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Power Corrupts

About a month ago, Lincoln announced that it will be introducing a new hybrid electric version of the MKZ model with a price tag of $35,180. On its own this is nothing earthshattering, as many automakers have joined, or will soon join, Honda and Toyota in mass-marketing hybrids. But what makes Lincoln’s announcement exciting is that their hybrid will be coming at a price you won’t be able to refuse. Or will you?
Until now, hybrids have sold at a steep premium. For example, the Ford Fusion hybrid, on which the MKZ is based, sells for $28,825. The Fusion with a conventional gasoline engine will set you back only $20,420. Depending on factors like how much you drive, the price of gas, how long you keep the car, and your choice of discount rate (needed to calculate the present value of future savings), hybrids may or may not be a good deal.
However, the MKZ is a first in that both models – the hybrid and the one that runs on a traditional gasoline engine – have an identical price.
Why has this happened? Generally, the price and performance of a new technology drops, sometimes dramatically, over time. Think of computers, mobile phones or, in the automotive sector, airbags. Falling costs are mostly due to two phenomena: 1) what economists call “economies of scale” (costs drop as production runs rise, thanks to things like investing in equipment whose cost wouldn’t make sense if you were only producing a few units) and 2) “learning effects,” as companies improve their knowledge of the technology and how to produce it.
So have hybrids reached the point where price parity is here to stay? And can we thus glimpse the day when all of us will know the joys of regenerative braking?
Maybe. But rumors of internal combustion’s death may prove to be greatly exaggerated. First, hybrids may not really be reaching the point of cost-competitiveness. The MKZ is a fairly luxurious car, with fatter profit margins than more humble models like the Fusion. Lincoln may be masking the MKZ hybrid engine’s higher cost by accepting less profit on them. This wouldn’t make sense for more inexpensive cars.
Moreover, there is reason to believe that many consumers will stick with conventional engines, even if hybrid technology is essentially free.
There is a considerable difference in engine power between the two Lincoln models. With the 3.5-liter V-6 gas engine, the regular MKZ produces 263 horsepower (and gets 18/27 mpg). The hybrid’s 2.5-liter Atkinson-cycle 4-cylinder engine produces only 191 horsepower (but gets 41/36 mpg).
Why is this troubling? Nicholas Lutsey and Daniel Sperling have written on historical trends in energy efficiency, vehicle size, pickup and fuel economy. From 1987 to 2005, autos’ efficiency improved 54 percent thanks to things like better aerodynamics, improved engine and drive train efficiency, and less tire rolling resistance.
But most of the added efficiency was eaten up by increased car size, as autos went from 3000 pounds to 3500 pounds. And automakers applied most of the remainder to improving pickup as opposed to better mileage. Cars’ 0-60 acceleration time saw a drop from an average of about 14.5 seconds to under 10, while mileage rose only 0.6 mpg.
Note that fuel economy is now rising, but this is due more to regulation than changing consumer tastes. At least through 2005, car companies judged that their customers were willing to pay at the pump for that added punch.
Frankly, I find this a bit puzzling. Granted, you might sometimes floor it from 0-60 if you are a Domino’s delivery guy or have 00 status in the British Secret Service. But neither of these are particularly common situations in urban driving. As far as I can think of, virtually the only time really quick acceleration is even marginally important is when you’re merging onto the freeway, and even in a car as underpowered as my first one (a beloved Toyota Tercel), I always seemed to make in onto the road. Then again, I may have found merging easy because in L.A. highway traffic is never moving at more than 20mph anyway.
Two theories about why people care so much about pickup. First, a centerpiece of a test drive of a new vehicle involves flooring it and seeing what she can do. You take the feel of that surge of acceleration back onto the showroom floor with you. Second, quick acceleration probably plays into some deep instinctual need for power and control. But neither of these have much to do with getting you to your destination any quicker.
In any event, with an IC power train and a hybrid one selling in the same model for the same price, we’ll soon find out what people really want. This decision strikes me as a no-brainer, but Ford’s research, which indicates that 40 percent of current MKZ owners “would consider” buying a hybrid as their next car, doesn’t fill me with confidence. Nor do past consumer tastes. Until hybrids have improved to the point where their performance matches that of traditional engines (which they almost certainly eventually will), let’s hope that Ford doesn’t decide to ditch the hybrid and add oil slick and rocket launchers to the MKZ instead.