Saturday, June 11, 2005

Hybrid cars with $10 gas

I see that I have been visiting every topic but economic freedom and growth lately. Let's get back. There has been a lot of talk lately about saving the planet by buying a hybrid car. I am glad to see that people have started to buy them. For years no one would. And there is always the claim that you pay more for the car, but save enough in lower gas bills to pay off the addtional cost over the life of the car. But the claim is always assumed, never tested. Edmunds is a company that tracks the prices of cars, tests them, etc. USA Today reports that Edmunds did some cost analysis.
How many miles driving per year and at what gas price is the break-even point - the point where the savings in gas pays for the additional cost of buying the car. They do it for a 5-year ownership and consider taxes, financing, etc.
The reporter leads with a misleading comparison. He compares the light-weight, small Toyota Prius to the larger, more comfortable Toyota Camry. For 15,000 miles per year break-even comes with gas costing $2.14. Yes, the cost is equal, but the cars are definitely not comparable. Instead, the Toyota Corolla is closer to the size of the Prius. How do they compare? For driving 15,000 miles per year the cost of gas has to be $10.10 to reach the break-even point. Or, if you keep the price of gas at the current level, you have to drive 66,500 miles per year. (Will the car survive driving 332,500 miles in 5 years?) The closest comparison came with the Ford Escape smaller SUV and its new hybrid brother. So discount all those empty headlines based on no analysis at all. Don't buy a hybrid unless you expect gas to average over $10 per gallon for the first 5 years you own it.
"If people go in with the idea they are saving money, they are mistaken," says Jesse Toprak, pricing director for, an auto research site.


tradersmith said...

I have an SUV and can afford the gas payments. But, we are looking at the hybrid because our commute distance has gone up.

But also, it is the principle.

I am also fortunate enough to be able to afford a geothermal heat pump system which is close to twice the price of a standard heating system. It will take several years to pay for itself, but it is the principle.

Ron said...

What principle? That you should pay more and get less? That you should pretend gas is $10 a gallon when it is $2.20?

When you make an economic decision you make the best projections you can then choose the alternative that is the best combination of features and price.

Oh, let me guess. You have to save the planet.

News alert: our planet will run out of energy when the sun burns out billions of years from now. It's just a matter of how the sun's energy is made available - rain for hydro, wood, coal, oil/gas, direct solar energy, wind. We have to be responsible with the resources we have. But we can't save the planet.

tradersmith said...

ron, during the energy crisis of the 70s, I kept my gas heat at 55 during the day and 60 at night. My mom kept the house at 80 degrees. She always said someone would take care of us. It flusterated me.

But, seeing how phony that energy crisis was and seeing how I may have been the only one trying to conserve, I started buying cars with worse gas mileage and started heating my house higher.

I also recycle garbage.

I know it doesn't pay for itself, but, you did hit the main reason, conserve resources for future generations and hopefully reduce our dependence on foreign energy sources.

So, economics is not my only reason in my purchases.

Oh, one last thing. I will pay more initially in capital expense because I hate monthly payments. If I pay a heating bill, for example, I know it could be less if I had installed a heat pump instead of a furnace at my old house. I am a skinflint in those regards.