How Toyota's Prius Troubles Will Shape the Green Car Market

Not too long ago, Toyota reigned as the seemingly untouchable hybrid leader. That dominance — in terms of both market share (50 percent of hybrids sold in the U.S.) and mindshare (no alt-fuel vehicle on the market is better known or more widely recognized than the Toyota Prius) — means that as the Prius image takes a beating, other models across the spectrum of green cars will also get bruised.

Mike Omotoso, senior manager for J.D. Power and Associates’ global powertrain unit, told me the firm plans to lower its hybrid and electric vehicle forecast for 2010, although it has yet to determine how big the hit will be. For the first two months of this year, the hybrid share of light vehicle sales hovered at around just 2.3 percent, compared to 2.8 percent for all of 2009 and 2.4 percent in 2008, according to Omotoso. That’s due to a number of factors — including high unemployment, a weak economy and the biggie: gas prices. But the Prius and its technical troubles loom too large to ignore.

Prior to 2009, the Prius’ share of U.S. hybrid sales had slipped below 50 percent only once since 2005 — in 2006, when it dropped to 42 percent. But even that offers a sign of Toyota’s dominance in the hybrid space. Omotoso explained that 2006 marked “the first year for the Camry hybrid and the first full year for the Highlander hybrid. So other Toyota models cannibalized Prius sales.”

Regulators are only beginning to look into the most recent incidents. But initial reports suggest the problems may not have been linked to a floor mat that pinned down the gas pedal in other Priuses and prompted Toyota to issue a recall last year for 2004-2009 models of the hybrid. Last month, when problems surfaced with the regenerative braking system of some 2010 Prius models, Toyota attributed them to a software glitch.

Regardless of what investigators and Toyota may turn up if they check out the cars involved in this week’s incidents more closely, however, one thing’s already clear: Videos that zipped around the web and TV news shows this week of a visibly shaken driver, and quotes from the 911 call he made during the 23 minutes that his 2008 Prius hurdled at high speeds down a Southern California highway before a highway patrol officer helped him stop, aren’t helping to repair the reputation of either Toyota or advanced vehicles.

Given the Prius’ status as the poster child for hybrids, Omotoso explained, “consumers might think that if the Prius has a problem then all hybrids might be dangerous.” That concern creates one more obstacle for new vehicle technologies to penetrate the mainstream, as some car buyers may forgo experimenting with the next generation of green cars — among them plug-in hybrids and all-electric vehicles from General Motors’ Chevy Volt and Nissan’s LEAF to BYD Auto’s e6, Coda Automotive’s Coda Sedan and Fisker Automotive’s Nina — rolling out over the next few years.

That perception problem is a hurdle that many car makers can’t really afford in this nascent market. Plug-in vehicle developers are competing for a niche that’s likely to remain quite small for years to come. Nearly a decade after the Prius debut, hybrids still hold a single-digit sliver of the pie. And despite optimistic projections from investors like Warren Buffett, who has said he expects all cars will run on electricity by 2030, other forecasts suggest significantly slower adoption, mainly due to high price tags.

Lux Research forecasts that even if oil costs $200 a barrel in 2020, just 4 percent of vehicles sold globally will be all-electric or plug-in hybrid because of the high costs of the battery technology. According to Lux, plug-in hybrids could sell 3 million units per year by 2020 if the price of oil reaches those heights, while hybrids can be expected to sell that many by 2020 regardless of oil prices.

In addition to presenting a challenge to companies vying to win over consumers to advanced vehicles, Toyota’s ongoing troubles also highlight a need for the government, the auto industry and even drivers to collect and manage (or in the case of drivers, to file), vehicle safety data and complaints in a more open and timely manner. Noting in prepared testimony that regulators and Toyota had received complaints of unintended acceleration in Toyota models seven years ago, Consumers Union is issuing that challenge — to increase transparency of vehicle safety data — in a hearing this morning on the National Highway Traffic Safety Administration’s oversight operations. As much as technology may be part of the problem with Toyota’s vehicles, it could also be part of the solution — helping identify problems before too many drivers are put in the situation of having to call 911 from behind the wheel of an out-of-control car.

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