Wendy McElroy guesses at Toyota’s possible motivation for taking a loss on each of their hybrids:
Now, the U.S. FedGov’s EPA measures “fuel economy” via a performance metric called “Corporate Average Fuel Economy,” or “CAFE” for short. The EPA computes this metric by simply adding up the MPGs of all the “passenger vehicles” (cars, vans, SUVs, and “Light Trucks”) sold by a given corporation, and dividing that total by the number of “passenger vehicles” sold — and if their “CAFE” figure does not exceed the EPA’s target for that year, they get fined US$ 5.50 for every 0.1 MPG that their CAFE is below the EPA’s target, times the total number of “passenger vehicles” they manufactured for sale in the U.S. market that year. Since their production run for U.S. sale may be millions of cars per year, anything they can do to increase their CAFE if it is “below target” is in their self-interest.
However, the above method of computing the CAFE also means that a single highly economical model of car has a rather disproportionate effect on the CAFE figure. For example, for each Prius Toyota sells at a loss, they can now afford to sell at least two, possibly three SUVs or Light Pickups at a substantial profit! As long as they make more than about US$ 5,000–7,000 profit per SUV or Light Truck sold, they can afford to eat even a US$ 10,000–15,000 loss on each Prius sold, and still come out both money ahead and CAFE ahead.
The above illustrates the danger of using the wrong performance metric, as well as the Law of Unintended Consequences: Given that the two to three SUVs or Trucks and the Prius will probably be driven roughly the same number of miles per year — i.e., it is mileage that should be held constant when comparing two vehicles — the relevant metric for fuel consumption should not have been “miles per gallon,” but rather gallons per mile (GPM). By the GPM measure, SUVs and Trucks have around three times the Prius’s fuel consumption — so if 2–3 SUVs or Trucks are sold for each Prius, the net effect of offering the Prius might have actually been to significantly INCREASE gasoline consumption, rather than to decrease it !!!
Since hybrids have been an object of some minor contention in the tjicisphere, I thought some might find this interesting.