Business

05.13.13

Uncle Sam Embraces Hybrids

Tree huggers and deficit hawks rejoice: The federal government is buying up to 10,000 hybrid cars. There’s never been a better time to switch gears, writes Daniel Gross.

Procurement policy we can believe in!

It’s not much of a slogan. But with President Obama’s domestic agenda apparently crippled by recalcitrant Republicans, it’s something for progressives to hang their hat on.

The federal government is a large buyer of goods and services—security contractors, office space, weapons, paper products. The General Services Administration, handles a good chunk of those acquisitions. And so the decisions it makes can have real-world impacts. By the mere act of placing an order, the government can provide a boost to a specific company, or a set of products. In other words, policy can create demand.

In April, the GSA announced the federal government will buy up to 10,000 new hybrid vehicles.

That’s good news for tree-huggers, auto manufacturers, and deficit hawks—and given the changes in the auto manufacturing world, it’s likely to raise far fewer hackles than it would have a few years ago.

Hybrid cars are hardly an embryonic technology. They’re tried and tested products, with millions of units sold globally. In April, according to Hybridcars.com, more than 42,000 hybrids were sold in the U.S. alone.

The knock on hybrids has been that they tend to cost more than similar models that run only on gasoline. And even with the price of gas pushing $4.00 per gallon, it takes a long time (or a lot of driving) for a purchaser to earn back the higher price paid through lower gas consumption. Buying a hybrid may make moral and environmental sense from day one. But in order for it to produce economic benefits, you’ve got to hold on to the car for several years and drive it a lot. Which is why the most enthusiastic purchasers of hybrids (aside from the bienpensant of Boulder and Berkeley) have been the sort of owners who view vehicle ownership as a long-term business proposition. It’s common to see hybrids in taxi and corporate delivery fleets.

By the same logic, hybrids would seem to be a no-brainer for governments, who tend to hold onto vehicles for a long time and pool them in fleets. But the uptake has been slow. The Obama stimulus, aside from (controversially) providing funds to manufacturers of electric vehicles, (less controversially) set aside about $300 million for the government to buy hybrid, electric, and alternative fuel vehicles. And so the GSA has been buying a small number of hybrids. In 2010, it said it would buy 5,600.

But as the stimulus tapered off, so too did the purchases. Bloomberg in January reported that combined purchases of hybrids and electric cars fell to 2,645 in fiscal 2011 and about 1,800 in fiscal 2012—a mere 3.6 percent of the total cars bought for federal agencies.

A few years ago, the government purchase of hybrid vehicles would have been a politically loaded proposition. Toyota, a foreign automaker that made its hybrids in Japan, accounted for almost the entire hybrid market. In effect, the U.S. taxpayers would be paying a premium price for foreign-made vehicles at a time when two U.S. automakers were subsisting on federal life support.

But things have changed in the past few years. Chrysler is no longer a ward of the state. The taxpayers’ stake in General Motors is declining. Perhaps more importantly, the hybrid market is a more competitive one. As we noted last week, Ford has suddenly become a player, with its Fusion and C-Max hybrid models racking up significant sales. GM offers hybrid models of the Chevrolet Malibu and the Buick LaCrosses. And Toyota has been making noises about manufacturing in the U.S.

There’s no guarantee the government will buy American (the announcement doesn’t specify one way or another), but it would be stupid—and borderline scandalous—not to, given that the option exists now where it didn’t before.

Regardless, with gas prices persistently high, hybrids make more sense than ever. This government website allows consumers to compare the costs of buying and operating hybrids and non-hybrid models, given certain parameters. The Ford Fusion hybrid costs $3,480 more than the non-hybrid version up front. But if you drive it for 15,000 miles a year with gas at $3.54 a gallon, a buyer comes out ahead after 3.9 years. Drive 20,000 miles per year at $4.00 a gallon, and the payback period is shorter—2.5 years.

So now the GSA, which didn’t return calls or emails seeking comment on the new policy, is boosting its purchases of hybrids. Under the newly announced program, government agencies can replace aging cars with hybrids without having to spend more out of their own budgets. “If agencies choose to participate in the program, GSA will fund the total incremental cost to replace eligible consolidated vehicles with new hybrid sedans,” GSA announced. The GSA says that adding 10,000 hybrids to the fleet would save about one million gallons of gas over the vehicles’ collective lifetime.

Now, 10,000 vehicles is a drop in the hybrid market bucket—in April alone, as noted, more than 42,000 hybrids were sold. But GSA has the capacity to purchase far more than 10,000 vehicles per year. And there are hundreds of state and local government procurement agencies that could easily mimic this strategy.