Cost-Effective Hybrids

NEW YORK (MainStreet) — Drivers attracted to hybrids have long faced a nagging question: Is a hybrid really cheaper to own once the fuel savings are compared with the premium paid for the car?

Over the years, studies have increasingly answered "yes," often because that premium has inched down while fuel prices have gone up. But the analysis includes a lot of assumptions that may not match the car owner's experience — fuel costs, miles driven per year and the number of years the vehicle is kept.

A study by Vincentric, a compiler of cost-of-ownership data, found that 13 of 33 hybrids are cheaper to own than their counterparts with standard engines. That's two more than in last year's study, but because there are more hybrids this year the percentage of cost-effective models fell to 39% from 44%.

Some of the most cost effective were high-end hybrids such as the Lexus CT200h, which was $6,300 cheaper to own than its all-gas sibling. But overall it cost $1,338 more to own and operate the average hybrid over five years, assuming 15,000 miles of driving per year.

Vincentric looks at eight factors, including depreciation, financing, fees and taxes, fuel costs, insurance maintenance, repairs and opportunity cost, which is the value of alternative uses for the buyer's money.

Also see: Year-End Tax Advice: Essential 2013 Knowledge

So how would you fare with a hybrid?

The most important issue is the premium you'd pay for a hybrid versus the cost of fuel. If you believe gasoline prices will stay high or go up, and if you drive a lot, the savings may be large enough to make the vehicle pay. Vincentric used average fuel prices over the five months before the study.

Lower gas prices mean less savings. No one knows exactly what gasoline will cost down the road, but many experts think new oil sources in the U.S. and Canada will keep gasoline from skyrocketing and could even bring prices down.

For many drivers, Vincentric's 15,000-mile-per-year assumption will be on the high side. That's 288 miles a week — not much if you drive some distance to work, but probably high if you just bop around a suburban town. The more miles you drive, the sooner the fuel savings will offset the hybrid's premium price.

How big is that premium? At one extreme is the 2013 Mercedes Benz S Class hybrid, which actually sells for $2,489 less than its all-gas counterpart. But the vast majority of hybrids do cost more, with the biggest premium the $11,817 required by the 2013 Volkswagen Touareg. The Toyota Prius C, essentially the granddaddy of hybrids, costs $3,004 more than its closest relative, the Toyota Yaris.

Also see: Estate Planning Horrors: Don't Let Strangers Snatch Your Inheritance

Because the typical hybrid costs more, depreciation and insurance costs are higher. Maintenance costs may or may not be higher depending on the model, but differences over a five-year ownership are generally not great.

Unfortunately, the study does not look at costs further out, which would be key if you're considering a used hybrid or thinking of keeping the car for the long term. It's also hard to predict turn-in or resale values.

That gets to another big issue: the ownership period. While five years is fairly typical, most vehicles can last for 10 or 15 years. The longer you keep your hybrid, the better the odds the fuel savings will more than offset the price premium.

Because many hybrid models are new, there is scant data on long-term maintenance costs. Replacing a hybrid's big battery array can cost thousands of dollars, but studies show that many of the older Prius models are doing just fine on 10-year-old batteries.

Also see: 'Brosurance' Tries to Sell Obamacare: But Will it Work?

Bottom line ... well, there is no bottom line. Some hybrids are cost effective, some aren't, and no matter how carefully you select from among the available models, your results will depend on unpredictable fuel costs and miles put on the car.

But one thing is sure: By using less fuel, the hybrid will be kinder to the environment. For many drivers, that's the most important issue.

--Written by Jeff Brown for MainStreet

Show Comments

Back to Top