Hybrid Cars Not Driven By Savings

Hybrid owners want to be good citizens and seen as doing their part

Published: 11-Jan-2004

e's been lots of talk about weaning Americans from our traditional gas-guzzling transportation to the more earth-friendly hybrid cars, which combine an efficient gasoline engine with battery power. But in practical terms, the talk doesn't add up to savings.

Money isn't everything, of course, and higher cost doesn't deter most hybrid buyers. "Most people aren't looking strictly at the economics," said Thad Malesh of Automotive Technology Research Group, a California firm that studies the hybrid and diesel markets. "They're doing it because they want to be good citizens. It lets them say, `I'm kind of doing my part.'"

But the fact is that bargain-hunting car shoppers are not likely to find financial salvation in a gas-electric hybrid vehicle that gets higher fuel economy than a conventional model. The current cost of hybrid technology means it could take more than a decade to recover at the gas pump the extra money they shell out in the showroom.

- Doing the math. Of the three hybrids available in the U.S.--the Toyota Prius, Honda Insight and Honda Civic Hybrid--the Civic provides the best comparison to a conventional model. Here's the math:

At $20,650, the Civic Hybrid is $2,350 more expensive than a Civic EX, a conventional model that comes with most of the same standard features.

According to EPA fuel economy estimates, a Civic Hybrid averages 47 m.p.g., 13 more than the Civic EX. With gas at $1.50 per gallon, it would take nearly 13 years for the hybrid to make up the cost difference with fuel savings.

Even if gas rises to $2.50 a gallon, the payback period would be 7 1/2 years, based on driving 15,000 miles a year.

The Prius starts at $19,995, the same territory as the midsize Camry sedan, but Toyota also offers models that sell for thousands less, such as the compact Corolla and subcompact Echo.

Honda does not offer a conventionally powered equivalent to the two-seat Insight.

- Uncle Sam sweetens the pot. The federal government is doing its part to encourage hybrid sales with a tax incentive, though it shrinks in 2004. A tax deduction on hybrid vehicles drops to $1,500 this year from $2,000, then to $1,000 in 2005 and $500 in 2006 before it fades away.

Taxpayers do not have to itemize to claim the deduction, but the savings depend on which marginal tax bracket they're in. Those in the 28 percent bracket, for example, can save $420 on their 2004 tax bill.

- A better deal to come? A comprehensive energy bill pending in Congress would replace the tax deduction with one-time tax credits up to $2,400 on hybrids. The credits would be based on the fuel economy the hybrids get compared to models with conventional gas engines.

The Prius would receive a $1,600 or $2,000 credit, depending on the final rules of the legislation. The Civic Hybrid would likely get an $800 credit. No current models qualify for the maximum based on fuel economy.

The energy bill would limit the tax credits to the first 80,000 hybrids sold by each manufacturer, so Toyota and Honda would be the first to use their allotment because they are earliest on the market. That means, if the bill passes, that people who buy a Prius sometime in 2005 or 2006 may not get the tax credit.

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