Quotes of the Day

Automakers are scrambling for more small and fuel-efficient cars and hybrids as sales of once popular trucks and sport utility vehicles evaporate under the weight of rising fuel prices. "This was a watershed month," says Jim Farley, Ford Motor Co.'s group executive for marketing and sales, following news that the company suffered another huge drop in trucks sales in May. Trucks and sport utility vehicles accounted for 47% of Ford's sales as recently as February but only 34% in May, as consumers opted for compact and subcompact passenger cars. General Motors is adding a third shift at a two assembly plants to meet the rising demand for smaller cars even as it prepares to close four truck plants and puts its entire Hummer operation under review for a possible sale.

The sudden shift in consumer demand has left manufacturers facing a major challenge in keeping their showrooms filled with hybrid vehicles. Sales of the Toyota Prius actually dropped in May because the company didn't have any more vehicles to sell. In an industry where a two-month supply of vehicles is considered the norm, Toyota supplies of key hybrid models are being measured in single digits, says Toyota Motor Sales vice president Bob Carter. About 20% of all Toyota Camrys sold in the U.S. are now hybrids, making them more popular than models equipped with a V6 engine. (Meanwhile, Toyota is sitting on 100-day supply of unsold pickup trucks.)

But another problem in keeping up with demand is an acute shortage of the nickel-metal-hydride batteries required for hybrid vehicles. GM's launch of its new hybrid-SUVs has been delayed for nearly three months by a labor dispute at a key supplier of the batteries. And Toyota's chances of getting more hybrids into showrooms is foundering on the battery shortage. "We can't produce enough batteries right now," Carter says. A new plant for the nickel-metal-hydride batteries won't come on line until 2010. GM is deep into negotiations to purchase the battery subsidiary of Detroit-based Energy Conversion Devices, to give it better access to the batteries. The irony is that the batteries are virtually identical to those GM declined to put in first generation vehicles back in the 1990s, as related in a recent documentary Who Killed The Electric Car.

Ford is facing a similar problem: it simply cannot get enough of the batteries to keep up with the demand for its Ford Escape and Mercury Mariner hybrid models, says spokesman George Pipas. Ford currently has access to only 24,000 of the special batteries under a contract it signed years ago, he says. "The supply of batteries is capped."

The demand for hybrid batteries will only grow. GM Chairman Richard Wagoner says his company plans to have eight hybrid models on the road by the end of 2008. "Our view is today's levels are a far more accurate prediction of where fuel prices are going to be in the future," he says. "It appears we have reached a tipping point. Global demand is ahead of global supply. Certainly it looks like the energy demand is going to grow." Honda, which posted record sales in May thanks to the popularity of its compact Civic, also is amping up the production of hybrid vehicles in the next several months. Honda's new small gasoline/electric hybrid vehicle will have expected annual global sales of 200,000 units per year — approximately 100,000 of which are bound for the North American market starting next year.

• Joseph R. Szczesny/Detroit