what happens to price of hybrids after credits phase-out?

Question

http://www.fueleconomy.gov/feg/tax_hybrid_new.shtml

Answer 1

The price of (new) hybrids haven't been affected much by the new US income tax credit for 2006. Some dealers are charging a premium over MSRP so that consumers can have the car now, while the credits are available, and that kinda negates any tax credit...

The bigger question is on the price of USED hybrids. Yes, hybrids are in greater demand (whether that is from the tax credit, the latest round of gasoline spikes spiking up hybrid demand again, or just that more people are learning about them), which helps the used hybrid car market. However, since used hybrids do not qualify for the tax credit, and with some used hybrids going for almost new prices thanks to demand and dealer waiting lists, some used hybrids are sitting longer unsold or their price has to come down by the credit amount in order to sell them... I suspect that when the credits run out the price of the used market will come back up a bit more. (In late 2003/early 2004 some used Toyota Prius were selling for MORE than the new price, for an immediate delivery, and that's almost unheard of with the tax credit situation now (although deliveries are still just about as far behind now as then)...)

Answer 2

Since credits are a form of a price floor, economic theory mandates that demand will decrease, supply will increase, and therefor supply and demand indicates that the price will rise in the short term.