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Price could determine success of hybrid SUVs

The Baltimore Sun

The first hybrid vehicles were econoboxes that took fuel efficiency to new extremes, offering the starkest of contrasts to the gas-guzzling SUVs loathed by environmentalists.

Now, General Motors Corp. is building the industry's largest hybrid passenger vehicles - in a belated effort to catch up with an expanding market and boost its own flagging SUV sales. If successful with hybrid versions of the Chevrolet Tahoe and GMC Yukon, GM plans to expand its hybrid offerings to, among other vehicles, the Chevrolet Silverado pickup and Cadillac's behemoth SUV, the Escalade.

But will people inclined to drive large SUVs and trucks go green - and pay thousands of dollars extra to do it?

The answer will have ramifications for GM, which is just starting to turn itself around after years of red ink and lost market share, and the 440 employees at the GM Powertrain Baltimore Transmission plant, which manufactures the gasoline-electric transmissions for the new vehicles. The first of those transmissions came off the White Marsh assembly line Monday.

GM will need to appeal to customers such as Mount Vernon resident Adrian Hessen, who already has a Tahoe. He said he would consider trading it in for a hybrid after seeing one on television recently.

"I like the Tahoe a lot - it's been relatively maintenance-free," said Hessen, 31. "The thing that really stinks is how much it costs to fill up."

His parents recently bought a hybrid Ford Escape and are happy with it. But he also said he would have to do the math before spending more on a hybrid.

"If it's cheaper in the long run to go with a hybrid, I would do it," he said. "If not, I would really have to weigh the options."

The two-mode hybrid technology is the product of a $1 billion research effort by a consortium made up of GM, Daimler, Chrysler and BMW. GM is late to the hybrid market, having been caught flat-footed by foreign competitors that responded more quickly to demand for smaller, more fuel-efficient cars. Already hot on GM's heels are European manufacturers looking to introduce diesel models offering the same fuel economy.

JD Power & Associates expects hybrid sales to hit a record this year with 354,000 sold in the U.S., a 30 percent increase over last year. By 2010, there will be as many as 65 hybrid models on the market, half of them trucks, predicted Michael Omotoso, senior manager of global power train forecasting at the analysis firm.

"We think there will be a market for people who want a full-sized truck with fuel economy," Omotoso said.

JD Power estimates that GM will sell 18,700 hybrid Tahoes and 9,000 hybrid Yukons in 2008, about 12 percent of all Tahoes and Yukons sold, which is on par with other hybrid models.

But there have been some signs of resistance in the marketplace as hybrids get bigger. In September, sales of the hybrid versions of the Ford Escape and the Mercury Mariner - both in the small SUV category - rose by 5.2 percent and 10 percent respectively from the same month a year earlier. But sales of the midsize SUV Toyota Highlander declined nearly 38 percent, according to data from Market Research Inc., based in Bandon, Ore.

Even some dealers aren't sure how well the hybrid Yukon and Tahoe are going to sell.

Mel Zepp, general sales manager for Jeff Barnes Chevrolet in Sykesville, has noticed a drop-off in business from the traditional customers who buy trucks for work, particularly the plumbers, carpenters and electricians who are reeling from a prolonged slowdown in the housing market. Even those who buy luxury cars want their money's worth, he said.

"I think it's going to be a nice vehicle, and the transmissions are being built in Maryland, which people really like," Zepp said.

GM officials declined to say how they will market the trucks, for "competitive reasons," but said they will push the "unique combination of fuel economy and capability," spokesman John Raut said.

GM likely will play up an overall fuel economy savings of 30 percent over their non-hybrid equivalents, with the same city mileage as a four-cylinder Toyota Camry. Dealers are expected to advertise them as a way to drive a big honking SUV without contributing to global warming.

The Tahoe and Yukon will get 21 miles to the gallon in city driving and 22 on the highway, compared with 14 and 20 miles in their non-hybrid equivalents, according to federal standards.

"You have to remember that in a truck or SUV, the value of a hybrid is significantly greater than in a regular car," said David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich. "The savings is much greater in a truck that usually gets 15 miles to the gallon."

That is something that gets the attention of Hope O'Neil.

As she filled up her Lincoln Navigator at the St. Paul BP in Baltimore on Friday, she said she contemplated trading in her SUV for a smaller car that would cost less to fuel. But as leader of a youth ministry, she didn't want to give up the space the SUV provides. When told she could get more miles to the gallon with a hybrid, she said she would seriously think about it.

"It's uncertain what's going to happen with gas prices," said O'Neil, 36, of Baltimore.

Whether the hybrid actually saves consumers money will depend on how much of a premium the hybrid Tahoe and Yukon commands. The average premium for a hybrid car or truck is $5,000 to $6,000, according to JD Power.

At that rate it could take three or four years of driving to realize any savings, said Alexander Edwards, president of the automotive consulting division at Los Angeles-based Strategic Vision Inc. A government tax credit is available for a number of hybrid models, but some have already lapsed, such as for the Toyota Prius.

GM is scheduled to reveal the manufacturer's suggested retail price for the hybrid Yukon and Tahoe at the Los Angeles Auto Show on Nov. 14. GM officials said it costs $10,000 more to build a hybrid and the company will be eating some of the cost to make it affordable for buyers.

And then there are luxury hybrid customers such as Jayne Love, 64, of Baltimore, who will pay extra for a hybrid because it makes a statement. She traded in her Mercedes for a hybrid Lexus RX400h and says has no regrets: "I'm fuel-conscious, I'm environmentally conscious and I wanted to do my bit."

allison.connolly@baltsun.com

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