Friday, August 15, 2008

Lowering Your Gasoline Bill Is Really Expensive

So gas prices have skyrocketed, making the daily commute more expensive. As market forces demand, many people, in an effort to lower their gas bill, are shopping for and buying hybrid cars. It seems reasonable, as hybrids get better than 40 mpg. As a consequence, hybrid manufacturers can't keep up with demand, and hybrids' share of the auto market steadily increases even as overall vehicle sales plummet in a slowing economy.

But does buying a hybrid save money?

I did some online research to find out how much it would cost me to buy a hybrid vehicle. A quick search of large area new and used car lots found seven hybrids. Most are the Toyota Prius, which is by far the highest seller in the hybrid market. But I also found a Lexus and a couple Honda Civic hybrids. The price tag? Anywhere from $26,000 all the way to $37,000 for the used Lexus.

Now, to break that down to a monthly bill depends on a variety of factors like down payment amount, trade in value, and credit score. Not to mention any fees and taxes added to the advertised sale price.

You might argue that an owner of an SUV or truck easily paid the $26-28k it would take to buy a hybrid, so trading it in makes sense. That's quite correct. Unfortunately, SUV's don't hold value very well, so the vast majority of owners are upside down when it comes to how much it's worth vs. how much they owe. In fact, gas prices have made that scenario worse, as SUVs have taken an even larger hit to their resale value.

What does all that mean? Depending on how far in the red you are in that SUV, you may have to tack on a few (or five or seven) thousand dollars to the price of the hybrid if you want the dealer to take your vehicle as a trade-in.

But what about all that gas savings with the hybrid? That can be quite significant, depending on the vehicle you're replacing. For instance, if you average 1000 miles driven a month, and your SUV got 15 mpg vs. the 45 mpg the hybrid gets, at $4 a gallon you'd save almost $180 a month. The savings increase as gas prices rise, and decrease as they fall. However, if your current vehicle gets the more average 20 mpg, then your savings falls to $110. If you're getting 30 mpg, then the hybrid only saves you $44. In reality, the gas savings a hybrid represents still means a few years before it begins to offset its cost.

In fact, one of the biggest weaknesses of hybrids is their cost. They are generally a few thousand dollars more expensive than their non-hybrid equivalent. And the gas savings between a 35 mpg Honda Accord and a 45 mpg Accord hybrid isn't much. Exacerbating the problem is that there really aren't many used hybrids to be found, meaning you can't buy an older model to save some money. It actually could be much more prudent to buy a regular car that's a few years old and still gets 30 mpg. You could get it for half (or even less) than the cost of a hybrid, and you'd save $130 a month in gas over your 15 mpg SUV.

But Cameron, you say, aren't there tax incentives to buying a hybrid? The answer is...sort of.

Yes, the federal government gives a non-refundable tax credit for buying a hybrid. However, there are multiple catches. First, it's non-refundable, which means if you don't owe any tax (which, surprise! a lot of people don't, particularly the people most worried about gas prices), then the credit does you no good. Second, the credit amount varies with the hybrid you buy, so be sure to check that out first. Most average around $2,000. Third, the credits phase out over time as more hybrids are sold. Once a certain sales threshold is met, the credit is gone. Because of this, the Toyota Prius no longer has a federal tax credit. The Honda Civic hybrid's credit has been cut in half and will soon be gone. Lastly, the credit can only be used by the first owner. If your hybrid is used and was already registered by another owner, no credit for you!

But what about state tax incentives? Utah does not offer one for hybrids. None. They used to, but not any more.

There are, however, some fringe benefits to hybrid ownership. For $15 you can buy a special "clean vehicle" license plate that allows you to drive in the car pool lane even if you're alone. Plus, Salt Lake City lets you park for free at any metered space. So there's that. But these benefits might be tempered somewhat by the fact that your insurance rates could go up with a hybrid.

Even in the face of soaring gas prices, it's wise to be prudent. Buying a hybrid to save money might actually cost you more than you save. It could be wiser to just drive the SUV less in favor of a more fuel efficient second vehicle, or even trade it in for a cheaper, non-hybrid but still very efficient, gas-powered car. Or, you could always start saving your pennies now for a shot at the electric Chevy Volt in 2010.


Steve said...

The Volt looks pretty cool, if they solve the three major problems with it right now that might keep it off the market past 2010.

I agree that they could do more to make hybrids and other BETTER alternatives available, but even the hybrid market has to work with supply and demand. The more people buy today, the more they will make in the future and the prices will come down for the low-end, ie Toyota, models. But I don't see it falling under 20k anytime soon.

My mom did exactly what you said. She traded in her SUV which she has had for many, many years for a small Hyundai and more than doubled her fuel efficiency. She couldn't be happier!

Do they have the Smart car in Utah? I've seen several here and loved them when I Europe. I'd totally buy one, especially if they ever release the four seater over here!

Cameron said...

The Volt does seem pretty awesome, but it's even more expensive than hybrids are.

Right now, demand is far outstripping supply for hybrids, which could explain some of their expense. One problem with supply is that they have very specific needs in manufacturing and so have some forecasting issues.

I think I've seen the Smart car on the freeway here, but I don't know if it's sold here.

Charles D said...

I wouldn't wait for the Volt. I'm not even sure GM can build it anything like the hype.

I faced this decision recently and opted not to spring for a hybrid since I couldn't cost-justify it. Now if we had government incentives...

Cameron said...

There have been incentives, they've just run out for some of the early models. I assume the idea was to give them some help getting off the ground, and then they were to take it from there.

The next wave of hybrids from US automakers will all of tax credits. But the price is still prohibitive in a lot of ways. Also of note is that hybrids aren't very profitable, even at the higher prices. That's why automakers haven't been falling all over themselves to produce them.

George said...

Should have thought about buying a Prius sooner C. When gas passed three fifty we bought one. We got a $2K rebate from Toyota plus the $3K tax credit from Uncle Sam. In several cross country trips we have averaged more than 50 mpg C. Actually closer to 53. Round town we get 48.

The Volt awesome? There are not any batteries for it yet. 60 Minutes interviewed a Chevy spokesman at the Detroit Auto show and wanted to see the batteries. There were no batteries in the Volt and none on the way.

One other thing to consider is how much less CO2 is emitted by our Prius compared to anyone's SUV.
Google that one C.

Cameron said...

I did think about it George. I just decided to buy a slightly used Corolla instead and saved myself thousands of dollars and I still get almost 40 mpg.

My next Googling project is to find out how much CO2 it takes to make a hybrid with all that extra technology and batteries, compared to a conventional vehicle.

I've already found some inkling that there is a certain ingredient necessary to manufacture the hybrid battery, and that the majority of this ingredient is found in China.

George said...

The good news is, if you buy a Corolla and save lots of money over the Prius, they can with careful driving get close to 50 mpg. A friend of mine just bought a new one and he is getting 50 commuting from Bntfl. to HAFB.

If you worry about boycotting Chinese made crap you will have to give up going to Wal Mart and Target.

Cameron said...

I just wonder how many Prius owners already boycott Wal-Mart and Target.