Tax Credits for Toyota Hybrids to Fade Away

Louisville KY April 9, 2006; Robert Schoenberger writing for the Courier Journal reported that only the earliest buyers of Toyota's upcoming hybrid Camry sedan will qualify for the full tax credits that have helped some consumers justify spending more on the vehicles.

Buyers can get up to $3,400 off their federal taxes for buying the vehicles, which combine gas engines with electric motors to improve fuel efficiency. But shortly after an automaker sells 60,000 hybrids, those credits start going away.

Toyota sold 35,754 units of its Prius hybrid sedan and the hybrid Toyota Highlander and Lexus 400h sport utility vehicles in the first three months of the year. At that rate, Toyota will likely hit the 60,000 mark in May or June.

After Toyota sells that many hybrids, the clock starts ticking. Drivers can still get the full credit if they buy during the quarter that Toyota hits the mark and in the following quarter.

So if Toyota hits 60,000 before the end of June, buyers will get full credits for vehicles purchased before October. For the six months starting Oct. 1, buyers would get half of the credit. Starting April 1, buyers would get 25 percent of the credit, and buyers who wait until next October would receive no tax benefit, said Pat Brummer, a spokeswoman for the Internal Revenue Service.

Hybrids typically cost thousands more than similar vehicles with conventional gasoline engines. Analysts and dealers have pointed to tax credits as a factor in making the vehicles more affordable.

Toyota spokeswoman Charlotte Lassos said the automaker expects to hit the 60,000 mark during the second quarter, and it doesn't know what impact the loss of tax credits will have on sales.

"We think that people buy hybrids for a variety of reasons, not just the incentives and tax savings," Lassos said. She added that demand remains strong for the company's hybrids and that it expects the Camry hybrid to be popular.

Toyota plans to start selling a hybrid version of its Camry sedan in late May or early June. But Lassos said Toyota will have likely sold more than 60,000 hybrids by the time large numbers of the Camry version get to showrooms.

David Healy, an analyst with Burham Securities in Arizona, said the expiration of the credit will be a good test for the popularity of Toyota's hybrids.

"The Prius is still selling off the back of the trucks," Healy said, referring to delivery trucks. "People may be trying to get in before the credits expire."

Without the tax credit, people probably won't save enough money on gas over the life of the vehicle to justify spending more, Healy said, but many will choose to pay the premium anyway.

"A lot of people want to be green," he said.

Other hybrid sellers have more time before they have to start worrying about the tax credits going away.

Ford sold 3,829 hybrid Escape and Mercury Mariner SUVs during the first three months of the year. The company plans to produce about 20,000 of the hybrids this year.

"We're not going to hit 60,000 for years," Ford sales analyst George Pipas said. The tax credit expires in 2010 if automakers don't hit the 60,000 mark before then.

Last week Ford began offering no-interest loans for the hybrid Escape. That offer expires July 5.

Honda sold 9,102 of its Insight, Civic and Accord hybrid cars during the first three months of the year. At that rate, it would hit 60,000 units late next year.