.5L will churn out 263hp with fuel economy of 18mpg city and 27mpg highway, while the 2.5L in the MKZ Hybrid will put out just 191hp with fuel economy of 41/36mpg. We have what I consider to be a pretty fair trade-off in horsepower versus fuel economy, and paying the same $35,180 for one or the other seems pretty reasonable to me.
Up to now, hybrids have been able to command a premium from the early adopters of hybrid technology. Let’s face it, people haven’t been buying hybrids to save money on fuel; the extra cost on the price tag means that owners have to drive their hybrids for several years to recoup the additional money they paid over traditional gas-powered vehicles. These people were making a statement when they bought their hybrid. They want to be seen in a hybrid touting how green they are, or to show everyone that they own cutting-edge, advanced technology. There is a lot of ego involved in wanting to own the latest and greatest.
But like computers with Pentium 3 processors, conventional DVD players, and 3G cell phones, technology eventually gets surpassed. The Pentium 3 was replaced by the Pentium 4, the conventional DVD player gave way to the BlueRay disc player, and 4G smartphones are now the most advanced in the market. Goods move down market as they become less advanced. The early adopters of advanced technology move on to something newer and better, and prices for the old technology begin to come down once it can no longer command a premium. The older technology becomes more affordable, because the target market switches from those willing to pay a premium to those who are not.
Gas-electric hybrid systems like those in the Ford Fusion, Honda Civic, Nissan Altima, and Toyota Camry are being overshadowed by more advanced plug-in hybrids and electric vehicles with lithium-ion batteries, such as the Chevrolet Volt and Nissan Leaf (both of which will be available by the end of the year). GM and Nissan claim that the Volt and Leaf will get the equivalent of more than 200 and 300mpg, respectively, and retail in the low $40,000 range. The less advanced Lincoln MKZ Hybrid couldn’t possibly command a price in the same range as a Volt or a Leaf, so its $35,180 price tag seems like a fair market value.
The MKZ Hybrid might be the first example of an automaker foregoing the price premium on a hybrid, but hopefully it’s the start of a trend. I’m not expecting that all of the current hybrid cars will immediately start to fall in price, but the reality is that most of the automakers are working on more advanced hybrid systems that will be introduced in the next few years, and the price of the current hybrids will need to be adjusted or they face becoming obsolete.
If the current hybrid technology becomes more affordable and hybrids start to catch on with mainstream buyers, the economy of scale could be good for carmakers. Increased volume could help reduce the costs of the hybrid systems and assist the automakers with meeting the stricter fuel economy standards of the future.
OEMs have to get people behind the wheel of their hybrids if they want to achieve market acceptance. To get more people to give hybrids a try, automakers might have to forego the hybrid premiums. Your average buyer needs to be able to justify the purchase price, and it doesn’t equate to a good value if you sacrifice horsepower for fuel efficiency, but never actually realize any savings because you paid a premium when you bought your hybrid. Maybe automakers can get things to the point where buying a hybrid is actually just about trading horsepower for savings at the gas pump. Saving money by buying less fuel is what I thought the main idea behind hybrids has been all along.
1 Response
to "Hybrids, Lincolns, Pricing, and Trade-Offs"
Bitsy says:
Wow...mixing hybrids with Pentium 3 chips...who would have imagined the day?
Posted: Friday, July 30, 2010 5:01:01 PM