- The Washington Times - Thursday, June 9, 2005

Edmunds.com, a well-known online resource for vehicle buyers, doesn’t think hybrid vehicles make much economic sense in the long run.

“The combination of increasingly higher gas prices and a greater variety of hybrids in the marketplace has made many consumers seriously consider a hybrid as their next vehicle,” said Phil Reed, co-author of Edmunds.com’s “Strategies for Smart Car Buyers.”

“While some people buy hybrid cars because they appreciate the environmental benefits and enjoy using advanced technology, consumers looking at hybrids solely to save money at the gas pump need to carefully research the cost of actually owning and operating a hybrid,” he said.

According to research performed by Edmunds.com, hybrid owners can find themselves spending as much as $5,000 more for their vehicle than for a traditional counterpart, when driven for five years.

The extra costs are incurred in higher sales prices, insurance and related expenses. Edmunds analysts say that gas prices would have to reach $5.60 per gallon for some hybrid owners to break even (after five years and 75,000 total miles). At today’s average gas price of $2.28 per gallon, the break-even point in such cases would be reached only after driving 185,000 miles over five years.

The ownership costs used in the analyses include interest on financing, taxes and fees, insurance premiums, fuel, maintenance and repairs.

Fuel was estimated to cost $2.28 per gallon for the first year with a 3 percent increase for each subsequent year, It was also assumed that the vehicles are traditionally financed over 60 months with a 10 percent down payment — by a buyer with a good credit rating who drives 15,000 miles per year. And, the buyer is assumed to be in the average demographic for insurance rates and qualifies for the hybrid vehicle federal tax credit.

To make this point clearer, a comparison was made between the Toyota Prius and Toyota Corolla. The total cost for a five-year ownership of the Prius is estimated to be $37,893, while a Corolla LE would be $32,610. This includes fuel prices and tax credits and shows that the Prius would be significantly more expensive to own. The same comparison was made between a Prius and more expensive Camry LE and in that case the advantage fell to the Prius, but only by $81.

Break-even points — as a function of fuel price — were analyzed for several models of hybrids in the Edmunds.com study.

Honda Accord Hybrid owners, for instance, would break even (over the Accord EX V-6) after 60,000 miles, but only if gasoline cost $9.20 per gallon.

The hybrid vehicle ownership research was based on data from Edmunds.com’s free True Cost to Own tool, which can be found at www.edmunds.com, that helps consumers estimate the total five-year cost of buying and owning a car or truck. The tool covers new vehicles and used vehicles starting with the 2001 model year.

Other factors might contribute to the down-the-road costs of hybrids. On the plus side, economies of scale should eventually bring down the manufacturing costs of hybrids but the replacement cost of the battery pack is expected to be significant (that is, expensive) for the foreseeable future.

Another factor to consider is the resale value of a hybrid. Currently such vehicles are in high demand and used models command high prices. As the current demand is reached, however, hybrids are expected to become less valuable on the used vehicle market than their counterparts, chiefly because of higher maintenance costs.

Two other factors should be considered when purchasing a hybrid: the federal tax credit and local HOV regulations. The tax credit is expected to continue and, if President Bush’s proposals are carried by Congress, to increase somewhat, thereby bringing down the cost of ownership.

HOV is a different story. In the D.C. area current HOV regulations exempt hybrids, but these exemptions are up for periodic review.

There is widespread local pressure to drop those exemptions, so the loophole that drew so many buyers to hybrids might soon close. The “ripple effect” from that outcome could, in the opinion of some Realtors, extend to house prices in the outer suburbs.

All of these factors should be considered carefully by vehicle buyers.

Whatever the choice, experts in the field recommend that no more than 20 percent of household budgets should be used to cover automobile expenses.

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