Hybrid tax credits run out of gas

Thinking about buying a hybrid car to send Big Oil a message while reaping a fat tax credit? Better hurry.
The current tax credit for hybrids made by Toyota -- the hybrid sales leader -- will be cut in half Oct. 1. That 50 percent credit will continue through March 31, 2007. From April 1 to Sept. 30 of next year, the credit will be cut in half again, to 25 percent of the original. After Sept. 30, 2007, there will be no tax credit.

The tax cut for buying a Toyota Prius is now $3,150; for a Camry, it's $2,600. That's off the bottom line on your Form 1040, what you owe the government.

But to qualify for those amounts, you must have the keys in your hands before the end of September. On Oct. 1, the credits for a Prius and Camry will be $1,575 and $1,300, respectively.

Since hybrids typically cost several thousand dollars more than comparably equipped conventional vehicles, such tax credits can be an enormous help to families concerned about fuel economy and the environment.

But the tax-credit limit imposed by Congress means consumers will get less and less help if they want a hybrid from Toyota, the automaker that has most aggressively entered the hybrid market and has the widest range of models.

Full tax credits will remain available from the domestic automakers -- because they are selling so few hybrids. Of the Big Three, only Ford currently offers hybrids that are eligible for a tax credit: the Escape Hybrid and Mercury Mariner Hybrid.

General Motors plans to offer a hybrid model of its Saturn VUE this summer, but it has not yet been certified by the IRS for a tax credit.

Hybrids typically use a smaller-than-normal engine occasionally boosted or temporarily replaced by an electric motor. The batteries that power the electric motor are recharged automatically as the vehicle is driven.
The tax credits went into effect in January as part of an energy bill approved last year. The tax-credit program expires at the end of 2010.

According to congressional estimates, $874 million in "alternative-technology vehicle" tax credits have been set aside for consumers.
Why are credits on some hybrids dwindling while others remain intact? In a compromise that at least one environmental group says was engineered by General Motors, Congress agreed to phase out credits over several quarters once a carmaker sells 60,000 hybrids, regardless of the model.

"We surpassed 60,000 during the month of May," said Martha Voss, Toyota's national public-affairs manager in Washington. That's why the full tax credit is good only until the end of the following quarter, Sept. 30.

Toyota has sold 500,000 hybrids around the globe since 1997 and currently offers five hybrid models here -- with more on the way.

Of the 93,946 hybrids sold in the United States in the first five months of this year, Toyota sold 67,420; Honda 16,415; and Ford 10,111, according to J.D. Power and Associates, a market-research firm.

Honda doesn't expect to sell enough hybrids to be affected by the limit this year, said spokesman Chuck Schifsky.

But Toyota is bumping into the ceiling just as it launches what may be the most important hybrid of all, the Camry Hybrid. Because it is a midsize sedan -- and thus aimed at more consumers -- some analysts see it as a significant test of the strength of hybrid appeal.

But Toyota is not complaining, at least not publicly.

"Our position has been that we want people to buy hybrids because they like the attributes," said Voss.
"We are grateful that the federal government recognized the hybrid technology. And we'd like our consumers to be able to buy as many hybrids at 100 percent credit as they like. But we recognize there are limits to what Congress can do budget-wise and politically."

The Sierra Club's Dan Becker, director of the group's global-warming program, was less diplomatic.
"It's ignominious!" he said of the compromise that created the disappearing credits. "It penalizes the automotive leaders and awards the laggards."

Last fall, lobbying Congress, "we were urging tax credits commensurate with the fuel economy of the vehicle, with no limit on the number sold," he said.

"They took GM's advice instead and created a system that would provide a clear shot for GM when it got around to making its own hybrids -- long after Toyota, Honda and even Ford had sold theirs."

GM denies it pushed the 60,000-hybrid limit as a way to hurt Toyota or Honda. General Motors did lobby in favor of the limit because "it carefully crafted a balance between encouraging the purchase of hybrid vehicles and the development of new technologies without favoring one manufacturer ... over another," said Greg Martin, the automaker's director of policy and Washington communications.

But David Friedman, research director of the Clean Vehicles Program at the Union of Concerned Scientists, said the vehicle cap "is just bad policy."

"It rewards companies that come late to the hybrid world even if their vehicles get lower fuel economy improvements than those who got to the market first," he said.

"While perhaps not the intention, the cap gets rid of credits for the best-performing vehicles that will save consumers the most at the pump. It creates confusion for consumers and undermines the reason the credits exist in the first place."

David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich., said the congressional goal was not to penalize Toyota and Honda but rather to encourage domestic and European automakers to get involved.

The idea of the limited credit was "to really kind of level the playing field a little bit, and it is basically good policy. You've got the domestics who are really hurting," said Cole.
http://www.nj.com/search/index.ssf?/base/b...ledger?b&coll=1