The Economic Reality of Hybrid Vehicles

The high price of gas at the pump has many Americans looking for alternates to their gas powered vehicles. One of the most popular option right now is a hybrid vehicle. The question that comes to mind is, are hybrid vehicles worth it? With record high gas prices due to the price of oil, most car owners out there have major concerns over their gas usage. Over the past ten years, the cost of gasoline has grown 250%! The price of oil has doubled since January of this year. The high prices of oil and gas is the driving factor for most of the people to trade their gas powered vehicles for hybrid vehicles.

These vehicles promise to give consumers more mileage per gallon, the truth is that only a few vehicles currently in the market actually make any sort of financial sense. There are quite a few issues with buying hybrid vehicles, even with gas prices at more than $4 a gallon. First, these vehicles are much higher in price than their gas powered counter part so, the premiums attached to their price tags do not justify extra mileage that you get. In some cases car dealers are selling popular vehicles at much higher prices than MSRP.

Second, there are no laws and regulations controlling the technology, price, and the mileage per gallon required out of these vehicles. Currently, there are hybrid vehicles in the market that offer an improvement of 3MPG to 18 MPG over their gas powered counterpart. This is a huge range that needs to be controlled. Third, the demand of these vehicles is driving the prices of the vehicles even higher, if people knew that it would take many years for fuel savings to pay back the hybrid premium on many models, the demand on these models would be much lower, driving the prices down.

The solutions that I would like to propose is the government to work with auto manufacturers to develop a standard for hybrid vehicles. This standard should control the minimum mileage offered per gallon, and control the premium allowed to be charged by the manufacturers. There are vehicles in the market that offer only a marginal benefit over the gas powered vehicles and yet the manufacturers charge thousands of dollars premium. Background: Today people all around the world are facing unusually high oil price hikes.

Oil has become so very expensive that people are trying all kinds of extreme measures to lower the price. The hike in price has affected every nation; the entire world is trying to find a way out of the soaring prices. Thanks to the oil prices, travel expenses have increased, not just flying being expensive, driving your own car is very expensive. The chart below shows a trend in oil prices since 1990 with some of the major events leading to this increase. Note that since January of 2007 the oil prices have increase by 162%.

With high gas prices, hybrid cars are a more affordable option than ever in terms of gas mileage, but only a handful of hybrid cars make solid financial sense, and only for some consumers, according to a new study by NADAguides. com, a vehicle pricing and information website. Using current gas prices for ten major metropolitan areas, the company studied the number of miles needed to recoup the extra cost of buying a hybrid car over its gasoline-only counterpart.

The study showed, for example, that a driver in Los Angeles, the city with the highest gas prices in the study, will break even about 18 percent faster than a driver in Houston, the city with the lowest gas prices, assuming both are driving the same miles. The study found that, even at today’s high gas prices, only a handful of hybrid cars make financial sense for a consumer who buys a new car every five years or less and drives an average number of miles per year.

Even at Los Angeles-area gas prices, there are only five hybrid cars that would allow consumers to recoup their additional investment before they sold the car, assuming they drive an average of 15,000 miles per year. In order of shortest time to break even, they are: 1. Toyota Camry Hybrid 2. Chevrolet Malibu Hybrid 3. Nissan Altima Hybrid 4. Toyota Prius 5. Honda Civic Hybrid Following is a chart of the top five hybrid cars with the greatest return on investment and the number of miles to break even in 10 major metropolitan areas at current gas prices.

Issue: Even with gas prices at more than $4 per gallon, there are quite a few issues with buying hybrid vehicles. Issue 1: High Prices Hybrid vehicle prices are higher than their gas powered counterpart. The demand for these vehicles in the last year has increased a lot, increasing the prices even further. In some areas people are actually paying premium over MSRP and waiting for more than two years to get some vehicles.

The price premium attached to the hybrid vehicles are just too great to be considered a cost savings relative to purchasing their gasoline counterpart. If people knew how long it would take them to pay off the increased premium the demand for the hybrid would be lower than what it is now, decreasing the prices. Issue 2: High Prices The second issue with the hybrid vehicles is that there are no laws and regulations controlling the technology, price, and the mileage per gallon required out of these vehicles.

Currently, there are hybrid vehicles in the market that offer an improvement of just a few miles per gallon over their gas powered counterpart, yet the manufacturers are charging thousands more for the premium for a so called hybrid technology. The table shows the amount of time it would take a buyer to offset the hybrid premium by fuel savings. The table also shows the miles per gallon and annual gas savings. These numbers clearly show the need to have some regulations to control the miles per gallon offered and the amount of premium that is charged by the manufacturers.

Let’s look at some vehicles: Starting with the worst of the bunch, the Lexus LS600H. The premium charges on this vehicle is about $19,000, yet it only offers about 20 to 22 miles per gallon. It would take almost a century to break even. The next worst seems to be the Saturn Aura which only offers an annual gas savings of $171. The best one seems to Toyota Prius, but this car is so popular these days that in some areas there is a wait list of two years. In areas where it’s available, the dealers are charging more than $5,000 over MSRP.

Solution: ?Better education to customers about the ownership costs of a hybrid vehicle ? Government should offer incentives like tax break to buy hybrid vehicles ? Have a standard to develop hybrid vehicle to encourage mass production, bringing the vehicle prices to even less than current gas-powered vehicles ? Force auto makers to sell hybrid vehicles at no more than, about 10%, premium to the customers Conclusion: Reference: Web Site: Bespoke Investing Group – http://bespokeinvest. typepad. com/bespoke/