SAN FRANCISCO – If you've felt under pressure to buy a hybrid car as soon as possible to take advantage of the new tax credit, relax — at least for a while.
While the new tax credit, which offers up to $3,400 for taxpayers who buy an eligible car, phases out once a manufacturer sells more than 60,000 hybrids, even the most popular manufacturer isn't expected to hit that mark for at least a few months.
Through March 31, Toyota, sold about 22,123 of the Prius, according to data from WardsAuto.com.
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Counting all Toyota (TM) models — since the 60,000 limit applies to all of a carmaker's hybrid models combined — Toyota sold 35,754 hybrid vehicles through March 31.
The next-closest in terms of hybrid vehicle sales is Honda (HMC) , with a total of 9,102 sold in the first quarter this year.
Many industry watchers expect Toyota will surpass the 60,000 limit before the end of the year. Toyota sold just under 108,000 of its Prius alone in 2005, and a total of 146,512 hybrid vehicles, counting the carmaker's Lexus RX400 and the Highlander, according to WardsAuto.com.
"I'd say as early as August and possibly September," said Mike Chung, industry analyst with Edmunds.com, the consumer auto information site. He expects Honda, the runner-up when it comes to hybrid sales, to top 60,000 in sales early in 2007.
Honda sold 43,356 hybrids in 2005, counting the Accord, Civic and Insight, according to WardsAuto.com.
"Depending on what kind of volumes they get, which we have no idea, we may see them hit it towards the end of this year, but probably the beginning of next year is when they'll hit their 60,000," Chung said.
Meanwhile, Ford (F) sold 3,475 Escapes in the first quarter this year, and 354 Mercury Mariners, according to WardsAuto.com.
Tax-credit grace period
Even when the carmaker hits 60,000, you've got some time.
The IRS counts the "60,000 in sales" from Jan. 1, 2006. Once a manufacturer sells that many hybrids, there's effectively a grace period, and then the credit starts to phase out.
The grace period consists of the end of the quarter in which the carmaker hits 60,000 in hybrid sales — plus another quarter, said Jim Kliesch, a research associate with the American Council for an Energy-Efficient Economy, or ACEEE, a nonprofit organization.
"If Toyota hits their mark in the second quarter of this year, consumers will still have until the end of September to get the full value of the credit," Kliesch said.
"If Toyota doesn't hit their mark until the third quarter of the year, consumers can still purchase a Toyota or Lexis hybrid and get the full value of the credit through the end of the calendar year."
After that grace period, the credit phases out.
In the first six months after the grace period ends, consumers who buy an eligible hybrid get 50% of the credit for that model. Then, in the six months after that period, the credit drops to 25% of its original amount.
"The phase-out period in total lasts a year, but there's [an initial] grace period of between three to six months," depending on which point in the quarter the carmaker hits its 60,000 limit, Kliesch said.
Step away from the tax considerations
But just as it doesn't really make sense to base one's whole financial plan on a tax break, car buyers planning to buy a hybrid are likely not driven solely by this new tax credit.
For one thing, the amount of the credit varies enormously depending on the model.
The IRS will judge each model on a variety of fuel-efficiency criteria, and then allot a certain amount per model. While the IRS has not yet published specific dollar amounts for each model, the ACEEE has published preliminary estimates based on the details of the law enacting the tax credit.
For instance, the credit for the Toyota Prius is $3,150, while the Honda Insight is up for a $1,450 credit, according to those preliminary estimates. See the ACEEE estimates on each model.
Another thing to consider: Prices may come down after the credit expires, Chung said. "After Toyota reaches the 60,000 limit, I foresee prices falling after that," he said, given that some dealers are now pitching the tax credit as an incentive to buy.
A basic model Prius carries a manufacturer's suggested retail price of $21,725, according to Edmunds.com. The Lexus RX 400H midsize SUV hybrid can carry a price tag as high as $46,000.
"I've seen advertisements where they say 'this is the price minus this tax credit.' It's not an actual discount, but to some buyers they see it as a discount," Chung said.
"After the tax credit no longer applies you don't have the additional selling point for these vehicles. It's not that they're going to sell for cheap or that you'll see incentives, but we may see prices start to come back to earth slowly," he said.
For those seeking the cheapest midsize hybrid around, the Ford Escape might be the best deal, Chung said, given that dealers in some regions are offering it with zero-percent financing or other perks.
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Copyright (c) 2006 MarketWatch, Inc.
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