10/10/2004

Hurray for Honda

Honda has announced that with its new hybrid Accord V-6 model coming out, sales of its hybrid vehicles in the United States will catipult to over 45,000 next year. Honda expects that its Accord hybrid sales will amount to some 20,000 cars next year. Honda is planning to market the hybrid to, "affluent, well-educated professional of around 50, with a household income of $100,000-plus."

The microeconomic implication of this recent development is that with hybrid sales taking off, American's are now being seen responding to surges in oil prices. Also, Honda found an incentive in continuing to develop and release models that would further its plans to provide an adequate return on its investment while at the same time further protecting the environment. Consumers are responding to incentives in that the new hybrid vehicles get better gas mileage which means less money at the pump.

3 comments:

Ernie said...

I think what Honda is doing by charging $30,000 for the hybrid Accord, is recouping some of its massive R & D costs. Technology is not had without extreme amounts of up-front capital. If you look at the trends in the auto industry over the past 10 years, prices have gone through the roof. You now see everyday people diving around in $60,000 Lincoln Navigators, Hummers, and many others. This has caused companies like Hyundia and Kia to take advantage of markets that serve the less fortunate.

Natalie said...

I am struggling to see the benefit of the hybrid car. What I mean is this: yes, you will save some money at the gas pump, but, you will have to drive a lot of miles to make up for the high sticker price. And what about maintenance and insurance? My guess is that they will be high as well. In my opinion, you would be better off to buy a Honda Civic. It gets pretty good gas mileage, it is very reliable, and it is inexpensive to insure.

Dr. Tufte said...

I think the message that Honda is sending is that this vehicle is not likely to be economical for someone who doesn't have money to burn on a luxury. But, that's typical of environmental concerns, which typically don't interest people much until a society's median income gets high enough.

All of this says that the income elasticity of hybrid cars is high.

From tbe business side, it is very common to introduce products with high fixed costs to the rich first. They may have reservation values high enough that you can make some monopoly profits to recoup those fixed costs before free entry starts to hit you.

I wonder why the looks of they hybrids are so bad. Do you think there is a perception that something that is good for the environment must not be attractive? Certainly we see this in the "look" of a wilderness area vs. a park, and the environmental movement has been explicitly against certain grooming habits in the past.