August 29, 2006
Hybrids Cars By Years To Pay Back Added Costs

Assuming $3 per gallon gasoline, 15,000 miles driven per year, and applicable hefty tax credits for buying a hybrid an Edmunds study finds that the Toyota Prius and Ford Escape Hybrid are the only hybrids whose higher costs pay off within 3 years.

Edmunds.com's study indicates that the higher purchase price is completely recovered for the Ford Escape Hybrid and Toyota Prius within three years of ownership, while buyers of the Honda Civic Hybrid, Saturn VUE Green Line and Toyota Camry Hybrid reach break-even within six years of ownership, in each case assuming the vehicle is driven 15,000 miles per year.

The Prius does not have an exact non-hybrid equivalent to compare to. The Prius pays off within 2.1 years when compared against the Toyota Camry LE. But when compared against the Toyota Corolla LE it takes 13.6 years to pay off.

The rest of the hybrids take over 5 years to pay off. Some have abysmally long pay-off periods. The Toyota Highlander Hybrid Limited takes 15.5 years to pay off.

Full tax credits are only provided to consumers until shortly after each manufacturer has sold 60,000 hybrids. After that threshold is reached, the tax credit gets cut in half. For Toyota and Lexus buyers, that threshold has been reached — so anyone who buys a Toyota or Lexus hybrid after September 30, 2006 will only qualify for half the tax credit. The credit for these models will drop to 25% in April 2007 and then to zero in October 2007.

"If you're in the market for a hybrid, right now is the best time to buy," said Joanne Helperin, Senior Editor of Edmunds.com's Fuel Economy Guide. "It will take buyers much longer to break-even if their tax credit is halved."

These results do not represent the triumph of the free market. Even the impressive Prius pay-off period is due to a few thousand dollar US federal tax credit. (see this article for a summary table of results)

But beware: The numbers here include the Prius' gigantic $3,150 federal tax credit, which will drop to $1,575 in October, because the number of total Toyota hybrids sold has reached a 60,000-unit-per-manufacturer cap.

Commuters who put an average 25,000 miles on their vehicle will find their break-even times dramatically shortened (see chart below); those who drive significantly less than 15,000 miles per year will find it takes even longer to reach the break-even point.

I'm guessing the big hybrids have longer pay-off periods in part because their tax credits do not scale up as their prices do. So the tax credits end up representing a smaller percentage of total purchase price.

For low yearly mileage drivers (e.g. FuturePundit) hybrids are not worth the money. But if you are stuck driving long miles and can buy one before the tax credits decline the best hybrids can pay off in a few years. They'll pay off even faster if the price of gasoline goes even higher.

What is the biggest value of the current crop of hybrids? It is not that they save fuel. They are too few in number to have much impact on total fuel demand. It is not that they reduce air pollution. Again, they are too few in number to reduce the total amount of air pollution by all that much. Also it is not that they allow some people to feel morally superior or more better about their effect on the environment. No, none of those things. The biggest value of the current crop of hybrids is that they provide incentives for battery makers and entrepreneurs to create better hybrids.

Share |      Randall Parker, 2006 August 29 06:26 PM  Energy Transportation


Comments
aa2 said at August 29, 2006 9:09 PM:

My father drives a prius as his company car. He mentions that the performace is surprisingly strong for a small car. Because of the electric motors natural advantage to deliver high torque whenever, instead of just at certain rpms for an ICE.


biofuels simon said at August 30, 2006 6:53 AM:

Hi, I'm all for better batteries, that return closer to all the energy it takes to make them and charge them up. The biggest disincentive to better batteries is the very high energy density of comparatively cheap gasoline. Until gasoline becomes much more expensive, and until people, who have no alternative but to chug around in cars, have real alternatives of mass transportation, that they want to use, we should impose minimum levels of fuel econonomy on all new autos sold, or alternatively tax the purchase and manufacture of cars that are not efficient enough, and put those tax dollars to work researching alternatives like hybrids. What do you think of that?

Sumyung Guy said at August 30, 2006 7:09 AM:

I'm just curious - what's the tax break for buying a big SUV or a truck like the F-150?

Nick said at August 30, 2006 8:43 AM:

You have to keep in mind that almost hybrids use some of the additional efficiency for added power, instead of fuel efficiency. Some go almost entirely for additional power, rather than fuel efficiency.

Car makers were terrified that buyers would forever think that hybrids were underpowered, so they've made sure that hybrids felt powerful, at the expense of fuel efficiency.

What we need, of course, is a dramatically higher CAFE combined with higher gas taxes.

Prius production is only 20% higher than last year, and there are still 3 month waiting lists. Previously production was doubling every year. I suspect problems with battery supply, perhaps because of the transition to li-ion's. I suspect the transition is harder because Toyota is hoping to use next technology li-ion's, and they're very likely still in testing.

Bob Badour said at August 30, 2006 9:40 AM:

Simon and Sumyung,

What makes you think government intervention will improve anything over market forces including the forces of peak oil? My experiences with government intervention suggest it invariably leads to larger problems not solutions. Further, negative reinforcements like taxes have surprisingly unpredictable outcomes.

A wise friend once used the .sig line: "Beware the law of unintended consequences." It seems appropriate here.

Sumyung Guy said at August 30, 2006 10:20 AM:

Bob,

Here's my point:

"SUV tax loophole widens
A 1997 provision in the U.S. tax code (Section 179) provided small businesses with a tax write-off of up to $25,000 for a vehicle weighing more than 6,000 pounds- used 50% of the time for work purposes. The original intent behind this provision was to encourage investments in pickup trucks, minivans, and other needed service vehicles. A far smaller incentive was provided for cars—less than $7,000 over two years.

The explosion of SUV, pickup, and minivan sales in America’s passenger vehicle fleet has turned this small business benefit into a massive loophole in the tax law. Currently, 38 different passenger SUVs including the Lincoln Navigator, which nets a combined 15 miles per gallon according to the Environmental Protection Agency (EPA), the Cadillac Escalade (16 mpg), the BMW X5 (18 mpg), the Mercedes-Benz ML55 (16 mpg), and the notorious Hummer H2 (estimated 11 mpg) all weigh more than 6,000 pounds. This loophole allows some of the least fuel-efficient passenger vehicles on the road today to qualify for a significant tax break.

In 2003, the Bush administration proposed increasing the tax deduction to $75,000. Lawmakers responded by expanding it to a whopping $100,000 as part of the $350 million tax cut package. Yet Congress did not change the weight-based classification of the vehicles, creating a huge benefit for the largest, least efficient vehicles.

Accountants, SUV dealers rush to capitalize
Around the country, auto dealers such as "the Car Guy" Jerry Reynolds in Texas and hundreds of accountants and online tax management sites have been encouraging small business owners such as doctors, lawyers, and realtors to rush out and take advantage of this tax windfall. One advertisement from Dugan & Lopatka, an accounting firm in Wheaton, IL, reads, "Write-Off 100% of Your New SUV? Yes, If It’s Under 100,000!" "

I realize that tax break only applies to small buisness owners, but I know a guy that just barely "has his own small business", mainly so he can get a Sam's Wholesale club card. I'm sure a chunk of the popularity of SUV's was due to the huge tax incentives they got...perhaps some better incentives for technology that actually *helps* us to cut back on our "addiction to foreign oil" (as the President calls it) would be a good idea?

Bob Badour said at August 30, 2006 1:14 PM:

Sumyung,

Are you trying to prove my point about government intervention? Note too that a positive reinforcement like the one you describe has more predictable results (even if not entirely predictable.)

Sumyung Guy said at August 31, 2006 7:45 AM:

Bob,

No one has conclusively proven to me that Peak Oil has in fact happened or will happen anytime within the next few years. The current high oil prices we pay right now is due in part to:

1.) The fact that light sweet crude sells for ten dollars a barrel more than heavy sour, but note that many American refineries are able to handle heavy sour.
2.) The fact that there's something like a $20 per barrel "insecurity" fee built into the market right now. From striking workers in Nigeria, nutty leaders in Venezula, Iran building nukes and the US in a continuing quagmire in Iraq, the oil futures markets are so jittery that they should be put on a valium IV drip. Oh, and hurricane season is starting again.

The oil demand of China and India is growing, sure, but according to the EIA's own figures, US petroleum consumption still dwarfs that of China and India by a large margin. The transportation fuels sector represents the largest portion of US petroleum consumption, which argues that improvement in the efficiency of the US transportation fleet would have the greatest potential for either (depending upon your view of peak oil) easing global oil prices or else slowing the "long emergency".

The point I made in my previous post shows rather conclusively how a tax incentive can cause a large impact in the choices that someone makes...rather like how tax incentives and penalties affect where corporations decide to build factories, etc.

The short of it: very large tax incentives helped to create a market for enormous gas-guzzling vehicles that most of the owners don't actually need (a lawyer needs an enormous truck because he's going to be hauling a half-ton of legal briefs to the courthouse? I dont' think so...) and that now help to send 44% of the US trade deficit off to unstable countries in exchange for imported oil.

There's probably no need for a $100,000 tax incentive for buying hybrid cars (and soon hopefully plug-in electric hybrid cars), but there's no doubt that cutting huge bloated tax incentives for gas guzzlers while raising tax incentives for fuel efficient cars would encourage buyers to *buy* more fuel efficient cars.

Personally? Given how a small but significant portion of American dollars makes it's way from oil sheiks to terrorists, I think it should be a matter of patriotic duty not to drive a huge gas-guzzler if you don't need it. To paraphrase a saying from back around 1979: "Don't waste gas...waste Bin Laden".

bigelow said at August 31, 2006 12:58 PM:

Perhaps his point is more to the $100K for fuelish SUVs vs. $3K for Hybrids.

The prospect of “loosing” a $1500 tax credit if I don’t buy a Toyota soon doesn’t sway me either. First of all not enough money and second, I want a plugin hybrid electric vehicle. I am still waiting.

Here is an interesting quote:

“News about the cheap Ford-Edison electric automobile streaked across America like a meteor shower. Dozens of newspapers' headlines lit up brightly with the bold promise, as did every auto showroom, carmaker office, and American family household that had craved an automobile but was precluded because of high oil or battery prices or reliability problems.

Would Ford and Edison be allowed to succeed? If they did, it would overturn everything the two men had previously stood for--big internal combustion machines and big utility companies--and replace it with everything they now stood for--clean, self-generated independent electricity.”
--Internal Combustion: How Corporations and Governments Addicted the World to Oil and Derailed the Alternatives by Edwin Black, available on Amazon 9-5-06

But Edison’s labs were burned out in December…

“Yet it was as though the fire erupted all at once from everywhere across the fireproofed compound in building after building, and even across the walkways. Certainly Edison's complex was filled with every form of flammable chemical and material. But no one could explain certain "funny capers," as they were termed.”

Nick said at August 31, 2006 3:34 PM:

Bob, perhaps the point is that government is a commons, which various interests can try to commandeer and steal from, and others can try to take back, and make work for the common good.

To step back from the fray is not to leave it pristine and pure, but to abandon it to special interests. Public and tax policy can be good or bad. Ignore it, and it will be made bad in smoke filled rooms...

Bob Badour said at August 31, 2006 7:28 PM:

Nick,

You have prescribed the doom of democracy. Have you never considered opposing special interest and 'spoils' politics?

Sumyung Guy said at September 1, 2006 7:56 AM:

Bob,

I'm not getting your point on the doom of democracy...not enough coffee today I guess and my 10-week-old son was pretty fitful last night. But it doesn't really matter to me either way. Outside of a belief in the Constitution, the Bill of Rights, and general democratic principles, I hold no strong political views. At least not in the way that they're defined now by the Republican and Democratic strategists...I'm neither Red nor Blue, I'm middle of the road and strongly resist being labeled by anyone.

I'm not concerned about someone's ideological point of view being violated, I don't care if a solution goes against some plan some think-tank (either conservative or liberal) has come up with...I just think that the right tools need to be applied to the right job to achieve a solution. And I think this country would be a lot better off if a lot of folks would just calm down and step back into the center lane.

Yeah, that's me, Mr. Middle of the Road, the guy who votes based on the candidate, how he stands on issues important to me, and based on what his record says of him. Apparently I'm a vanishing breed...I don't care about ideology, I care about what WORKS.

I'm sorry, but I don't hold the "invisible hand of the market" as sacred, and I believe that both goverment and economics exist to serve and improve civilization, not the other way around. To me it's all about a better life for more and more of the people on this planet, which to me includes taking a long-term view.

So show me tools that work, don't show me ideology I don't care about. If we've got a problem...and I'm quite concerned that in fact we *do* have a serious problem that is a *real* "long emergency", I just don't think it's Peak Oil...then I think we need to forget about ideology or any of that other junk that gets in the way and just plain FIX it.

My original statement on this matter asked a question designed to bring up the point that at one time there was a silly big tax break for vehicles that waste gas. My point later was that perhaps more sane tax policy could be used to encourage an improvement in the fuel efficiency of the American transportation fleet.

If you think using tax policy in any fashion whatsoever is a mistake, then that's your right. But I simply don't agree with you on that one, Bob. If other folks out there feel that anything the government does is somehow bad, then I don't agree with that either. I can post link after link that shows how government funded research is helping to save lives...never mind all the information that Randall puts up on his web about research that may someday drastically improve people's lives.

Please note that this hasn't been written as some sort of diatribe or rant. I'm just plainly stating that we (as a country and a world) should focus on what works and not ideology. I prefer that my son (and hopefully someday a daughter) grows up in a better world than I did with a better life and more oppertunities. I want us (meaning EVERYONE) to get cracking on creating that better world right now, using whatever tools that work.

Sumyung Guy said at September 1, 2006 12:54 PM:

Bob,

I actually woke up a bit more and read this comment more carefully: "Have you never considered opposing special interest and 'spoils' politics?"

My apologies Bob, I may actually have gotten that part. I assume you're making the point that politicans who are bought and sold by special interest money are not exactly going to be good representatives of the people, and that when things degenerate down to just one special interest group fighting another, you can forget about real democracy. I can't agree with you more. I don't think Nick is saying "Get your slice of the pie by forming your own interest group" per se, I think he's stating that if you just step completely away from the government process and assume it's all hopeless, then you just leave the field to the interest groups with the most money. An apathetic and disinterested electorate gets the government they deserve...as we can perhaps see right now :)

To tell you the truth, though, I don't know of any way to really eliminate the corruption in politics that comes from the "campaign fundraising wars" without actually taking money out of the equation somehow. I have some ideas on how that should be done, but I suppose they would shock the ideologies of folks on both the left and the right, so I won't state them just right now. Let me just say that I don't agree with the idea that MONEY == Free Speech. To me, that would mean that certain individuals have more free speech than others, which I don't think the guys who wrote the Constitution and the Bill of Rights really intended.

Randall Parker said at September 1, 2006 5:58 PM:

Sumyung Guy,

Before you go patting yourself on the back too hard for your moderation be aware that moderates on average are more apathetic less well informed than liberals and conservatives:

Percent who know who U.S. Representative is:
1. Extremely conservative 91.7
2. Extremely liberal 88.9
3. Liberal 85.1
4. Slightly liberal 82.5
5. Conservative 80.9
6. Slightly conservative 80.3
7. Moderate 75.3

Now, you probably aren't average (my blog attracts a higher IQ readership and people who are more curious). But moderation is sometimes a mask for apathy and ignorance.

bigelow said at September 2, 2006 9:10 AM:

I still contact my representatives on occasion, but the act is more an artifact of my grade school education, habit, not because the exercise has any point. Money always talks, and community walks. One Federal Reserve Note = one vote. If you are more than a few decades old, think how many times you remember the rubric “campaign reform”.

How was the US public convinced to give up open elections, with votes counted by humans and accept instead voting machines whose workings are secret and unverifiable? The possibility of fair elections is of less consequence supposedly than maintaining the proprietary software secrets by which voting machines tabulate.

Rights eventually become too expensive in the face of current (fill in the blank) dangers; think how easily freedoms of the magnificent Bill of Rights were modified and then subsumed by Patriot Acts and a desire for security. This is the era we are in.

aa2 said at September 2, 2006 10:53 AM:

One thing if you are talking of political change is to not go for more democracy. In the original US federal system democratic influence was actually extremely limited. The president was selected by the electoral college(chosen by the state governments), the senators appointed by governors, the supreme court as it is today. And the congress was the branch where people voted for, but it was weak. Only to meet two weeks of the year, and its main goal was to approve a budget, and have the reserve power to remove the president.

Those who are looking for systemic changes I think we should think about less democracy not more. Russia is without doubt better off with Putin then it was before, and he has been limiting democracy.

bigelow said at September 2, 2006 12:02 PM:

Disagree. The history resulting from limiting public power in the US republic is no basis to elevate totalitarianism instead.

Nick said at September 8, 2006 10:11 AM:

aa2,

You have it reversed. Congress was expected to be more powerful than the president: it was expected to declare war, have the power of the purse, and make policy.

We're in a war right now because of we didn't have enough democracy: the president has too much power, the press is too weak, and people aren't sufficiently involved.

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