The New Hybrid Math

A "spy photograph" by Ron Lieberson of Popular Mechanics of the 2009 Toyota Prius. The image, not an official Toyota photograph, was published in the March 2007 issue.

This week, Toyota will raise the price of a few of its cars, including a $400 hike on the Toyota Prius and a bump on the Camry Hybrid by $300. But in the past four weeks, the average price of regular gasoline increased by almost 30 cents a gallon. Therefore, in actual ownership costs, the price of Toyota hybrids is cheaper this week than it was a month ago. Welcome to the new hybrid math.

Buying a hybrid car, like any consumer purchase decision, has never been solely about dollars and cents. As many economists have pointed out, consumers buy things just as much based on their hopes and fears about the world, and desires for their own lives. Nonetheless, the media has repeatedly crunched the numbers on the “payback period” to demonstrate that hybrids don’t add up—until $4 gas turned that argument on its head.

In April 2006, Consumer Reports said that not a single hybrid would recoup its extra cost over five years of ownership—and then recanted its study, designating the Toyota Prius, Honda Civic Hybrid, and Ford Escape Hybrid as economic winners. Since that time, the EPA rating of hybrids has been cut by about 20 percent, and Toyota and Honda hybrids have lost some or all of their federal tax incentives. How did that affect the hybrid cost-benefit analysis?

Edmunds.com’s most recent analysis released earlier this month expanded the list of hybrids that earn a five-year “payback” to five models: Chevrolet Malibu Hybrid, Honda Civic Hybrid, Nissan Altima Hybrid, and Toyota’s Prius and Camry Hybrid. Edmunds used an average gas cost of $3.61 per gallon and 15,000 miles a year of travel. If you expect the price of gasoline to average more than $3.61 over the next five years or to keep the car longer than five years, the math looks even better. And Edmunds is not calculating relative resale values for hybrids.

"Environmentally conscious consumers have been drawn to hybrid vehicles since day one, and were willing to pay a premium for them," said Jesse Toprak, Edmunds.com's industry analyst. "But now, as a result of lower price premiums, higher gas prices and, in some cases, tax credits, it's won't take long for consumers to offset the price premium and actually save money by buying a hybrid—depending on which one they choose."

The shifting economic algebra of hybrids is expected to accelerate the red-hot growth of the market for gas-electric vehicles. As most of the auto industry suffers through a dismal year, Prius sales in April jumped by 67 percent compared with last year. “Many of our Priuses sell the same day they arrive on the lot. If they haven’t already pre-sold, that is,” said Bill Kidd, a Baltimore-based Toyota dealership owner, in an interview with Hybridcars.com.

A few other numbers to consider: Toyota recently announced that it sold its one millionth Prius. And despite the $400 price increase and the belt-tightening in the United States, Toyota is maintaining its goal to sell one million hybrids globally every year beginning in about three years.

Reference : http://www.hybridcars.com/decision-process/new-hybrid-math.html