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Are hybrids affordable now?

Yahoo! Green – May 30, 2008

This is an interesting study regarding the cost of hybrids. With the price of gas so high, many people are considering a hybrid for their go to work car even if they have a larger vehicle for hauling the kids to the soccer game. The folks at Yahoo! Green did a simple cost analysis which I am not sure is 100% accurate but at least gets you thinking a bit. I recreated their spreadsheet for your review.

Several things that don’t add up or that I question:

  1. A big part of the cost savings is the residual value of the vehicle. These are always guesses and the high residual value of a Prius is much more speculative – these vehicles really haven’t hit the used car market in droves to validate that price. If the resale value is lower than the assumption then you may be upside down.
  2. I know that some families are considering a hybrid for commuting trips of one or 2 members but reserving a larger car for family trips and errands with the “entire soccer team”. If you drive the hybrid less, it may not reward you with the higher efficiency.
  3. I couldn’t tie the maintenance cost that the original authors came up with so I did my own calculation (hence my numbers are slightly different from theirs). This assumption may not be valid since a Prius is a more complicated vehicle it may incur more breakdowns or parts may need fixed more often. I added a new row that accounts for this but it is a guess as to the true cost.
  4. The cost of purchase includes the cost of the interest payments. Most people do not pay off their vehicles in 2 years so if the loan length is longer, the Prius’ larger cost will play a higher role in the calculation. Also, I am not sure why the site assumed a 36 month loan percentage from e-loan and then paid it off in 24 months – this is probably good financial logic but they could have been more clear.

You can see the original authors’ analysis here but below is my analysis and you can download the Excel spreadsheet here.

  Prius Accord Civic Source
Buy & Sell        
New Cost $23,384 21,250 $17751 Kelley Blue Book new price for Prius vs 4D, 4-cyl, Accord/Civic LX Automatic Sedan for 80302 zipcode
Years Owned 3 3 3  
Resale Value $18,135 13,975 12,290 2005 Kelley Blue Book Good Private Party typical miles & typically equipped in 80302 zipcode
         
Gas        
MPG 46 24 29 Revised, combined EPA estimates from fueleconomy.gov
Miles/yr 12,500 12,500 12,500  
Gal/yr 271.74 520.83 431.03  
$/gal $4 $4 $4  
Gas/yr $1,086.96 $2,083.33 $1,724.14  
Total gas costs $3,260.87 $6,250.00 $5,172.41  
         
Maintenance        
Oil changes 13 13 13 assume oil change every 3000 miles
Cost/ea. $30 $30 $30  
Other Maintenance $200 $200 $200 15k & 30k service. Others under warranty.
Extra Prius Maintenance $1,000     Is It Warmer website assumption
Lifetime Maintenance total $1,790 $790 $790  
         
Financing        
Down Payment $0 $0 $0  
Amount Financed $23,384 $21,250 $17,751  
Interest Rate .0699 .0699 .0699 e-loan, < 36 month loan for new car
Loan length (months) 24 24 24  
Monthly Payment $1,046.86 $951.32 $794.68  
Total Payments $25,124.54 $22,831.70 $19,072.26  
Interest Cost $1,740.54 $1,581.70 $1,321.26  
Cost to Own $12,040.41 $15,896.70 $12,744.67  
Percent of Prius   132% 106%  

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2 Responses to “Are hybrids affordable now?”

  1. The actual savings compared to a strictly gasoline engine will depend on how you drive the vehicles. The Prius has the advantage especially in the city where the strictly gasoline engine efficiency tends to suffer.

    You are right about some of the flaws in the analysis. We would really need to do a present value analysis of the life cycle costs to see which one costs less in terms of present value of all cash flows. The present value analysis would discount future fuel savings of the Prius. That would place slightly less emphasis on the future costs (or savings), but I still think the Prius would the lower up-front costs more.

    We should also do a 10 year analysis without resale, because resale is too subjective to consider that kind of cash flow.

  2. Tony –

    This is a great idea. Do you have the ability to do this and I can post it here? If not, I may be able to do something like this.

    I don’t know if 10 years is a reality. I would wonder about the life of the many batteries on the Prius and the cost of replacement. Perhaps 5 or 6 years with a lower cost of trade-in is more realistic.