Can you save money buying a hybrid? ~ Hybrid Car Review
Hybrid Car Review: Can you save money buying a hybrid?

Wednesday, August 23, 2006

Can you save money buying a hybrid?

Are you looking to buy a hybrid car, but aren't sure if the extra money to buy is worth it? Have you heard about the federal tax credits, but you've noticed the difference in price is still significant?

If you want to see if you're going to save money buying a hybrid, there's a simple calculation you need to make. You need to know how long you have to own your hybrid car before you can say you've made up for that price differential.

First, calculate how much more the hybrid will cost you against buying your alternate car. Let's assume (for the sake of this example) the difference is $2000. Don't forget to factor in the tax rebate from the federal government (plus any state rebates, as well).

Now look at the fuel economy of each car. The standard combined measurement is 1/3 the city value and 2/3 the highway. So, if our hybrid gets 40/40 and our comparator gets 27/33, the combined fuel economy will be 40 for the hybrid and 31 for our comparator. Which means you'll be getting 9 more miles per gallon from your hybrid.

Then it's just a matter of how much money you'll save on gas each year. For instance, if gas costs $3 a gallon and you think you're going to drive around 15,000 miles a year, you will need to buy (15,000/31) = 483.9 gallons at a cost of $1,451.61. For our hybrid, it will cost you $1,125.00. For a difference of $326.61. Take the premium price ($2,000) and divide that by your gas savings and you get 6.1. In other words, it will take 6.1 years to make up the difference in purchase price by gas savings alone.

If you want to do it all in one step, the formula is:
Years to Break Even = ((Premium)*(Combined MPG for hybrid)*(Combined MPG for comparator) )/ ((Miles per year)*($ per gallon)*(Combined MPG Hybrid - Combined MPG ) )

The Premium is the price differential after factoring in taxes, tax credits, etc... in the original purchase price.

Using my example, the formula looks like: Years to Break Even = ($2000*31*40)/(15,000*3*9) = 6.1 years. If we upped that to 25,000 miles a year, the years to break even would be 3.7 years.

There are lots of issues I'm leaving out. For instance, will it cost you more or less to insure the hybrid car over the other car? Since you're paying more for your hybrid, you may have to spend more on your insurance each year (although some insurance companies are offering discounts on hybrid cars).

Another factor you may want to investigate further is maintenance costs. Hybrid cars may cost less to maintain for oil and brake replacements, for instance. But if something serious does break, you will most likely need to take it to a dealership to deal with. Since dealerships charge more for repairs, that can make a big difference.

You also may want to play with the numbers I assumed above. For instance, do you do a lot more or a lot less highway driving? Then change the ratio of city/highway to create your own standard for combined fuel economy. Or perhaps you drive 25,000 miles a year (in which case your break even point will come a lot sooner).

Most comparisons are made brand name to brand name. For instance, most compare the Ford Escape Hybrid against the Ford Escape (gas-only) SUV (2.9 years to break even with 15,000 miles traveled each year). But that may not be the two cars you are comparing. Perhaps you are choosing between buying a Toyota Prius and the Honda Civic (gas-only). In which case you can use the above example to calculate how long it would take you to break even (5.8 years at 15,000 miles/year).

To summarize, you can save money by buying a hybrid car. But it all depends on what your other car would have been and how long you are planning on owning your new car.

Get Four Free Price Quotes From Yahoo! Autos Hybrid Research and Pricing at

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