Hybrid Cars: Do the Finances Make Sense?

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Hybrid Cars: Do the Finances Make Sense?

Hybrid cars

According to a J.D. Power and Associates survey, more than one-fourth of all consumers say that their next car will by a hybrid. The increase in demand for these vehicles is driven by higher gas prices and the thought that buying a hybrid will save money. Determining if the finances of a hybrid car make sense is often a personal decision, depending on how you drive and the additional cost of the hybrid car you choose.

Higher Purchase Price

A hybrid car costs more to buy than its non-hybrid counterpart, mainly due to the higher cost of the technology in the vehicle, and the larger amount of components present. A hybrid Toyota Camry, for example, starts with a base suggested retail price of $26,140, compared with just $22,235 for a regular four-cylinder Camry. "Much of the increased cost of a hybrid vehicle consists of the cost of the generator to recharge the drive battery, the inverter, and the transmission, which is a totally different design," says Richard Rodgers, service manager of Central Maine Toyota in Waterville, Maine.

Higher Maintenance Costs

While the higher amount of components in a hybrid should translate into higher maintenance costs over time, particularly due to the expensive battery, that is not always true. According to Phil Reed of Edmunds.com, some Toyota Prius hybrids used in taxi service in Canada have gone more than 200,000 miles without needing the batteries changed. Rodgers says, "In the 12 years that I have dealt with the Toyota hybrid system at our dealership, we have replaced four drive batteries for voltage issues. It is a very dependable battery. The cost for battery replacement has also dropped dramatically. In the early 2000s, the cost was about $5,500 for the replacement. Today, it is closer to $2,500, due to the availability of reconditioned batteries."

Your Mileage May Vary

You must really look at the projected gain in fuel mileage when considering whether buying a hybrid makes financial sense. The fuel mileage that the Environmental Protection Agency predicts that you will get may vary greatly depending on your driving habits. "The cost increase for a hybrid is largely offset by the increase in fuel mileage. Over the last two years, fuel economy ratings have gone up considerably," Rodgers says. He feels that usually the price of buying a hybrid is offset by the fuel savings.

As the price of gas increases, it takes less time to pay for a hybrid vehicle. In addition, hybrid cars tend to deliver a greater increase in fuel economy when compared to a regular gasoline engine if you do more city driving. This is because the hybrid systems save the most fuel during stop-and-go driving. On the other hand, if you drive fewer miles per year, the payback period will be much longer, meaning that a hybrid car may not make sense for you.

Other Fuel Efficient Vehicles

You can buy a more fuel efficient non-hybrid vehicle in some cases for even less money. The Toyota Camry hybrid is EPA-rated for 43 mpg with city driving, and 39 mpg highway. A Chevrolet Cruise Eco with a manual transmission offers 42 mpg on the highway, but considerably less around town, at 28 mpg. In addition, the retail price is only $19,700 with cruise control. If most of your driving is on the highway, you would stand to use less fuel with the Cruise than the Camry hybrid.

Resale Value

While conventional wisdom may say that with the quick improvement of hybrid components, sometimes at a very fast rate, older models should drop in value rather quickly, the real world experience is completely different. "Resale value is very high," says Rodgers. "I personally own a 2001 Toyota Prius with 107,000 miles, and Kelley Blue Book value on the vehicle is still at $3,800. That is for a 12-year-old vehicle with over 100,000 miles on it." The higher resale value lessens your depreciation expense, reducing the overall cost of the vehicle.

Social Responsibility

One of the best ways that you may be able to make the finances make sense with a hybrid car is if you believe that by using less fuel, you are being socially responsible in emitting less greenhouse gas into the atmosphere. If that is important to you, you will be willing to spend more to get a hybrid than a comparable regular gasoline-powered car. And, the finances will make more sense to you because you are buying and driving the vehicle for other reasons, and not just for the increased fuel economy.