GM (NYSE: GM) says that 50% of its cars in the US should be running on ethanol by 2012. According to Reuters "GM will have 11 ethanol-capable vehicles on the market this year and 15 in 2009."
For tree-huggers that may be good news. For car buyers it may not be.
Based on the costs of vehicles like the Toyota (NYSE: TM) Prius, a hybrid vehicle costs about $5,000 more than its gas-operated counterpart. For most drivers, the fuel savings take about five years to pay back the higher car price. No one keeps a car for five years, at least not in the US.
Ethanol prices are rocketing. According to MarketWatch ethanol prices were trading in line with gasoline prices at the end of last year. Farmers now have to decide whether they should plant for food or fuel. That means prices for corn-based energy are likely to go much higher.
The consumer who is digging through the lint in his pocket for spare change is not going to spend more for a car and more for fuel just to make Al Gore happy.
Douglas A. McIntyre
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