Posted by Doug Williams on July 22, 2010
Today, Ford announced that the hybrid version of its Lincoln MKZ luxury sedan will carry the same price tag as its gas-only version.
Ever since hybrid cars first became available, they have carried a premium price tag, which has in many cases been offset somewhat by tax incentives for the buyer (which ultimately help the manufacturer by driving demand for these new yet up to now pricier vehicles). (Here's a brief rundown of the cost differences between some manufacturers' gas and hybrid models.) Ford's news breaks that model by removing the hybrid pricing premium. But if you add in the consumer tax incentive, the hybrid vehicle now becomes substantially less expensive -- and with better gas mileage, its operational costs should be lower, too. It's a win-win for the consumer. But is it a win-win for Ford?
Clearly, it's a brave and bold move. By offering price equality between the two models, Ford will raise awareness of the Lincoln brand and (it hopes) drive additional sales, which would lower the overall per-vehicle cost. Also, the tax incentives for hybrid vehicles vary by make and model, and they are phased out by the IRS based upon the quantity of vehicles sold, as reported by the manufacturer. Without the tax incentive, only consumers who drive a LOT of miles would be able to make up the difference in cost for a premium-priced hybrid car based on increased fuel efficiency.
The relevant question for automotive product strategists is: Can our business model support pricing parity between hybrid and gas-only models? While the presumption might have been that the industry would get there eventually, Ford has thrown down the gauntlet -- but only on the luxury end. Is it time to reverse-course and start driving demand for hybrids by lowering their prices and charging a premium for gas-only models?