May 12, 2010
SP2010-ECON-201-906I Principles of Microeconomics
Final Project-Hybrid Cars
Product: The #1 selling hybrid is the Toyota Prius Hybrid. Toyota is already on its third generation of the Prius. The gas/electric Prius hybrid retains its lock on this category for the fifth straight year. Despite lots of new hybrid models, the Toyota Prius' 44 mpg (overall) is still the best in any five-passenger car. The interior is roomy and versatile, and the Prius has proven to be very reliable. Other Hybrid cars include the Honda Insight Hybrid, Toyota Camry Hybrid; SUV’s include the Ford Escape Hybrid and the Chevrolet Equinox Hybrid. Luxury SUV’s included the Cadillac Escalade Hybrid and Lexus RX 400h. Current hybrid cars can get up to 60 miles to the gallon on the highway. In addition to fuel economy, they boast lower emissions and depreciation than gasoline-powered cars. Environmentalists embrace hybrid cars as a solution to today's pollution problems. Despite tough economic times and a shrinking US vehicle market, demand for hybrids continues to outpace the overall market.
Price: The 2010 Toyota Hybrid price ranges from $22,800 - $28,070. Toyota sold 271 of its $US38, 000 Prius cars in China last year. Overall passenger-car sales in the nation totaled 10.3 million. Hybrid sales; as a percentage of all new car sales—are likely to remain flat from 2008 levels at about 2.5 percent. But considering the overall car market is shrinking in 2009, the total number of hybrid sales will drop to about 250,000. The Toyota Prius the third-generation version that debuted in January; will continue to be the biggest seller. Compared to the Prius, the Honda Insight Hybrid price is $19,800 - $23,100. And the Toyota Camry hybrid sells for $26,400
Demand for good is elastic: The Toyota Prius Hybrid would be very elastic because we don't have to buy that brand of car - we have lots of substitutes such as the Honda Insight Hybrid or Ford Escape Hybrid.
Determinants of Demand:
1.Substitutes (814,173 Toyota Prius units registered by December 2009) •Conventional cars, public transportation, trains
•Only 7 percent of Americans take public transportation to work •Higher gas prices will help hybrid car sales
•The 2009 Honda Insight, a compact which emphasizes affordability. The Honda Insight, billed as the cheapest gasoline-electric hybrid on the market, ranked as the top-selling vehicle in Japan for April 2009
2.Overseas Markets: The Prius first went on sale in Japan in 1997, making it the first mass-produced hybrid vehicle. It was subsequently introduced worldwide in 2001. The Prius is sold in more than 40 countries and regions, with its largest markets being those of Japan and North America. In May 2008, global cumulative Prius sales reached the milestone 1 million vehicle mark, and by early 2010, the Prius reached worldwide cumulative sales of 1.6 million units. As the global top seller market, the U.S. made up more than half the Prius sold worldwide, with 814,173 units registered by December 2009. In Japan, it is reported that Toyota cut the price of Prius from 2.331 million yen to 2.05 million yen to compete with Honda Insight. Toyota's goal is to sell about 400,000 units annually around the globe and 180,000 units in the U.S. by 2010.
3.Income: Hybrid drivers have higher income, much higher than the average car buyer. In 2004, J.D. Power reported that hybrid owner incomes are $100,000 a year versus $85,000 a year for the average buyer. In a 2007 survey of 118 Prius drivers by Topline Strategy Group, 71 percent of respondents earned more than $100,000 per year.
4.Demographics: Hybrid drivers are a few years older than the average car buyer—closer to 50 rather than the average age of 40. J.D. Power’s 2007 review of auto industry marketing showed that only 2 percent of hybrid owners are 24 or younger; while 29 percent are between 45 and 54; and 33 percent are 55 and older. The 2007...