Toyota Prius struggles to gain a toehold in China

SHANGHAI, China -- China's carmakers and their partners are struggling to promote what are known here as "new energy" models. Perhaps the most notable flop, considering its popularity elsewhere, is the Toyota Prius. The hard-pressed auto companies are hoping that help -- in the form of government incentives -- is just around the corner.

Hybrid vehicles have been entering the China market for two years, but their high prices have held back customers. Carmakers have been pouring millions of dollars into the research and development of eco-friendly vehicles. Now they are banking on the government to do more to increase the price competitiveness of green cars rather than having to sacrifice their own profits.

The central government reportedly is mulling plans to abolish the purchase tax on diesel and hybrid models as early as the second half of this year. The purchase tax currently accounts for 10 percent of a car's price, excluding the 17-percent value-added tax.

A favorable tax policy is expected to be the first of several incentives as China tries to boost the use of clean-energy vehicles. However, analysts said it is still too early for China to launch such supportive policies.

"It is almost impossible for China to encourage the usage of diesel models right now amid the shortage of the fuel," said Rao Da, secretary general of the China Passenger Car Association.

The central government ruled out diesel-powered vehicles as a top priority in developing the nation's auto industry in an industrial blueprint issued in 2007. However, the guidelines encouraged hybrid models and electric cars.

Most of the mass-produced hybrid models currently on sale carry the badges of foreign manufacturers with mature technologies and high hopes of huge market potential in the long run.

Toyota started building and marketing its Prius hybrid in China in 2006, in cooperation with local partner FAW. Since the Prius was released, only 2,400 units have been sold, in contrast to FAW Toyota's 280,000 conventional vehicles sold last year.

In spite of that, Toyota's luxury brand Lexus began domestic sales of the RX 400h crossover and the LS 600h sedan last year. Meanwhile, Honda is importing the Civic Hybrid from Japan into China.

Some locally developed hybrid models are also beginning to emerge.

Seven new-energy vehicle models have won approval for mass production in the next month or two, according to a recent statement from the National Development and Reform Commission.

The seven models are Shanghai Volkswagen's fuel-cell Passat, Shanghai General Motors' LaCrosse hybrid, FAW's CA7130 and four hybrid vans produced by Dongfeng, Beiqi Foton and Chang'an.

The fuel-cell Passat from Volkswagen will be the official car for the Beijing Olympics opening ceremony, while other models are designed to serve World Expo in Shanghai in 2010.

What this means to you: Although the development of hybrid models is still at a very early stage in China, consumers are paying more and more attention to the market segment -- laying a solid foundation for boosting sales in the future.