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Hybrids: A Malignant Mythology

April 5th, 2009 by Inspector · 11 Comments · Environmentalism, Politics

Congress and the media’s continual criticism of the domestic auto industry is that they lost out because they weren’t being enough like Toyota. (No, I don’t mean using non-union labor. Of course they didn’t mean that.) The repeated cry is that Detroit failed because they were “living in the past” by building large and powerful vehicles rather than making smaller, “more-efficient” cars and – especially – hybrids.

But was Toyota’s success because they produced small cars and hybrids like the Prius, or was it in spite of that fact?

A caller to the, increasingly interesting, Rush Limbaugh Show points out the inconvenient truth:

CALLER:  Hey, Rush, when I was a consultant, one of the assignments I had was to evaluate the portfolios of blue chip companies, product portfolios, and I had to analyze the Toyota portfolio, and it wasn’t even close, the Tundra and the Tacoma [trucks] were the cash flow producers by far and the Prius was a rapacious cash eater.

RUSH:  Yeah, the Prius, let’s face it, you know, God bless Toyota, but Prius is a loss leader.  They’ll lose money on the Prius to keep Congress off their back, to have a good brand, to make ’em look like they’re socially conscious citizens of the earth, but they’re making the freight on the big cars and trucks they sell.

CALLER:  Yes.  But here’s the problem with that.  The more hybrids that these big car manufacturers produce, the more cash they’re going to lose and they’re going to be actually worse off in the long run with more of these hybrids…

[bold mine]

So Toyota actually loses money on each hybrid they sell, which they only make up for by selling their trucks and SUV’s. Those very same trucks and SUV’s which were supposedly the cause of Detroit’s failure.

The standard line we’re fed is that the Japanese are forward-thinkers for making hybrids while Detroit is going under for their mistake of making large and “gas guzzling” vehicles. This is completely false. As far as profits are concerned, hybrids are boat anchors driving their otherwise successful manufacturers down. Toyota lost money on them, even despite the fact that the government subsidized their sales. (Consider that for a moment: if the government weren’t grabbing our money to fund this boondoggle, the results would have been even worse) If Detroit had caved into political pressure to build these rolling mistakes, they would have ended up even worse off than today.

Congress, the Media, and the Left are demanding (and now mandating by law) that American auto manufacturers imitate Toyota’s failures. And they’re doing it by means of the popular mythology that they created in which hybrids are a business success.

This is, of course, one of many such myths that the Left has created in order to impoverish us and control our lives. In the past, I’d found it difficult to criticize hybrids on the fact of their money-loss because people who even partially bought into other such Leftist myths weren’t always willing to consider unprofitability a deal-breaker if the car served a “green” agenda. (“Well, that loss does worry me… but they’re saving the planet!”)

But in this economic climate where people are starting to appreciate the value of a profit (or at least, the problems of a lack thereof), and with the twist of Detroit’s business failure being blamed on their non-pursuit of hybrids, I think there is an opportunity here to cut into this lie.

So I recommend calling shenanigans on this one where you can.

-Inspector

(PS, if you’re interested in reading more on this subject, check out my November, 2008 post.)

11 Comments so far ↓

  • Burgess Laughlin

    Is there a link to an economic analysis of the profitability and subsidies of the Prius? Perhaps I missed it, but I don’t see any proof — unless one considers a call to a radio station to be a proof.

  • Burgess Laughlin

    This LA Times link (from the Limbaugh site) seems to be the closest thing to a proof: here. However the theme seems to be that sales were very high and now they aren’t.

  • Inspector

    Burgess, there was not proof presented because the point isn’t disputed by Toyota. I believe the trouble you are having is due to the fact that the current generation Prius supposedly no longer sells at a loss-per-vehicle… at least according to Toyota’s PR.

    Note the “no longer,” as despite promises since 2001, before which they openly admitted the vehicle lost money per-vehicle-produced, it wasn’t until the new-generation model that they actually announced that the loss-per-vehicle had finally stopped.

    Your article confirms this:

    “Toyota said last year [2008] that it was finally making money on the Prius after nearly a decade producing it, but executives at other automakers acknowledge that they lose money on every hybrid sold.”

    Unfortunately, even this claim of profitability is questioned by pretty much every other auto manufacturer as being a trick of subsidies and dubious accounting.

    But even if we take this claim at face value, they are still only claiming a profit that is smaller than any of their other vehicles. This doesn’t make up for the years and years of loss on the Prius that they had to endure, and with the bottom falling out of the hybrid market in the recession, it’s anyone’s guess if and when they’ll make that money back.

  • madmax

    Inspector,

    I agree with you and I consider the Prius to be a philosophical disgrace. But, couldn’t the defenders of the Prius argue that the first 8 years or so of losses were a “loss leader” and now that the economy is bad the Prius will be a real winner. In fact, if gas goes up again as most Objectivists and Austrians think (know?) it will because of inflation, I suspect the Left/Enviros will harp on the importance of hybrids and the “farsightedness” of Toyota to stick with the Prius through 8 years of losses.

    The moral case against the environmentalist crusade for hybrids is easy to make. The economic case against them is easy in so far as they are subsidized. But forecasting Prius sales into the future, especially a future that could be an economic nightmare, is not so easy. I know you know all this but I am wondering if this is the best tactic for intellectual advocacy. As Burgess suggests, with this kind of argument (which is more empirical), having alot of statistics would probably be necessary.

  • Mike

    I’ll stipulate for now that all those cites are genuine, but something is still missing in this equation. When gas zoomed up to $4.50 a gallon in 2008, you couldn’t find a Prius or a Civic Hybrid for love or money, they were selling so fast — and they were selling with over a grand worth of dealer surcharge on top of the dealer pack. (Dealer surcharges or “market adjustment,” is basically where a dealer says “demand is high so I’m just pocketing some more money.” Hey, no complaints here. If the dealer is right, that money is his to pursue, and if he is wrong, the car won’t sell. Viva capitalism. Dealer pack is the amount the dealer adds to the car to cover cost, i.e. facility overhead, the salaries of the guys who cleaned up and repaired the trade-in, etc.) When a car is selling out regardless of surcharges and what I’m sure was an inflated pack too, Someone is making money. I can’t imagine Toyota and Honda are standing by and picking up none of it.

  • Inspector

    “But, couldn’t the defenders of the Prius argue that the first 8 years or so of losses were a “loss leader” and now that the economy is bad the Prius will be a real winner.”

    They would like to, but the reality is once again inconvenient for them. The Prius has never been a winner from a saving-money perspective – not even at $4/gal gasoline. The price to purchase one was simply too far over a simple economy car. When times were booming, people didn’t examine the math too closely – or didn’t care. They were willing to go on either the dubious promise of savings, or were willing to lose money in order to “enjoy” the *image* that this car gave them. [Edit: And furthermore, with the credit contraction, people simply don’t have the ability anymore to plunk down a huge wad of cash up front for the promise of ethereal savings in the future. One could argue that, since the credit “boom” was artificially created by the government, that this too is a reason that the Prius never had a real business model and “worked” only because of subsidy.]

    But when money is tight, people are less willing to buy a car that is more a badge of one’s Green image than an actual money-saver. We can see that fact in the news as we speak, with the sales decline and plant closure.

    “having alot of statistics would probably be necessary.”

    That would be true if my case depended on a controversial point. But Toyota does not claim that the Prius made any money during the period in which Detroit allegedly “should” have been making hybrids. (it is semi-controversial whether it makes any money at present, but I do not base my argument on that point) The only reason that Detroit doesn’t fight back on this is because they have forfeited the moral argument.

    “I am wondering if this is the best tactic for intellectual advocacy.”

    That’s a fair question. In order to present a moral argument on this topic, I believe it is first necessary to define events. If hybrids were simply a profitable business exercise, then there would be no place to even make a moral argument. But if they are actually a business loss, then it becomes possible to ask: for what reasons are businessmen embracing (or being told by Washington to embrace) a loss? And *should* they?

    My intended audience with this article is the reader who already accepts the moral argument, but lacks the knowledge that he has an opening to make it.

  • Inspector

    “Someone is making money. I can’t imagine Toyota and Honda are standing by and picking up none of it.”

    The automakers do not see a dime of dealer surcharges. I’ve read about many popular auto releases in which automakers will only distribute vehicles to dealerships if they strictly agree not to mark them up too much. If word spreads about such markups, then customers may stay home rather than going out to buy more vehicles, which is the only way that the manufacturer makes any money.

    It is entirely possible that Toyota lost money on Priuses which were marked up by thousands.

  • madmax

    Inspector,

    Good points. All of them. Thanks.

  • Devil's Advocate for Today

    Inspector, I realize this might be a little late on the draw, but George Will is presently getting hammered by not only Toyota’s PR but the Green groupies as well, and not just the usual nuts.

    It seems in the first place Prius is doing fine now, and that they consider this a small price to pay for previous loss.

    Second, that all technological innovation has a temporary price, especially in light of the need to reduce emissions REGARDLESS of climate change claims one way or the other.

    Any follow up commentary on this latest bruha over Will’s accusation that Prius needs the sales of Tundra to make money on the books?

  • Inspector

    “bruha over Will’s accusation that Prius needs the sales of Tundra to make money on the books?”

    I’ll check it out if you’ve got a link. Now I might just have been away from the topic for a bit, but when did George Will enter into it? I don’t recall him being a part of this topic…?

    “especially in light of the need to reduce emissions REGARDLESS of climate change claims one way or the other.”

    I don’t follow you here. If certain climate claims aren’t true, there is no need whatsoever to reduce CO2 emissions. Or did you mean some other emissions? If so, that’s doubtful. Modern cars are quite clean and there’s certainly no crisis or pending crisis in that regard.

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