Can a Hybrid be cost Justified?

Posted by Dale

There are a lot of words to describe the desire to be more environmentally friendly.  There is also a lot of confusion as to what all the fuss is about.  It’s true that hybrid technology is more expensive than the cost of regular vehicles.

If you’ve been out shopping, you might have experienced a bit of “sticker-shock” in the process.  What this does is to make us all wonder if the extra cost for these hybrid cars is worth it, and in fact if the difference can be offset over time by the cash saved from buying less fuel.

We can generalize all day but the concept of a payback for a hybrid cars’ additional cost involves a number of variables and is only really answered on an individual basis.  That doesn’t stop us from trying so here goes.

At myAutoloan.com, we really have spent considerable time looking into hybrid vehicles and green processes.  As a matter of fact, we are so “green” around here that we amaze ourselves!  Everything is so electronic and paperless in our processes that we’ve thought about giving ourselves a “Green Award” for being so environmentally friendly.  I digress – now back to the point.  We have come to the conclusion that a realistic answer is not so simple to the cost justification question.  Therefore let’s see if we can share some methodology to help you determine if a valid hybrid car payback process is feasible.

Much of our research had to do with number crunching and we found out quickly that whatever scenario we ran, some elements are moving targets.  For example, higher gas prices work to shorten the number of miles needed for a hybrid payback.  With the volatility in the prices of a barrel of oil these days and changing financial pressures on the industry that is providing incentives, it means that any calculations we make today may be different than the realities of calculations made in a few weeks.  That coupled with the changing retail prices of hybrids also appears to be a moving target as well.

We have read about how some dealerships tack thousands of dollars onto a hybrids’ MSRP because of demand.   That certainly needs to be factored into the equation too but much of what you pay is based on just how much you want the green car.

Fortunately the basic equation for estimating a breakeven equation point for a hybrid car is intuitive.  It begins by identifying the combined city/highway MPG number for a hybrid car and that of a conventional set of wheels.  You can find these MPG figures online at Fueleconomy.gov.

Assumption: Gas cost = $4.0 per gallon

Civic Hybrid: Cost: $4.00 / 42 MPG = $0.095 cents / Mile
Civic EX: $4.00 / 29 MPG = $0.14 / Mile

Assumption: MSRP

Civic Hybrid:$22,600
Civic EX: $18,710
Purchase Price Difference = $3,890

To find the projected mileage to a breakeven point, the difference in the cost between the two models is divided by the savings per mile.  For example:
Purchase Price Difference / $0.045 = 86,444 Miles

Thus, in theory, the extra cost of a hybrid green car, in this case, would be off set in just over 86,000 miles of driving if gas prices are $4.00 per gallon.

These basic calculations can be used to determine the estimated payback for all hybrid cars.  There are a lot more variable factors so don’t get swept away into believing all that you hear professed in car commercials.  Do your own research and verify it.  Think it through and make your best decision.  In the end, time will tell if all this hybrid technology will pay for its self, but one thing we do know, is that it appears to be environmentally friendlier and that’s good.