« The Social Security tax cutoff | Main | Will $100 oil spark a recession? »

December 07, 2007

The economics of hybrid vehicles

With gas prices past $3 per gallon and probably going higher, interest in hybrid cars should skyrocket, but what about the dollars and cents of hybrids? When looked at strictly in terms of a person's wallet, is a hybrid car a wise buy? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"This is very apropos for now. With gas prices going higher and people looking at how can they save money driving? So we have a recent analysis that's very interesting. They compared eight different auto models. Each of those models had a hybrid version and a regular gas version. So you were comparing apples to apples. Now in each of those models, the hybrids cost more up front. So that's the additional cost of the hybrid, you are usually going to pay more money up front to buy the vehicle, but you are going to save money down the road in terms of fuel, and you potentially get a tax credit.

"So the analysts went through and grinded out the numbers, and what they figured out was how many years it would take to recoup that additional upfront cost. That is, when you got your annual savings, how many years of annual savings would it take for you to at least equal the extra amount of money you paid to buy the hybrid in the first place? And the answers they got were very interesting. The range was for only two years on the low side, but for one model it was up to 18 years. But most of the models, in fact four of eight, were in a middle range of about three to five years. So the answer there would be that if you are planning to keep your hybrid at least three to five years, usually you will pay for the additional up front cost.

"Now I should make a note here that the analysis was done when gas prices were $2.80 a gallon, so as gas prices go up, that will actually shrink the number of years it takes to recoup the additional hybrid costs."

Posted by Dave at December 7, 2007 08:00 AM