War, Gas and the Economy

War, higher gas prices and a weak economy seem to be doing wonders for hybrid vehicles and might also signal the path to a better vehicle fuel efficiency in the US.

Hybrid vehicles combine a traditional internal combustion engine with a battery-powered electric motor to provide increased gas mileage and thereby lower emissions. The gasoline engine and the electric motor each utilize their strengths and supported by the other in its weaknesses.  This is due to the fact that their engines can operate at a low enough number of revolutions to give good fuel efficiency and make the purification of exhaust gas relatively simple.  It is also no longer necessary to go to the trouble of recharging the batteries at a fuel station.

Over the first two months of this year dealers have sold almost 10,000 hybrid vehicles with Honda's Civic hybrid capturing most of these sales.  These numbers are still unimpressive compared to the overall US car and light truck sales of more than 16 million vehicles a year, but dealers are beginning to report an appreciable increase in interest by consumers who are asking questions and investigating the benefits of hybrids.  This interest seems to be higher on the East Coast and in California where gas prices are much higher than the national average.

Hybrids also seem to be gaining ground as a result of a federal tax law that allows owners of seven models of vehicles (three Toyotas - the 2001, 2002 and 2003 Prius models - and four Hondas - the 2000, 2001 and 2002 Insight and the 2003 Civic Hybrid) to qualify for a one-time deduction on their federal income taxes.  This allows the original purchaser of a qualifying hybrid gas-electric car to deduct a maximum allowable amount of $2,000 for the year the vehicle is first used.  There are additional deductions in certain states also available to hybrid owners. 

In spite of this visible interest in hybrids Honda and Toyota seem to playing a very cautious hand and waiting for a little more evidence that demand is here to stay before increasing production.

As has been the custom in years past, the auto industry is currently battling demands that light trucks, including SUVs, get higher gas mileage.  The growing demand might just dispute the industry's assertion that demand for more fuel-efficient vehicles is low.  General Motors has long contested that hybrids are too expensive to mass-produce because they require two motors in place of one.

Already, causing ripples in the consumer market, Toyota, Ford and General Motors are planning to introduce hybrid SUVs.  Toyota is planning to introduce hybrid versions of its Highlander and Lexus RX330 SUVs next year and Ford is also planning a gas-electric version of its Escape SUV next year.

In spite of GM's early recalcitrance on hybrids, early this year it announced an ambitious program offering optional hybrid powertrains on several of its most popular models including trucks, SUVs and mid-size sedans starting in late 2003.  GM announced that it could eventually produce 1 million hybrid vehicles, including the Saturn VUE, and the Chevrolet Equinox, Malibu, Yukon and Tahoe.  Depending on demand, other models could follow in the near future.

A prototype truck, which GM will soon deliver to the Army, is a diesel-electric hybrid military pickup truck that is 20% more fuel-efficient than the best diesel engines, reduces emissions, and provides clean, reliable electrical power.

It carries an auxiliary fuel-cell generator in the pickup bed which "would replace the loud engine- and battery-based stationary generators the Army now uses for field power, thus enhancing the Army's "silent watch" capability, or the ability to operate undetected by the enemy."  This could become the model for the Army's new fleet of 30,000 light tactical vehicles and could produce substantial savings to the US government and taxpayers. 

The military has kick-started auto innovations such as four-wheel drive and global positioning systems and this could provide the much-needed boost to push the industry over the hump.

The hybrid has the disadvantage of a complex construction, but its strong potential for accelerating the changeover from existing vehicle technology to alternatives makes it a very attractive option.

Sources and Links

US Internal Revenue Service Clean Fuel Tax Deduction for Hybrid Vehicles

Honda Civic Hybrid

Toyota Prius

Ford Escape Hybrid Electric Vehicle

General Motors Hybrid-Powered Buses

General Motors: Hybrid Power on More Than a Dozen Popular Models

DaimlerChrysler Zero Emission Hybrid Bus

Business equipment write-offs for luxury SUVs. In spite of widespread bipartisan support for small businesses tax relief, administration's critics are focusing on equipment write-offs used to finance large luxury SUV purchases. A federal tax law for business equipment write-offs is being increasingly used to finance large luxury SUV purchases that allows much more generous tax treatment for trucks (defined by the IRS as any vehicle with a gross weight of 6,000 pounds or more), regardless of whether it is used to haul goods or a single person. The definition was originally intended to exempt farmers and other small businesses who needed a pickup or cargo van from limits that apply to luxury vehicles. But the definition was written well before a wide array of upscale trucks and SUVs, such as the Lincoln Navigator, Cadillac Escalade and Lexus GX470, hit the market and well before consumers started using trucks and SUVs as a substitute for the family car. Small-business owners have been using the $25,000 equipment deduction to help finance purchases of trucks and SUVs. With vehicles in the $47,000 price range, such as the Ford Excursion, more than $30,000 of the purchase price can be deducted, reducing a small business tax bill by about $12,600. For a small business it makes economic sense to buy a luxury SUV. A proposal to raise the cap on business equipment to $75,000 provides an even bigger incentive and will make it possible to write off the entire cost of vehicles such as the Hummer H2 or BMW X5 in the first year. A small-business purchase of a car, by contrast, might take 10 years to 20 years to fully depreciate.