Toyota willingly incurs losses to gain market lead in hybrids.

For two of the world's biggest automakers, Ford and Toyota, the rewards for developing energy-saving, pollution-reducing hybrid vehicles differ--so far.

Toyota Motor Corp., whose U.S. operations are based in Torrance, announced two weeks ago that it is being deluged with orders for its second-generation Prius gasoline-electric hybrid.

On Sept. 19 Toyota reported 11,000 advance orders for its new model in Japan, compared with its earlier sales forecast of 3,000 a month in that country. In the U.S., dealers have ordered 10,000 prior to the Oct. 17 debut, against a projection of 36,000 retail sales in 2004.

Moreover, Toyota said it's on track to offer an advanced version of its hybrid in a Lexus RX 330 sedan-sport utility crossover next year. Toyota says the new Prius has a combined city-highway gasoline mileage rating of 55 miles per gallon, up from 48 miles per gallon combined rating for the previous model.

Toyota is holding Prius' base price at $19,995 and unlike the ungainly look of the initial Prius--even to the eye of some Toyota executives--the second generation is more conventionally styled, making it more palatable to dealers.

Delays for Ford?

Ford Motor Co.'s project to develop a hybrid version of its Ford Escape sport-utility appears slightly behind schedule. The automaker said in 2001 that it wanted to be selling its Escape hybrid to individuals, or at least testing the vehicle with commercial fleet customers, by 2003.

Then, in January 2002, Ford said commercial fleets wouldn't see the hybrid Escape until 2004. Ford, the second-largest automaker worldwide after General Motors Corp., decided to test a few dozen Escape hybrid prototypes with its engineers instead of with commercial fleets.

Said Deep, a Ford spokesman, explained that "you have better control of units, you can more closely monitor the data" with internal testing.

Apparently--although Ford insists its program is on schedule--the technological challenge of putting hybrids on the road is proving more difficult and time-consuming than the automaker thought. "We always knew that developing a hybrid system for a sport utility was more difficult than for a car," said Susan Krusel, a Ford spokeswoman.

Gas-electric hybrids combine batteries with internal combustion engines to power vehicles yielding much better mileage than conventional vehicles and with less pollution. Honda Motor Co. sells a Civic model and the two-seat Insight with hybrid engines. GM also is planning to sell hybrids, initially in small numbers within months.

Today's rush by customers is vindication for Toyota, which has invested hundreds of millions of dollars, perhaps as much as $1 billion, on the technology since the early 1990s, according to Koji Endo, equity analyst of Credit Suisse First Boston in Tokyo.

Ford started working on the Escape hybrid system in 1999. When the Prius first appeared in Japan in 1997, it prompted scorn and skepticism from rival executives in the U.S. and Europe. They scorned the technology as too expensive and impractical, saying Toyota was ready to lose money on every hybrid it sold (and subsidize losses with profits from other cars) in order to be a leader in environmental responsibility.

Toyota has sold more than 130,000 Priuses worldwide. Endo believes the automaker must sell 300,000 hybrid vehicles annually to break even.

Toyota started investing in hybrids earlier because, he said, "Toyota can afford to lose money for five or 10 years, to make money down the road, but this isn't the case for Ford or Honda."

In the last five years, Toyota has posted a cumulative net profit of 2.03 trillion yen ($17.9 billion); Ford's net profit for the same period is $26.3 billion. Ford, however, lost $6.4 billion in 2001 and 2002.

For Toyota, the down side of spending so much on hybrids--and doing the entire program internally--is that it will take time to see a return on investment. "The upside of this strategy, a decade later, is where we find ourselves today. In a most enviable position," said Masao Inoue, the Prius' chief engineer, in July.

Ford, having started later and presumably putting less money at risk, won't know for at least another year or so if its investment in the Ford Escape will prove worthwhile. Krusel said it might achieve as much as 40 miles per gallon in city driving.

Given Toyota's speed up until now, there's no telling what technologies and products the Japanese automaker might introduce by the time Ford's hybrid Escape reaches showrooms.