Still Waiting for Hybrids to Be the Smartest Buy

The Wall Street Journal

A colleague came to me recently with a question that is on the minds of a lot of American consumers these days: Should I buy a hybrid car?

With gasoline at record prices, demand for some (though not all) gas-electric hybrid vehicles is booming. The average Toyota Prius is getting sold just 13 days after hitting the showroom floor, according to Power Information Network data sampled from dealerships. A year ago, it took 24 days to sell a Prius. Prius sales dropped 38% in May compared to a year ago, but that was because Toyota dealers were running out of cars to sell. Dealers had just 3,832 unsold at the end of a month during which they sold more than 15,000 cars. (Those same Toyota dealers had more than 19,000 Sequoia sport utility vehicles gathering dust at the end of May, according to Autodata Corp., after selling just 3,575 of the U.S.-made big rigs.)

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Honda Civic hybrids are selling in an average of 30 days, compared to 67 days a year ago. Average prices for both cars are higher – more than $1,000 higher in the case of the Prius. (Not moving so well is the Nissan Altima hybrid, which is sitting on the showroom floor an average of 60 days.)

The stampede toward hybrid technology reflects the much broader rush toward smaller, more fuel-efficient vehicles that has roiled the auto market as gasoline prices started topping $4 a gallon. Hybrid fever seems to be everywhere, as car makers compete to demonstrate their pro-hybrid bona fides. (Toyota last week said it will show off early next year two new hybrids. General Motors Corp. is providing regular progress reports on the status of its Volt plug-in hybrid, due in 2010. )

The problem is that even at $4 a gallon, most current hybrid vehicles won't save their owners enough at the pump to pay back quickly the price premium over similar, conventional vehicles. The numbers have gotten better, of course, as gasoline prices have risen. But buying a hybrid isn't financial a no-brainer. It depends on your starting point – what vehicle you drive today – what you are willing to consider as an alternative to a hybrid, and how much you value the non-monetary benefits of hybrid ownership.

For example, by my rough calculation, if my colleague buys the Honda Civic Hybrid he's considering, he'll likely save $640 a year out of pocket compared to a regular Civic sedan, if his hybrid averages the EPA combined estimate of 42 miles per gallon over 15,000 annual miles and gas stays around $4 a gallon.

But the hybrid Civic lists for about $4,840 more than the gasoline model. A calculator or (in my case) an Excel spreadsheet says the payback on gasoline alone will take about 7 ½ years. This is why my colleague is now focused on benefits of hybrid ownership that can't be counted in coin – such as the privilege of using the High Occupancy Vehicle lanes on the suburban freeways around Washington D.C.

Consumer Reports in 2006 did a more elaborate analysis, factoring in depreciation, savings from tax credits and maintenance costs and concluded that most hybrids cost more over five years than their standard counterparts. Over longer periods, some hybrids get into the money.

But if what you're really after is the best mileage for dollar spent, a forthcoming Consumer Reports analysis will conclude that you should buy a Honda Fit, says Jeff Bartlett, a Consumer Reports editor.

This price-to-gas-savings issue shouldn't even be such a close call. Frustration over the comparatively modest benefits of current hybrids is a main driver behind the enthusiasm for the concept of the plug-in hybrid. Just three or four years ago, advocates of plug-in hybrids were a small band, operating on the fringes of the automotive mainstream. They hacked the battery packs of Toyota Priuses to create cars that could recharge from the electrical grid and run far longer in all-battery mode than a standard Prius. Toyota effectively disowned the plug-in movement – and still isn't wild about it. Other manufacturers largely ignored the plug-in geeks.

That was then.

Recently, a conference on plug-ins sponsored by the Brookings Institution, a Washington think tank, and Google.org, an arm of Internet giant Google, drew a standing room only crowd to a big hotel ballroom just a few blocks from Capitol Hill in Washington, D.C.

Among the speakers was former Central Intelligence Agency director R. James Woolsey, who drives a plug-in Prius and is advising Republican presidential candidate Sen. John McCain (R., Ariz.) Widespread and rapid adoption of plug-ins, he said, could help break the stranglehold of oil on the U.S. economy – and undermine al Qaeda by drying up the flow of dollars to the Middle East. Mr. Woolsey's vision is to develop cars that use carbon fibers for light weight, clean energy from the grid to recharge batteries, and ethanol for backup fuel to achieve the equivalent of 1,000 miles per gallon.

"We can, we should and we must destroy oil's monopoly!" Mr. Woolsey thundered, jabbing the lectern as the crowd applauded.

The conference was a dramatic demonstration that the plug-in insurgency is now going mainstream. But it also remains vulnerable. Speakers at the conference stressed how the technology needs Washington's help – in the form of subsidies, tax breaks, and mandates to adopt new standards for recharging infrastructure such as "smart" electric meters that can assess lower fees for replenishing batteries in the dead of night.

The Department of Energy did announce at the conference it would offer the Detroit Three $30 million over three years to help develop plug-in prototypes. But that's small change against the full costs of retooling for mass production of such vehicles.

As advocates of climate change action can testify, waiting for Washington to flash a green light can consign even the most stirring vision to the slow lane.

Hybrid Financials

Vehicles April - May 2007
Retail Turn Rate
April - May 2007
Vehicle Price Less Customer Cash Rebate
April - May 2008
Retail Turn Rate
April - May 2008
Vehicle Price Less Customer Cash Rebate
Toyota Prius 24 $24,345 13 $25,528
Honda Civic Hybrid 67 $22,860 30 $23,221
Ford Escape Hybrid 27 $27,761 24 $29,903
Toyota Highlander Hybrid 64 $35,367 26 $41,344
Mercury Mariner Hybrid 45 $28,984 25* $32,150*
Lexus RX 400H 23 $46,708 29 $46,946
Lexus GS 450H 67* 58189* 30* $57,572*
Toyota Camry Hybrid 25 $28,356 33 $28,159
Saturn VUE Hybrid 63 $22,690 17* $26,457*
Nissan Altima Hybrid 29 $26,711 60 $27,821
Lexus LS 600H L  NA 22* $113,577* NA
Mazda Tribute Hybrid  NA 63* $27,027* NA
Chevrolet Tahoe Hybrid  NA 35 $52,384 NA
GMC Yukon Hybrid NA 37 $52,992 NA
Chevrolet Malibu Hybrid NA 26* $23,202* NA
Total hybrid 33 $27,032 23 $29,353

Note: Saturn Aura Hybrid not included due to insufficient sample (but it is included in Total Hybrid")

*Caution: small sample

Note: If a unit is dealer-traded, the retail turn rate returns to zero at the time of the trade

Source: Power Information Network

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