The Economics of Buying a Hybrid

DN Staff

August 11, 2008

3 Min Read
The Economics of Buying a Hybrid

If you're wondering whether it's finally time to buy a hybrid vehicle, then you're not alone. J.D. Power & Assoc., the market research company, recently published results of a survey (http://rbi.ims.ca/5719-516) showing that 72 percent of consumers say they are "definitely/probably" interested in having hybrid-electric technology in their next new vehicle. Understandably, that figure was up from 58 percent in 2005, when a similar study was last conducted.

Given the rising price of gasoline, that's a natural response. Most consumers figure they can save a lot of money by buying a vehicle that gets better gas mileage.

The problem is, though, it's still not clear that you'll come out ahead by buying a hybrid. By most accounts, the majority of hybrids are good vehicles: strong acceleration; quiet ride; dependable, too. But if your sole reason for looking at a hybrid is lower cost, then you better sharpen your pencil and prepare to do battle with the numbers.

Two years ago, Consumer Reports published its own study, titled "The Dollars and Cents of Hybrid Cars" (http://rbi.ims.ca/5719-517), which compared costs for seven hybrid models. The study showed amazing foresight by basing its findings on a mathematical model that assumed the price of gasoline would gradually rise over five years to almost $6 a gallon.

And the results? Four of the seven hybrids did better than their all-gasoline-burning counterparts when it came to cost of ownership. The Ford Escape Hybrid beat the conventional Ford Escape XLT; the Toyota Camry Hybrid beat the conventional Camry LE; the Toyota Prius knocked off the Corolla and the Honda Civic Hybrid nipped (a difference of $101) the Civic EX.

If the story ended there, the picture would be clear and simple. Once again, though, the outlook clouded in 2007 as federal subsidies began to disappear. You see, all of the cost of ownership comparisons quoted above were based on the existence of a generous tax credit for people who bought hybrids. Take the tax credit away and suddenly six of the seven hybrid vehicles mentioned above had worse costs of ownership than their conventional counterparts.

While all of this may be confusing to prospective car buyers, there's a strong message amid its murkiness: Now, you need to look at the vehicles on a case-by-case basis, considering such matters as vehicle features, federal tax subsidies and the price of gasoline. No longer can we make the blanket statement that you buy a hybrid for the good of the environment, not for the good of your pocketbook.

What's more, if you're an engineer, there's another factor to consider. Although there are no surveys to back this statement, I'm willing to bet a majority of engineers take good care of their cars and keep them well past the 100,000-mile mark. And that's important when considering hybrid vehicle economics because surveys such as Consumer Reports' are based on 75,000 miles of operating costs.

The bottom line is that the dollars and cents of hybrids are no longer simple. The scales are tipping. Finally, people who are considering hybrids may have good economic reasons for doing so.

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