Hybrid Cars: The Financial Case

The ‘rents have been on the lookout for a new car for a while now, but seeing as I haven’t had a need for a hand-me-down, there hasn’t much urgence. However, seeing as I’ll be in Ontario for the next year, that need has increased ever so slightly. Just this past weekend, my dad and I surmised that hybrids were little more than gimmicks and that the payback period in decreased fuel cost would be longer than we’d normally keep a vehicle.

But the conversation piqued my interest, and armed with some second-hand information about hybrid vehicle rebates from the government and an internet browser, I set out to find the truth about hybrids, the options available, and the financial case for them. In at least one case, it seems like both my dad and I were terribly misinformed.

Take the Toyota Camry, the type of car that would most likely populate our garage. The standard LE model in Canada has a $23 400 MSRP, while the base hybrid model costs $30 660 MSRP. [Toyota Camry price list] However, the hybrid comes with some desirable features that we’d want, such as power driver’s seat and a moonroof, and some nice-to-haves, like a higher-end sound system and automatic dual-zone climate control. The Touring package for the LE adds most of the extra features of the hybrid, but also brings the MSRP price up to $27 055.

Now, combining the federal government’s ecoAUTO program rebate and the Ontario government’s alternative fuels rebate, you get a $3 500 incentive to buy a Camry hybrid. Of course this is all after tax, levies and delivery costs, but it cuts significantly into the premium for an alternative fuel vehicle. Let’s do some quick calculations for the Camry.

LE w/ Touring pkg = [$27 055 + $1 415 (delivery, etc)] * 1.13 [taxes] = $32 171.10
Hybrid = [$30 660 + $1 415] * 1.13 = $36 244.75
Difference = $4 073.65

However, taking into account the $3 500 rebate from the government, that equates to only a $573.65 difference. Not too bad, huh? At least if you’re in this specific situation.

Now, let’s assume we’ll drive 20 000km per year (which is really not that much given the commute distances in Ontario…). Toyota lists efficiencies at (city/highway) 5.7/5.7L per 100km and 9.5/6.2L per 100km for the hybrid and LE V4 respectively. Since the advertised mileages are often a bit optimistic, let’s assume a combined average of 6.5L/100km and 8L/100km for the hybrid and LE V4 respectively. That equates to 1300 litres of gas per year for the hybrid and 1700 litres for the LE V4. Now that gas is in the range of $1.35/L for regular unleaded, that works out to an annual savings in reduced fuel costs of:

(1700L – 1300L) * $1.35/L = $540

That’s right, the price difference for the hybrid is made back in just slightly more than one year. That’s what I call a good return on investment. And, the more you drive, the more you’ll eventually save, literally. Plus, who knows where the price of gas will be over the next several years. There’s already talk of $200/barrel oil – you can guess what will happen to the price at the pumps if that were to happen.

After crunching all the numbers, I’ve come to the conclusion that going for the Camry Hybrid nets a car that is feature-wise comparable or more advanced than the LE with the Touring package, has slightly more power than the standard V4, thanks to the hybrid engine, and will end up saving money a little bit after the first year of use. Of course, this is all due to the government incentives. Without them, it’d be closer to 8 years before the investment breaks even, which is getting a big long in the tooth. The federal government’s alternative fuels incentive will be terminated at the end of this year, so the time to buy (if it makes sense financially) is within the next few months.

Okay, I’m being a bit naive and considering only one case, our case, but in the end that’s what matters to us. Given the above, I think it’s safe to say that the hybrid option is very appealing, and almost a no-brainer, given the choise of the two models above. Anyone care to poke some holes in my logic? It almost seems too good to be true, and if my microelectronic circuits professor is to be trusted, anything that seems too good to be true probably is.

8 thoughts on “Hybrid Cars: The Financial Case”

  1. As long as hybrids don’t cost me money (significantly in the long run), I’ll go for it, but I’m not going to pay significantly more to save the environment. Oh, and ethanol… That’s just code for hippie juice.

    Your logic is sound, provided the numbers all work out. Maybe you should wait a bit for those new fully electric cars? 😉

  2. What’s the difference on running costs for servicing, etc?? Obviously you can’t go to a local garage to get it sorted out, and you’ll have to go directly to Toyota – which is pricey. Also, you’ve got two engines there not one – more to go wrong. Yea, I’d wait for a fully electric/hydrogen car!

  3. Now put a price tag on the reduction in toxic fumes produced leading to lower cancer and lung disease rates – add that in in the form of savings on taxes due to less strain on the medicare system.

    Small scale financial balancing may be all an individual or individual family can do, but in the end is relatively pointless. So long as everyone is looking out only for their own economic interests (from families to corporations) the only goal will be making/saving money. If moral questions aren’t addressed there will always be externalities – costs that many times no individual or community can afford to absorb – usually in the form of human lives. So this begs the question, who is asking the moral questions is producers just want to make money and individuals just want to save it? Well, supposedly that’s what government is for, but whether they’re doing that adequately or not is another question.

    I guess the point of this post is just to try to say how inadequate the question of the “financial viability” of a hybrid is. The dilemma is that in our current economy and system of governance that is really the only question we know how to/can ask. Until we can look at our neighbor dying of lung cancer and not just sympathize but accept some form of responsibility then any of these questions are moot.

  4. I have to disagree. I believe that the majority of the economic burden should be carried by the government and large corporations, because they are able to absorb it and have the change impact their deep coffers. Cutting their polluting powers by a meager 1% would probably account for the contribution of several thousands of individuals. Passing these green ideas onto consumers may impact their current lives more than they will feel it in 20-30 years. $4,000 isn’t a number to laugh off; for example, it can be the grocery bill for a small family for a year. It may not affect Canadians as much, but in other countries, particularly the US (where their spending habits haven’t been known to be the wisest), with the current economic crisis on the horizon, it might be smart to horde as much cash as possible.

    Granted, anyone buying a $30,000 car could probably stand to spend about 12% more for a hybrid. Though I don’t subscribe to this philosophy because I’m ecstatic when I can save 10-15% on a purchase or pay no tax (stingy Red Flag Dealer right here) and infuriated when I have to pay green recycling fees on electronics. If a corporation is charging you $1,500 for a laptop, they should be able to absorb the $50 in recycling fees (I know this applies for California).

  5. I agree as well, I think that it should ultimately be large businesses/corporations (or even small ones for that matter) that lead the way in eco-economics. The difficulty is the little bit of a catch-22 that this creates. While it is the businesses who should trumpet the eco-song, bringing the masses with their well-researched, well-formed lyrics, it is the businesses who take their cues from the masses as to what they sing about. This is because the businesses, as I said before, care about making money and the consumers about saving it. So if leading the pack into foreign green territory means a cut in savings/earnings you can forget our capitalist brethren.

    So who is the third party who can lead us? The government is an easy answer, but, as laughable as it may sound, the government is really just the people. And so, as it always does, it comes back to what we’re willing to give up for our fellow human beings.

    Always the optimist though – I think we’re all screwed.

  6. My parents got rid of our 8 year old Honda Odyssey 7 weeks ago, and opted for the 2008 Saturn Vue Hybrid. With government rebates and provincial rebates, the hybrid didn’t end up costing us anymore than the regular Vue. Clearly, people realize what a deal this is, since we had asked them to let us take one for a test drive, and they put us on the top of their waiting list… last November. 5 months later they finally called. They had two hybrids, and we could take one for a test drive. They would then hold it for 24 hours for us to decide if we wanted it, at which point they would open it up for others to buy it. He guaranteed us the car would sell in 48 hours so we took it.
    We couldn’t be happier with the vehicle, and I’m sure the environment thanks us too. I just don’t understand why essentially all vehicles are produced as hybrids, and we do away with the standard models altogether.
    Also, as the assistant to a MP, I feel it’s my duty to point out that Harper and the Conservatives cut the rebate program in this years budget (rather quietly I might add), and it will come to an end effective December 31st of this year.

  7. Your numbers need to be more adjusted to reflect true market value. You see hybrids will be closer to MSRP since demand is high because of the voucher. Now, other cars that are not being sold will be hugely discounted. You may be better off getting a ‘regular’ car.

    Try this process for true market value prices:
    http://excarsalesman.typepad.com/

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