Tax break: State credit for hybrids shifts to plug-ins, all-electric models.

Byline: The Register-Guard

SALEM - For consumers, the first sign that Oregon is embracing electric vehicles arrives on Jan. 1, when the state will end its $1,500 tax break for people who buy hybrid vehicles.

Instead, that tax credit will be available only on the purchase of plug-in hybrids and fully electric vehicles - neither of which will arrive in Oregon auto dealer showrooms by the start of the year.

Gov. Ted Kulongoski said the policy move makes sense. Gas-electric hybrids have been on the market for more than a decade and, especially after last year's gas price spike, consumers are willing to pay several thousand dollars more for a vehicle with hybrid technology that can cut their spending at the pump - even without the tax credit, he said.

"Did the tax credit accomplish the objective for which it was designed? I think it has been an unqualified success. It did what we wanted it to do," Kulongoski said.

Refocusing the tax credit "facilitates a new objective, which is to get people to invest in electric cars," he said.

But car dealers say that once the state tax credit evaporates, hybrid sales may stumble.

Along with the $1,500 Oregon credit, the U.S. tax code allows a tax break of $7,500 for those who buy an electric vehicle.

But the federal tax credit for gas-electric hybrids is complicated. It varies from vehicle to vehicle, phasing out once its manufacturer has sold more than 60,000 hybrids. Long-selling and popular Toyota and Honda hybrids are no longer eligible for federal tax credits, while gas-electric vehicles from Chrysler, Ford, General Motors, Mazda, Merceds-Benz and Nissan will continue next year to yield tax breaks of $1,150 to $3,400.

Oregon awarded tax breaks for 11,264 hybrids between 1999 and 2008, according to the state Department of Energy. By far, the Toyota Prius and other small, high-mileage vehicles have led hybrid sales in Oregon. Last year, the Prius accounted for more than half the 3,050 hybrid vehicles eligible for the tax credit. On the other end of the spectrum, only 452, or 15 percent, of the eligible hybrids were SUVs.

Without the credits, the price difference between hybrids and conventional vehicles will yawn larger.

The gap between a hybrid and a comparable conventional vehicle is typically several thousand dollars. A Toyota Prius runs $22,750, while that maker's conventional Corolla costs $16,900. A standard Ford Fusion costs $24,700 compared with $27,995 for a hybrid. Big rigs come with a bigger price difference: the hybrid version of a Chevrolet Tahoe runs $52,947, or $13,895 more than the conventional model.

Local car dealers still are more than a year away from being able to offer plug-in electric vehicles to customers, but just three months away from losing the Oregon tax credit as a selling point.

Shannon Nill, at Junction City's Guaranty Chevrolet, said he is excited about the all-electric Volt that Chevrolet plans to start selling by late next year. But right now, he's more focused on the challenge of selling hybrid Malibu cars, Tahoe SUVs and Silverado pickups that no longer will qualify for a state tax credit.

"Take away the tax credit, especially with gas prices under $3 a gallon, and it's going to be pretty tough for customers to justify an alternative," Nill said.

Paul Skillern, CEO of Eugene-based Kendall Auto Group, didn't muster much enthusiasm for the Volt's potential to help next year's bottom line at his Chevrolet dealership.

"I'll believe it when I see it," Skillern said.

He expects the demise of the state tax credit for hybrids will cut into demand for his Toyota dealership's hybrid Prius. Such subsidies are "part of the financial equation that people are looking at when they acquire hybrids," he said.

One positive result of ending the tax break for hybrids, Skillern said, is that the state may save some money, "because there are no electric alternatives out there that are commercially viable."

State economists agree, estimating an extra $5 million a year will stay in Oregon's coffers when the hybrid tax credit goes away - until electric vehicles arrive and consumers decide to buy them and take the tax break.

- David Steves