Soaring Gas Prices Shrink Hybrid Payback Period, Boost Small Car Sales and Sink Big Trucks
By John O'Dell, Senior Editor
The idea of spending less on gas seems to be driving far more people into the green car ranks than the idea that you are doing something good for the planet and those who occupy it.
We can see this pretty clearly in the astonishing growth of small car sales in the U.S. – hardly anyone was buying them a few years ago and last month they accounted for a record 22.6 percent of the new car market, according to Edmunds.com's market analysts.
Meantime, large trucks' market share plunged to just 11 percent, down from a high three years ago of 19 percent.
Small used to mean cheap. Now it means fuel efficient (although not all small cars are particularly miserly with gas). And as compacts and subcompacts continue to capture market share, look for automakers to start piling high-margin luxury goodies into their small cars as they seek ways to replace the profits they used to book from truck sales.
Hybrids Rising Too
We can also see concern about fuel prices in the steady rise of hybrid sales – they accounted for a record 3.2 percent of the market in April, with Toyota's Prius the month's 10th best-selling model of any type.
That hybrids are increasing their market penetration even though they cost more than comparably equipped conventional versions of the same models (except the Toyota Prius, which has no conventional counterpart) is testimony to people's desire to pare their fuel bills.
Just a year or so ago, the Prius was the only hybrid with a reasonable chance of providing sufficient fuel savings to pay back the so-called hybrid premium – the price a hybrid purchaser pays to get a car or SUV with two powertrains and enough complex electronics to make a NASA engineer jealous.
But rising gas prices and some economies of scale as hybrid volume grows is leveling the field.
Payback Period Shrinks
A new study by Edmunds.com shows that there are several hybrids in the market now that can pay back the premium in the 3-5 years that most people hang onto a car.
"Environmentally conscious consumers have been drawn to hybrid vehicles since day one, and were willing to pay a premium for them," said Jesse Toprak, Edmunds.com's top industry analyst.
"But now, as a result of lower price premiums, higher gas prices and, in some cases, tax credits, it's won't take long for consumers to offset the price premium and actually save money by buying a hybrid – depending on which one they choose."
Edmunds' analysis, which takes into account major ownership costs and benefits including purchase prices, tax credits and fuel costs, looked at 13 hybrid models on sale and found that, using a national average gas cost of $3.61 per gallon and figuring 15,000 miles a year of travel, two models would payback the premium in under three years and two more would hit pay-back during the fourth year of ownership.
All of the cars are 2008 models with four-cylinder engines and automatic transmissions, unless otherwise noted.
The Good
The leader of the payback pack is the Toyota Camry Hybrid, which costs $889 more than the comparably equipped Camry XLE four-door and averages 34 mpg versus the gas model's 25 miles per gallon, would pay back that premium in 1.6 years.
Chevrolet's Malibu Hybrid, which averages only 2 miles per gallon better fuel economy than the Malibu LT (27 versus 25) but has a premium of only $438, would take 2.7 years to achieve payback.
Nissan's 34 mph Altima Hybrid costs $1,561 more than the comparable Altima 2.5 S. which averages 26 mpg, and hits payback in 3.2 years.
In fourth place is the 46 mpg Prius, when compared to the 25 mpg Camry LE. It has a hefty $3,489 premium, but pays it back in 3.5 years of operation.
The Bad
At the far end of the chart is a hybrid that will almost assuredly never pay back its owner(s) the actual cash difference, although we presume the psychic payback is something else – the Lexus LS 600h.
Thanks to loads of extra features, this V8-powered, uber-luxurious hybrid costs $18,630 more than the closest conventional competitor in the Lexus lineup, the LS460L.
The 600h's combined city-highway fuel economy rating of 21 mpg is just a tad better than the 460L's 19 mpg, and our number crunchers figure it would take about one million miles of driving, or 68.6 years, for the hybrid to earn its keep.
Others in the "don't hold your breath" category are the Saturn Aura Greenline hybrid – 16.2 years to pay back the $2,602 premium over the Aura XA --- and Toyota's V-6 Highlander Hybrid SUV – 12 years to repay the $7,495 premium over the V-6 equipped Highlander Ltd. Model.
The Rest
In the middle of the pack:
- Honda Civic Hybrid, 4.8 years, $2,803 premium over Civic LX;
- Mercury Mariner Hybrid, 6.4 years, $4,904 premium over standard Mariner;
- Lexus' V-6 powered RX 400h hybrid SUV, 6.4 years, $4,407 premium over conventional V-6 powered RX350;
- Saturn Vue Greenline, 7.1 years, $4,770 over Vue XE;
- Ford Escape Hybrid, 7.3 years, $4,161 over Escape XLT;
- V-6 Lexus GS450h, 7.7 years, $2,722 over V-8 powered GS460.
Hybrids, it's easy to see, aren't the cheapest way to cut fuel costs and while most have pretty clean emissions, they aren't a lot cleaner – except in reduced CO2 output – than their non-hybrid counterparts.
But many buyers justify the purchase as a socially responsible move – using less gas, even if it costs more to do so, helps reduce the nation's dependence on imported oil, much of it coming from countries that don't particularly care for the U.S.
And that's not a bad reason to consider fuel economy the next time you go car shopping.
To help do the math if you are shopping– which vehicles cost the least to own and operate – check out Edmunds.com's True Cost to Own calculator. And use Edmunds' True Market Value feature to see what others in your area are paying for the same types of vehicles.
- Posted by
- John O'Dell May 8, 2008, 3:03 AM
- Permalink
- Categories:
- Chevrolet, Emissions, Ford, Fuel Economy, Honda, Hybrid, Mazda, Nissan, Toyota
There are additional savings to be considered. If one was a first time car buyer comparing hybrids to ICE only vehicles the decision is easier to rationalize. However as you read the blogs, many folks on this board made decisions to "trade down" to a hybrid. I went from an Infiniti FX45 to a Camry Hybrid. In savings from Car Insurance, Car payments, Gasoline, and with tax Credits, I estimate I saved $16,000 in the first two years of ownership.
Worse yet, I used to trade every 1.5 to 2 years and always took a big hit on new car depreciation. If I "skip" one trade cycle I will save an additional $10,000.
In comparisons many people compare a hybrid cost to a cheaper stripped small car and say it's not worth it. However I was not the type to be happy driving a small car with no features and would not even consider purchasing what some think of as an option to a Camry Hybrid. It is NOT a luxury car, but fully loaded it is certainly something I can live with and has more than adequate room. I'm averaging 37.3mpg over two years and 47,000 miles. (all carefully documented).
When they lowered the EPA ratings I truly believe they drove the car in a manner that a person uneducated about the workings of the hybrid system would do. With a little understanding this car is capable of 40+ in a lot of areas of the country.
For those looking to reduce the overall cost of their vehicles, buying a new or used conventional (non-hybrid) economy car may be better. For those who absolutely must have a midsize sedan or an SUV, there are many hybrid options out there. But there are a good deal of cars that cost considerably less that also get good gas mileage, such as the Corolla, Fit, Fortwo, Focus, Cobalt, and Yaris, among others. While I'd only wish a Fortwo or a Yaris on my worst enemies, I think it is worth mentioning that those who are looking to reduce their yearly costs can opt for these small cars -- provided they don't require a larger vehicle. Now how long before your break-even point when comparing a Camry Hybrid to a Honda Fit?
I'd like to see the analysis also figure in resale value.
My 2003 Prius with 100,000 miles o it is still worth more than any other car I have ever owned this long, if you get some of that "premium" back on the sale, then the overall cost of ownership should be adjusted.
We can look at this statistics the other way too.
For example, Chevy Malibu with it's 2.7 years of returning $438 would put additional ~$700 in my pocket if I sell it after 7 years of purchase (that's how long I plan to keep a car).
However, Prius, would put an extra $3500 in my pocket in gas savings if I own it for 7 years overall.
I don't even mention the resale value. And we are not talking about $5 gas which is definitely will be here pretty soon.
So, the mild hybrids are cheap, but they are not make any difference in gas savings...
[Quote]
Payback Period Shrinks
A new study by Edmunds.com shows that there are several hybrids in the market now that can pay back the premium in the 3-5 years that most people hang onto a car.
"Environmentally conscious consumers have been drawn to hybrid vehicles since day one, and were willing to pay a premium for them," said Jesse Toprak, Edmunds.com's top industry analyst.
"But now, as a result of lower price premiums, higher gas prices and, in some cases, tax credits, it's won't take long for consumers to offset the price premium and actually save money by buying a hybrid – depending on which one they choose."[unquote]
I'm finding it hard to believe that one of the most quoted and visible members of the Edmunds team continues to get this subject so wrong so often. I will give him the benefit of the doubt that while he probably does understand the issues he's speaking down to less 'aware' readers so he simplifies a somewhat complex equation into a lowest common denominator coefficient called 'payback period'. But then to my considerable amazement he compounds the mistake by getting the calculations wrong.
First there is no such thing as a 'payback period'. These are depreciating assets that just accumulate costs. The TCO feature Edmunds trumpets does it accurately. The costs involved are..
Depreciation ( Purchase - Resale )
Fuel
Insurance
Maintenance
Repairs
Taxes
Cost of Money
What's shocking is that summation of the costs is all done at Edmunds accurately but for the press Mr. Toprak seems to feel the need to present a simplified concept understandable by the masses. Why?
The last 'analysis' I saw done by Mr Toprak was one done for one of the media outlets last year wherein he used an average of $2.85 per gallon as the cost of fuel. Picked up and trumpeted in several spots this Implied for the unaware reader ( the lowest-common-denominator presentation ) that fuel would remain at $2.85 forever, or at least the length of ownership. Well as we can all see on a daily basis that idea is just wrong.
Here again in this presentation we find that same incorrect idea, namely that fuel is going to remain at $3.61 a gallon forever. Fuel is NOT going to remain where it is today. What is so hard about factoring in an inflation factor? Is it too hard for the masses to understand? I don't think so, we see it every day.
But to triply screw up the analysis the whole idea of resale values is ignored. How can this be? It's one of the key features of Edmund's Home Page.
What is wrong in doing the analysis correctly and in depth? There are an amazing number of well-educated people reading these articles. Imagine how refreshing it would be to see one done correctly?
Here's a perfect example of how well hybrids are being accepted.
http://www.worldofwheelsmagazine.com/features/article/7851
A huge number of taxi drivers in British Columbia has switched to hybrids, mostly Priuses. You see them everywhere. Downtown they outnumber any other type of car.
The reasons are easy, they are very reliable and when you drive as much as a cab, they save you big time....
i.e. "“In the Crown Vic I would use $20 worth of gas every 100 km. In the Camry, I use $7.” He figures he gets about 5.5 L/100 km. "
"Now how long before your break-even point when comparing a Camry Hybrid to a Honda Fit?".....................That's the type of question several folks ask. For me it's not a valid question. I would never drive a "small" car like a Honda Fit.
It's not always about saving money. I want a roomy comfortable car that uses less foreign oil. If Lexus made their hybrid in a 4cy version I would buy one. Buying a used vehicle or a cheap vehicle almost always makes sense if the bottom line is cost. However there are a lot of people out there that want a "normal" car that is also good on FE. Cost is not always the major concern.