The Economics of Buying a Hybrid Vehicle

Nowadays, hybrid vehicles are the next best solution to fight rising gas prices. Other than buying a smaller car, or motorcycle, or simply resorting to using peddle power, the choices are limited. So what are the economics involved in makingthedecision to buy a hybrid? Will the savings in fuel costs outweigh the higher price you are likely to pay for a hybrid? To find that answer we have to do a little number crunching. In addition, also make a few assumptions regarding the future price of gasoline.

My personal choice for this type of vehicle is the Ford Escape. I wanted to still have a SUV type vehicle, although I do like many of the cars like the Toyota Prius. I like the fact that you can still get a variety of styles and any option that you might normally desire. Now that I am hooked on the Escape, it was time to do some comparisons.

I priced a regular 2007 Escape XLT Sport 2wd with a moderate number of options for about $23,000. With an automatic transmission and 2.3 liter engine you can expect about 22 mpg. Next I looked at the hybrid model and it priced out at $30,000 with the premium option package. On the gas version there were a few other options I might add which would bring the cost up another $1000. I am trying to get a fair comparison, for equally equipped models. Basically, I find that the hybrid will cost me about $6000 more than the gas SUV. The fuel economy will be about 50% higher at 33mpg.

The next assumptions to make are the average yearly driving mileage and the future cost of gas. I expect to drive 16,000miles per year and keep the vehicle for 5 years. For the gas expense, I will use an average of $3.75 per gallon. I am dreaming that prices will drift down below $2.50 for a period of time. And I am dreading that over the next 5 years the price will spike as high as $4.50. No doubt it will fluctuate in a wide range with an upward bias. However, speculating on the price of gasoline over the longer term is akin to guessing when a politician might be telling the truth. It is impossible to determine with any certainty. So I will use a fairly high figure to see if I can save some money over the long run.

Lets do some easy calculations to arrive at some sort of cost analogy. The cost of fuel over 5 years of driving the all gasvehicle is this: 5 yrs x 16,000 miles/yr = 80,000 miles. Averaging 22 mpg, we discover that we will consume 3600 gallons. Our cost is thus: 3600 gals x 3.75/gal = $13,500. Yikes!! Do they still make Yugos? Lets keep going. The hybrid’s gasoline cost will be: 80,000 miles divided by 33 mpg = 2400 gallons that we will burn up over 5 years. Thus 2400 gals x 3.75/gal = $9000. Using these figures for our cost of gas means that we will save approximately $4500 driving the hybrid ($13,500-$9,000). No doubt, driving the hybrid is an economy-wise decision. End of story? Rush to the dealer? Not so fast!

We did the right thing by buying the hybrid and saving on gas consumption. By using 1200 less gallons, we have saved
money. Not to mention we saved about 28 barrels of oil that would have otherwise been burned up. But one factor that still
must be considered is that the hybrid cost $6000 more to begin with. If we financed our purchased with say a four year loan, the difference is even greater. If we assume the average cost of gas to be $5.00 over this period, our fuel savings come closer to $6000. This equates to the higher price we would be paying for the hybrid. As fuel costs head higher you will save more money with the gas/electric combo.

There certainly are numerous factors to consider in the purchase of these vehicles. Try your own cost comparisons with other types of hybrids. The object is to discover if your fuel savings will be greater than the higher cost for the advanced model. In my example, I may be able to cut the purchase price differential between the two by 30 or 40 %. Other factors that affect our
cost analysis include: personal driving habits, driving more/fewer miles, possible hybrid tax credits, rebates, and vehicle maintenance. We can only estimate the expected mpg which can vary somewhat from driver to driver.

I did not intend to use the Ford Escape to illustrate the the possible cost disadvantages. It just happens to be the particular machine I would like to buy. If I can justify the increased cost verses the savings in gas consumption, I would buy the hybrid. Another benefit would be less polluting of the environment. As I play with the numbers and attempt to balance the costs, I
come to realize that things are not always as they appear to be. Despite all the advertising and hyped up claims, it always
pays to dig deeper and crunch the numbers. Get all the facts and cost variables and work out your true expenses. You can use a spread sheet to do this also. But do it before you buy. You might save enough money to buy a mountain bike to use when gas does hit $5.00 a gallon.