Car shopping? Is current hybrid technology “worth it” or not?
Many people, myself included, like hybrid technology in theory. We like the idea of saving money every time we fill up and there’s a bit of thumbing our noses to the oil industry as well. I’ve been considering a new car purchase (my current vehicle is “only” 13 model years old - my wife chuckles every time I say that) and I’ve been thinking maybe it’s just getting time for a change.
So, with the lure of saving money at the fuel pump, I’ve started to consider vehicles with hybrid technology. Aesthetics aside, the Prius is the fuel economy champ, no surprise there. But my current interest is more in how much more is this technology going to cost me up-front and when will it (if ever) start paying for itself?
We need a few data points to calculate a good guess. With that in mind, consider the following:
The average person drives 15,000 per year. Yes, I know many people drive much more than that but let’s use it as a starting point, shall we? Many new cars average (including some of the ones I’m considering) about 20 miles per gallon. The current cost of gasoline (where I am in NJ) is about $3.00 / gallon. So you can calculate your annual total cost of fuel to be about: $2,250. The math is: Total miles / Miles per gallon (15,000 / 20 = 750 gallons consumed) * Cost per gallon ($3) = $2,250.
Now, let’s say that the hybrid vehicle you’re considering averages 30 mpg but costs $3,500 more than the non-hybrid alternative. When do we break even? Well, plugging in 30 mpg into the calculation above lowers our total annual fuel cost to $1,500 because we’re only consuming 500 gallons per year instead of 750 (15,000 / 30). That’s a savings of $750 / year at current gas prices. Our break-even period is about 4 1/2 years at this rate. Of course, that’s assuming that the cost of fuel will stay the same and not increase over that time period. Yeah right, how likely is that?
So let’s try increasing the cost of fuel to $4.00/gallon, shall we? Annual fuel cost, non-hybrid: (@ 20 mpg/$4) = $3,00o. Annual fuel cost, hybrid: (@ 30 mpg / $4) = $2,000. Annual fuel savings - $1,000. So, looks like the hybrid will pay for itself in about 3 1/2 years under this scenario. (Yes, I am ignoring the time value of money calculations to keep this relatively simple!) At $5.00/gallon gas, the annual savings is about $1,250 - but let’s hope we don’t see that too soon. The one thing, however, I think we can all agree on is that the cost of fuel will continue to increase over the next 5-10 years.
For outside sales people who spend their lives in their car, the savings can be dramatic. Consider: 30,000 miles per year, 20 mpg, $3/gallon represents a $4,500 annual fuel cost. Substitute a hybrid alternative (30,000 miles,30 mpg, $3): $3,000 annual fuel cost, savings of $1,500 per year. If the hybrid alternative is $3,500 additional up-front, it will pay for itself in fuel savings in a little over 2 years. If you update the cost of fuel to $4/gallon, the annual savings is: $2,000 and the hybrid break-even point is essentially 18 months. If you like to keep your cars a long time, the annual savings are almost staggering. Happy car shopping!