Hybrids: Financial Friends Or Foes?

By Lisa Smith AAA

Oil prices, the cost of gasoline and environmental concerns have all combined to hit drivers with a one-two punch in the wallet and in the conscience. Some drivers are fighting back by trading in their gas guzzlers for hybrids. These "green" technology marvels run on a combination of gasoline and battery power, emitting fewer greenhouse gases, getting great gas mileage and decreasing the pain consumers feel at the pump. Sound good? Let\'s zoom in for a closer look at hybrids.

The Numbers Don\'t Add Up
The Toyota Prius is the poster child of the hybrid fleet. The 2008 model boasts an impressive EPA-estimated combined city/highway rating of 46 miles per gallon, which certainly lessens the pain at the pump, but a study from Edmunds.com conducted for the article "Cost Savings May Not Offset Higher Price For Hybrids" (May 2005) for USA Today reports that gasoline would need to be priced at $10.10 per gallon, and a driver would need to log 66,500 miles per year over five years, for the Toyota Prius to become a breakeven proposition when compared against a selection of similar, small economy cars (such as the Toyota Corolla).

Hybrids come up short when compared to conventional models because they are significantly more expensive to purchase and maintain than conventional vehicles of similar power and size. They also often cost more to insure and depreciate more quickly than their conventional counterparts.

When all of these factors are combined, most drivers would be better off with any of a variety of four-cylinder vehicles boasting fuel economy ratings in the 30-mile-per-gallon and above range.

Other Reasons To Buy
While buying a hybrid is not yet a savvy move from a purely financial perspective as compared to conventional four-cylinder models, these vehicles do sip gas and are easier on the environment. Driving a hybrid comes with a built-in "feel good" factor and makes a statement about your values. Besides, the number of sports cars, sport utility vehicles and luxury cars on the highways demonstrates that few buyers make purchases from a purely financial perspective. If they did, we\'d all be driving compact cars or taking public transportation.

So, just because you aren\'t driving the least expensive car on the road doesn\'t mean that you can\'t save a few dollars on your transportation expenses. For example, if you want to maximize the "feel good" factor and actually save a few bucks, consider making a lifestyle change by trading in your Hummer for a Prius. A comparison between the two is the ultimate automotive environmental showdown, a David and Goliath competition that is an interesting as it is instructive. Take a look at the financial comparison below:

Financial Comparison: Hummer H2 vs. Toyota Prius
On the one side, we have the Hummer H2. The ultimate off-road machine, guzzling gas at the rate of about one gallon for every 11 miles traveled. Edmunds.com estimates the cost of owning the 2007 model at $29,888 for the first year, including a whopping $14,606 in depreciation and $4,175 in fuel. Over a five-year period, this beast will cost you $90,377 to own and drive. (Note that costs may be slightly different depending on regional costs as determined by zip code; these costs are calculated based on New York City).
On the other side, we have the Prius, which uses an electric engine for an economical 46 miles per gallon. Edmunds.com estimates the cost of owning the 2007 model at $10,884 for the first year, including just $918 for fuel. Over a five-year period, the Prius racks up a bill of $37,865 - under half the cost of the Hummer!
So, in head-to-head comparison, the Prius wins by a landslide. You can buy two Priuses and the five-year costs of both of them would still be less than the five-year costs of one Hummer - and you would still have $15,000 left over!

The lesson here? If you have the funds or financing to purchase a new car and rid yourself of your current one, you could save an enormous amount of money by trading in your uneconomical lemon or gas-guzzling behemoth for a more fuel efficient, environmentally friendly hybrid. Keep in mind that the Prius may be the most talked about hybrid on the road, but it isn\'t alone. There are hybrids for every taste and every wallet, including sport utility vehicles.

The Road Ahead
Hybrid sales have consistently set records. J.D. Power and Associates noted that the first six months of 2007 saw an estimated 187,000 hybrids sold in the United States, with year-end sales predicted to come in around 345,000 vehicles. At that pace, hybrid sales would account for 2.3% of new vehicle sales. Unless something better comes along, hybrid sales are likely to continue to increase, particularly if their prices become more competitive as time passes.

End Destination
You may not have a hybrid in your garage yet, but keep your eyes on the new models rolling off of the assembly lines, and you just might find the car of your dreams.

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