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How Owning a Toyota Prius Adds to Your Reputation—and Wallet – Kogod Now
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Kogod Now / Business Trend  / How Owning a Toyota Prius Adds to Your Reputation—and Wallet
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How Owning a Toyota Prius Adds to Your Reputation—and Wallet

A Toyota Prius sends a message. It tells the other cars on the road that its driver probably shops at Whole Foods or Trader Joe’s with reusable grocery bags, doesn’t have a hummer for a second car, is eco-conscious.

“When you see people drive a Prius, you have a certain perception of them,” said Kashef Majid, a former Kogod instructor and current visiting professor at George Washington University. “But you don’t have the same perception about hybrid Honda Civic drivers.”

A Toyota Prius is distinct; there is no gas-guzzling, non-hybrid version of a Prius. a Honda Civic, on the other hand, can come in hybrid and non-hybrid forms. And that can make all the difference to a buyer.

“A huge component of why we buy certain things is symbolic value—what it communicates to others about us,” said co-author and Assistant Professor Cristel Russell.

Hybrid cars that have non-hybrid alternatives, like the Civic, lose value faster than hybrid cars that have no alternative, like the Prius, according to a recent study by Majid and Russell, with support from Alexandra Golomb, BA ’12.

“A hybrid car loses [resale] value faster if there is a non-hybrid alternative because hybrid technology is rapidly changing,” Majid said. “With a Prius, technology is changing, but you’re still driving a Prius; you’re projecting an image.”

Their findings provide crucial information to manufacturers of green products: It’s not enough for a product to simply be green. Marketers need to develop the consumer expression angle as well.

“Simply adding a green component to a product and not allowing people to express themselves through consumption of it, that limits you,” Majid said. “You’re not getting the full value of it.”

It’s Not Easy…

In theory, a hybrid car should retain more value to consumers over time. Hybrids are often seen as an investment, one that cuts the cost incurred from paying $4 a gallon at the pump. But hybrid technology is less than 20 years in the making. Only now is the industry beginning to achieve an economy of scale, and the technology is developing quickly.

“Technology is evolving and people are still skeptical of it, of the maintenance costs,” Majid said.

As part of an independent statistics project, Golomb talked with local dealers and examined National automobile Dealers association data on the sales of 10 models of hybrid cars: Ford Escape, Ford Fusion, Honda Civic, Honda Accord, Honda Insight, Mercury Milan, Nissan Altima, Toyota Highlander, Toyota Camry, and Toyota Prius.

By comparing sales of used hybrids with sales of their used non-hybrid alternatives, the researchers found that hybrid cars lose value faster than non-hybrids.

“There are really two competing arguments here,” Majid said. “One is that it saves money, so it should have a greater value as you go along. and two, it’s an evolving technology, and every newer version outdates the previous version. Retain value, lose value.” Hybrids, moreover, may soon be replaced by other technologies, such as fully electric or diesel-powered vehicles. Thus, the introduction of a new green technology cannibalizes the old, and the hybrid model loses some value.

Hybrids: A History

Hybrid cars use both an electric battery and an internal combustion engine to power the vehicle. Generally, the battery powers the vehicle at low speeds, capturing power lost when braking, and the gas-fueled combustion engine kicks in at higher speeds.Although electric cars have existed since the turn of the 19th century, hybrid technology is still relatively new. For decades, cars ran on fossil fuels pumped into an internal combustion engine.Then came the 1973 oil embargo.

In response to the crisis, the US Congress in 1975 passed the Energy Policy and Conservation Act, establishing, among other fossil fuel-regulations, the Corporate Average Fuel Economy (CAFE) for passenger automobiles. The CAFE standards set a minimum number of miles per gallon (MPG) a car has to achieve, which at the time was 18 MPG. (In 2011, the standards changed to a “footprint” measurement, determining the minimum fuel economy a car must achieve based on its size in square feet.)

Car manufacturers were disgruntled, so the US government also partnered with domestic manufacturers GM, Ford, and Chrysler to create a car that achieved 80 MPG. By the late 1990s, thanks to the Partnership for a New Generation of Vehicles, all three manufacturers had developed a hybrid car. But none of the models could be mass-produced at a cost consumers would pay.

Meanwhile, Japanese manufacturers Honda and Toyota both developed hybrids, introducing the Honda Insight into the US market in 1999 and the Toyota Prius in 2000. By 2011, Toyota, Honda, Ford, Lexus, and Nissan all had hybrid models, making up more than 94 percent of the hybrid market that year. Now, Prius sales alone have topped 4 million worldwide.

Lindsey Anderson

Projecting an Image

The study shows that “pure hybrids”—those like the Prius or Insight that have no non-hybrid version— lose value less quickly than their “non-pure” counterparts, like the hybrid Toyota Camry or Honda Civic.

Both new members of the Kogod faculty last fall, Majid and Russell met at new-faculty events. Recognizing her experience in consumer behavior, Majid brought Russell in to help explain the difference in residual value.

They discovered it all comes down to image. “People don’t just want to drive a hybrid,” said Russell, herself a Prius driver. “People want to drive a hybrid that others recognize is a hybrid.”

It comes down to projecting a persona through car ownership—not unlike the clichéd example of a mid-life crisis leading to the purchase of an expensive sports car.

Take a hybrid Honda Civic. It looks just like the non-hybrid Honda Civic. Contrast that with the Priusor the Insight, which stand out. When a family pulls out of the garage in a Prius, the neighbors all know, “They’re driving a hybrid; they’re eco-friendly.”

“Brands communicate something about our identity, and pure hybrids symbolize greenness more than other cars,” Russell said. “I’m a hybrid car driver myself, so a lot of those things were very personally relevant to me. I could identify with the fact that driving a Prius is a social signal. It says, ‘Hey, look at me. I’m green.’”

Their findings provide valuable insight to makers and sellers of green products. Perhaps manufacturers should create more visually distinct non-pure hybrids or advertisers should develop the self-expression angle when selling the cars, the professors said.

“Companies should do something with their advertising campaigns or with the way the cars look that also says to others immediately, ‘Oh wow, this is not just any kind of car; this is a hybrid car’ and it’s a signal of coolness or greenness,” said Russell, who studies product placement.

New brands are a blank slate, she explained, and advertisers create strong associations with the product through entertainment marketing, embedding a message of sorts. The visually distinct Prius is portrayed as cool yet eco-friendly.

“The hybrid, the Prius, actually got its start with a lot of really good plugs in Hollywood because there were a lot of Hollywood stars that were driving it,” Russell said. “They had some good product placements in TV series. So cool people driving it also enhances the symbolism that the brand represents and carries.”

The lovable gay couple in ABC’s Emmy award winning series Modern Family drives a Prius. The world’s top-selling hybrid has also starred in The West Wing, Curb Your Enthusiasm, and a slew of other movies and shows.

Roots of the Research

The project grew from Majid’s own experience as a consumer. A little over a year ago, he and his wife considered buying a hybrid car but doubted the technology. They ended up purchasing a non-hybrid Toyota Camry.

The experience got Majid thinking about the value of hybrid cars and whether there’s a difference between having a green product, like a Prius, and adding a green component to a product, like making a Civic into a hybrid.

When Golomb asked to do an independent statistics project with him, he had her crunch the numbers and interview auto dealers. Majid said her contribution went beyond the norm; she “added valuable insights on the green marketplace that we had not thought of.”

“Not many undergrads have the opportunity to co-author research,” Golomb said. “I couldn’t be more grateful.”

2 Comments
  • Jamie Hardin
    September 25, 2012 at 9:19 AM

    Great article! I definitely agree that hybrids should be separate brands as there is a distinct vanity in owning a greener car.

    I did want to add though that a lot of the devaluing of hybrids is because of GM and Ford’s attempts at discrediting their battery life. With most battery warranties ending at 100,000 miles, as a hybrid approaches this odometer reading, it’s value plummets and many owners will dump their cars for fear of a $3,000 battery replacement cost. In fact, it’s created a huge market for buying batteries online for less than at the dealer.

    Thus far the battery failures have been incredibly low, so if you’re a consumer looking for a great used hybrid, you can really capitalize on this mile-marker value like my husband and I did when we purchased a loaded 2008 Prius with 80,000 miles for a few thousand under Blue Book!

  • Jeff Lawrence
    February 4, 2015 at 2:57 PM

    I’m guessing the argument for solar energy is taking a hit with the recent low gas prices…..I expect gas to go back up, but it stays low for awhile, the focus goes away from various alternative fuels, which is too bad.

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