New Article: The True Cost of owning a Hybrid

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The Real Costs of Owning a Hybrid
By Tara Baukus Mello
Date Posted 11-18-2004

As the number and type of hybrid vehicles grow, the interest in owning one of these vehicles expands. What initially only had appeal to a select group of environmentalists now is looked upon with interest by a much broader group, including those who are interested in the fuel savings and the environmental benefits, so long as they don't compromise performance, convenience or style.

But let's face it; the sticker price of a hybrid vehicle is significantly higher than its gasoline-only counterpart. Will the improved fuel economy offset the extra cost? And, there's all that hybrid technology — what if something breaks and you are saddled with a high repair bill? We took a look at these issues — and several others — with hybrid owners to learn the real costs of owning one of these high-tech cars.

Higher Purchase Price

Hybrid vehicles do cost more than their gasoline-only counterparts. On average, the price premium is $2,500 to $3,000. Buyers, however, do have the benefit of a $2,000 federal tax deduction for purchasing a hybrid as part of the Internal Revenue Service's Clean Fuel Vehicle deduction.

The deduction, which was put into place as an incentive for consumers to consider this new technology, was scheduled to decline gradually beginning in 2004 and eventually be phased out. Congress has extended this credit, however, offering up to a $2,000 tax credit on hybrids placed into service in 2004 and 2005. The credit drops to $500 for 2006.

The tax deduction is meant to offset the additional cost of the hybrid, bringing it more in-line with the price of a comparable gasoline-only vehicle. Because it is thought that hybrids will eventually come down in price as demand increases, the U.S. government has chosen to have the deduction decline and be phased out. "The federal tax credit was definitely a selling point for me," says Michelle Anton of Los Angeles, Calif. Anton purchased her 2004 Toyota Prius after her Nissan Pathfinder was totaled in an accident.

Several states also offer state deductions for the purchase of hybrid vehicles. Lee Boughey of Highlands Ranch, Colo., received a state tax credit as well as the federal deduction when he purchased his 2003 Honda Civic Hybrid in June 2002. "(The state and federal tax credits) made a big difference in buying the car," says Boughey. "It made me much more comfortable with purchasing the new technology because I was able to offset the cost with the credits." Boughey received the $2,000 federal deduction as well as a state deduction of $3,600, which was calculated based on his purchase of a hybrid as well as on the vehicle he replaced — a 1991 Mercury Grand Marquis that was sold for salvage.

Insurance

Another issue affecting the true costs of owning any vehicle is insurance. Because insurance costs vary widely depending on location as well as the driver's personal information, it was nearly impossible to determine if any of the hybrid owners we interviewed saw a change in premiums because they owned a hybrid.

As a result, we looked at the insurance rates in our True Cost to Own calculations for all vehicles. These calculations provide an average insurance premium for a specific state the user chooses, taking into account vehicle make, model, body type and model year, but not personal information of the insurer. "Personal information, such as age, marital status, credit history, driving record and the garaging address of the vehicle are not considered and could greatly alter the actual premium quoted by an insurer," says Larry Laumann, executive director of data acquisition and research at Edmunds.com.

For comparison purposes, Laumann calculated first-year insurance costs for all the versions of the 2004 Honda Civic four-door sedan including the Civic Hybrid. Costs ranged from $835 to $849 for an average driver in the state of California with the Civic Hybrid falling near the middle at $844.

Repairs

There's been a lot of talk among hybrid naysayers about concerns of repairs associated with the hybrid-specific parts, such as battery packs. Interestingly, not a single hybrid owner we spoke with expressed concern about this. "I'm not the type of person who would have purchased (a hybrid) the first year out, but by now I feel pretty confident that any kinks have been worked out," says Prius owner Anton.

Since some, however, have seen this as an issue, we contacted Honda, Toyota and Ford to get the inside scoop on each hybrid vehicle's respective hybrid systems. All the hybrid-specific components in every hybrid currently on the market are covered by warranty for 8 years/100,000 miles or 10 years/150,000 miles, depending on the state, but these components have been shown to have a much longer lifespan in testing. "We've done testing on three continents, in a variety of terrains and climates," says Bryan Olson, Ford Escape Hybrid marketing manager. "We feel confident that the (hybrid-specific components) will last for the lifespan of the car."

Honda, which has had hybrids for sale the longest, has watched its customers' vehicles carefully. "Our Insight has been on the road since 1999," says Robert Bienenfield, senior manager of product planning at American Honda. "We've done a lot of testing as well as have been monitoring our customers' highest-mileage vehicles, and so far haven't seen any adverse results."

Like the other automakers, Toyota has also done a lot of testing of its hybrid-specific components. Its battery packs in particular have lasted for over 180,000 miles in testing. "We've looked at all the things that put stress on batteries, such as the discharge/charge cycles and extreme temperatures," says Dave Hermance, executive engineer for environmental technology at Toyota.

Regular Maintenance

When it comes to regular maintenance, most hybrids do not require any maintenance on the hybrid-specific components. One notable exception is an air filter on the Ford Escape Hybrid. "The air filter for the battery system needs to be replaced every 40,000 miles," explained Olson.

The gasoline engine in a hybrid requires the same maintenance that it would if it were the only power source in the vehicle. That means oil changes every 5,000 to 10,000 miles depending on the vehicle and the driving conditions.

Another component that regularly needs to be replaced on every vehicle is the brake pads, but with hybrids these last much longer thanks to regenerative braking. In regenerative braking, the electric motor becomes a generator and captures the energy that would be lost as heat through the brakes when the vehicle's brakes are applied or when it is coasting. Once the energy is captured, it is transformed into usable electricity, which recharges the batteries and in turn increases the number of miles than can be traveled per gallon of gasoline. An added benefit is that the reduced heat means less wear and tear on the brakes, which means that they don't need to be replaced as often as conventional brakes. "We've seen customers go 85,000 miles before they needed to replace their brakes on their Prius vehicles," says Toyota's Hermance.

Fuel Economy

One of the top reasons that people purchase a hybrid vehicle is to get better fuel economy and they are often disappointed that they don't experience the fuel economy numbers listed on the window sticker in their regular driving. "I just love my Honda Civic Hybrid, but I have been a bit disappointed that the gas mileage isn't better," says Ivey Doyal of Atlanta, Ga.

To be sure, differences in projected fuel economy versus real-world driving can mean serious differences in your wallet over the long term. Unfortunately, there is a discrepancy between the EPA's fuel economy ratings, which are listed on the window sticker when you buy a new car or truck, and the real-world results that most drivers experience, regardless of the type of vehicle they drive. The EPA's ratings are the numbers manufacturers are required by law to list in all the promotional materials for their vehicles. Unfortunately, the procedure the EPA uses to calculate these numbers is outdated and isn't indicative of the way most Americans drive today. The EPA has made adjustments to its calculations to try to compensate for this. Even with these adjustments, however, the numbers still often differ from the real world. "We've seen where the typical driving style can be as much as 20-percent less than the EPA fuel economy number," says Bienenfield.

While all vehicles are affected by this discrepancy, hybrid vehicles have the appearance of being affected even more so. "For example," explains Bienenfield, "A vehicle that has a fuel economy rating of 20 mpg may only get 18 mpg, while a vehicle that is rated at 50 mpg may only get 45 mpg. This seems like a bigger issue for the more fuel-efficient vehicle, but in reality both vehicles are off by 10 percent."

In the informal survey we did with Honda and Toyota hybrid owners, fuel economy numbers ranged from 33 to 49 mpg on average, which reflected many driving styles and a wide range of commutes. While these numbers are significantly lower than the EPA ratings, all the owners we interviewed were happy overall with the fuel economy as it is still better than most gasoline-only vehicles.

Perhaps what is most misleading about the fuel economy ratings is that they don't show how widely numbers can vary based on an individual's typical driving route. "Short trips are the harshest on fuel economy, so anyone who drives just a few miles in his typical trip will see lower mpg numbers than someone who drives, say, 15 miles to work," says Bienenfield. Our unscientific poll showed these results as well. Pittsburgh, Pa., resident Jen Bannan typically drives just a few miles in each trip and, as a result, had the lowest fuel economy of those we interviewed, averaging 33 mpg in her 2002 Toyota Prius. "Is (the lower fuel economy) disappointing? Sure, but I'm still filling up less than I did in my old car and the Prius is the best car I've ever owned," she said.

At the opposite end of the spectrum, Civic Hybrid driver Boughey and Honda Insight owner Dana Dorrity of Tivoli, N.Y., have commutes of 60 and 50 miles one way, respectively, on roads with rolling hills. Both had the highest fuel economy of those we spoke with, at 47 mpg for Boughey and 49 mpg for Dorrity. Poughkeepsie, N.Y., resident Mary Koniz Arnold has no trouble averaging 50 mpg in her 2001 Toyota Prius (which she bought used in April 2004) on longer trips, but she averages closer to 40 mpg during her one-way commute of 10 miles.

"To be fair," says Toyota's Hermance, "there is no way any two tests will give the range of consumer exposure in terms of driving conditions and temperatures. He continued, "We are really measuring the wrong thing. Since you don't get to choose how many miles you drive, we should be measuring the gallons consumed."

Costs vs. Benefits

Since hybrids have only been on sale in the consumer market for about five years, it's still a bit early to assess all the real costs of owning one of these vehicles. On the surface, it appears that the added costs are recouped with benefits such as the federal tax credit and the improvement in fuel economy. Maintenance and repairs seem to be average or slightly below average so far, and issues with repairs of hybrid-specific components are nearly nonexistent. Whether the benefits outweigh the costs in the long term will really remain dependent on external factors, such as if the clean fuel federal tax deduction is phased out as planned, and personal factors, such as the owner's typical commute and if he or she can get the optimum fuel economy benefits.

For the hybrid owners we spoke with, any additional costs, perceived or real, were outweighed by the love of their cars. Everyone we interviewed adored their hybrids and many said that they would be unlikely to go back to driving a gasoline-only vehicle. Shelly Cohen of Seattle, Wash., drives a 2003 Honda Civic Hybrid and she is glad to know that there are some larger hybrids coming on the market, so she has more room for the two youngsters in her life as they grow. "When it comes time to trade it in, I'll be looking at the hybrid (Toyota) Highlander or the (Honda) Accord," she says. "I'll need something bigger by then, but it will be good to know that I can still get the environmental and the fuel economy benefits of a hybrid."