New Ford Focus commercial targets Prius

If you want a car that gets as good mileage as a Prius but costs $7000 less buy a Prius second hand.

 

Why are you here? Remind me.

 

Great Post and analysis. This is almost exactly the thought process I went through before purchasing a Prius (2 weeks ago after 4 weeks on a waiting list).

 

"Made in USA" still floats a lot of people's boats, the Focus does keep a few fellow Americans in Dearborn busy.

 

Not to pick on ya but this same analysis is the one done by all the 'back of the napkin' analysts, including all the automotive sites such as Edmunds. I am continually taking Edmunds to task for their 'quick and dirty' summary which ignores several key factors thus resulting in erroneous conclusions.

No 1
The analyses always try to go to some 'shortcut' number to see when the savings in fuel will equal or exceed the initial outlay for the vehicle. The actual analysis should be 'How long will I keep this vehicle and how far will I drive it during this ownership period?' That should be the first question asked.

Everything else flows from this question. The results are very, very different for owners driving 5000 miles annually but keeping a vehicle for 12 yrs and those who drive 25,000 mi annually and wear out a vehicle in 8 yrs.

No 2 and this is a consitent error in every analysis...
Fuel prices will not remain constant!!! Last Fall Edmunds did their estimates based on fuel being $2.85 per gallon....FOREVER!!! Well we all know that is wrong. $4.00 per gallon....FOREVER...is also wrong.

No 3, another consistent error in every analysis....
Probably due to lack of knowledge of the auto business all the analyses ignore the effect of resale value of the two vehicles being considered. This is a HUGE error because the whole presumption of the analysis is that the 'hybrid premium' has to be spent up front but then it has to be recovered by fuel savings only. In fact that's not at all true. Depending on how long the vehicle is kept the bulk of the 'hybrid premium' is recouped upon resale. That's why the first question must be asked before any analysis can be done.

No 4....
There is no such thing as a 'payback period' unless one is in business, such as a rental company, where the vehicle generates income. The only correct analysis is to take two vehicles, decided on a planned life expectancy and usage ( miles driven ) then add up all the costs less any incentives and/or resales.

No 5...
It's not logical to compare unequal vehicles such as a base Focus or Yaris to a base Prius for example. It is however a valid comparo because people do make these decisions of 'Well I'll give up some features and better fuel economy in order to save some money up front." The reason that it's not logical is that if one is willing to compare dissimilar vehicles such as a $22000 Prius and a $15000 Yaris why then wouldn't one also compare a USED Prius at say $16000 and a NEW Yaris at $15000. These are also dissimilar. In the first case one is saying 'I'm willing to give up some size, performance and features in order to get a lower initial cost.' In the 2nd case one is giving up some 'age and newness' to get a lower initial cost.

No 6....
All the analyses ignore the time cost of money not spent to buy the higher priced vehicle; i.e. the interest expense saved to buy a lesser vehicle vs a more expensive vehicle or in the event of a cash sale the lost interest that money might have gained if invested in say a CD.


Items 1-5 change the analysis immensely in favor of all the hybrids while item #6 balances out the differential in favor of buying a less expensive more basic vehicle NEW vehicle like a Focus or Yaris or Corolla or Fit.

But for arguments sake let's do a detailed analysis based on the numbers you noted....

Prius Pckge #2 @ $24000
Focus @ $17000

Lifetime usage?????? 6 yrs x 15000 mi / yr = 90000 miles

Resale value at 6 yrs: For this estimate 35% of initial outlay.
Prius : $24000 x 35% = $8400
Focus: $17000 x 35% = $6000

Net Vehicle cost:
Prius : $24000 - 8400 = $15600
Focus: $17000 - 6000 = $11000

Fuel cost: $4.00 Forever? Do you really think so?
How about $.50 per gallon increase annually? $3.50, $4.00, $4.50, $5.00, $5.50, $6.00... over a 6 yr period that comes to an average of $4.75 / gal.
USAGE
Prius: 90000 mi driven in 6 yrs / 46 mpg Combined EPA = 1956 gal
Focus: 90000 mi driven in 6 yrs / 28 mpg Combined EPA = 3214 gal

COST
Prius: 1956 gal x $4.75 = $9300
Focus: 3214 gal x $4.75 = $15300

Cost of Vehicle and Fuel for 6 yrs and 90000 miles
Prius: $15600 + $9300 = $24900
Focus: $11000 + $15300 = $26300

So what did the Focus driver have to give up in order to spend $1500 extra over those 6 yrs of ownership?

When the analysis is done accurately with proper detail the results are much different than 'back of the napkin' scribbling.

Now when the opportunity cost of money is factored in then the money difference becomes negligible except that in the Prius that gets to drive a more advanced vehicle for 6 yrs.

At 8 or 10 or 12 yrs the cost benefit to the Prius grows more and more as more miles are driven and less fuel is used.

 

Repeated for FREAKING TRUTH!!! I really tire of these comparisons between the Prius and dinky little compacts. The Prius isn't a dinky little car, it is a mid sized sedan.

 

Good luck finding them that cheap! Even old Prii hold their value real well.

 

I'm not sure why you have decided to single out Edmunds.com. In my mind, they do about the best job of any site with their "True Cost to Own" feature. They include: Depreciation, Financing, Insurance, Taxes, Fuel, Maintenance, and repairs over a 5 year, 75K mile period.

With this model:
A Base Prius costs $41,400 or $0.55/mile.
A Base Focus ($14,755) costs $36,168 or $0.48/mile.
A Loaded Focus ($16,925) costs $38,239 or $0.51/mile.
A Base Matrix costs $35,374 or $0.47/mile

Yes they use estimates. No one knows what a vehicle will actually be worth in 5 years but you can use historical trends.

No one knows what fuel will cost in 5 years. Yes, fuel is rapidly rising and people are panicking. Kinda like they did when fuel went from $0.92/gal in Mar-99 all the way to $1.67 in Oct-00. Then it fell to $1.14 by Feb-02 before steadily increasing until today. If you used the trends from the 90's, gas would be back to $0.25/gal by now.

I find it interesting that you included opportunity cost in your calculation but not financing. Do you really thing the average Joe is going to pay cash for a car?

It also can make sense to compare very different vehicles if you want to know simply what vehicle costs the least amount of money to drive. If you are like me, you need a vehicle to take one person to work and back. The extra size of a Prius returns no additional value to me than a 2 seat Smart.

 

The one thing that I think Deadphish got slightly wrong was the value after 6 years. The Prius resale value would be much higher than you stated as it retains much more of its worth compared to a Ford Focus which does not do so well in that area. Ford chose to not bring the European Focus here because they felt it was too expensive. So we are stuck with a slightly warmed over 6 year old chasis with gussied up body.

 

The bottom line is that I'm not buying a Ford, GM or Chrysler product regardless of claimed fuel economy. I've owned several in the past, and they are, simply stated, an inferior product relative to Toyota.

For me, the Ford isn't even an option.

... Brad

 

Europe got the second generation Focus, the US still has the first generation with a different front and rear clip. If you want the 2nd generation Focus in the US you have to buy a Volvo S40 or a Mazda 3. These are both built on the same platform that underpins the 2nd generation Focus.

 

Of course the opposite is true on the front end. A Prius sells for MSRP or more and a Focus can be had for thousands under invoice.

An extreme example of this is my local Ford dealership. They have been buying up new old stock Ford Taurus models from around the country. They are selling a new 2007 Taurus with full warranty for $10,999!

 

I would not compare a Ford Focus to a Prius either. I have no idea how the new Focus compares with last years model which was not very good. I assume its better but we will have to see. That aside...

Ford does not build only crap. The Fusion is a great car. Reviews, actual car owners and repair records back that up. Ditto on Mustang and the F150. Ford has simply not put the money into its smallest car because the smallest profits are there. That will prove to be a big mistake.

The $7000 savings you talk about are gone. The Focus for better or worse is in high demand as are most other small cars. Many new Ford customers will have the new Focus (2009) as their Ford experience. I hope its better then the last generation (2008)

 

Highlighted text... I absolutely agree and this is why I single them out for the most criticism.

When they write an article or allow themselves to be used as a reference for say the WSJ or USA Today.......they ignore TCO completely and do the same 'back of the napkin' analysis noted above. Not only that but they ignore resale values completely in their articles. This is all wrong.

Also on their TCO analysis they have the logical failing that they use one single value for the cost of fuel. If a buyer is a 10 yr 'keeper' is it reasonable that fuel in 2018 will be the same price as today???? I highly doubt it. But in Edmund's TCO there's no provision for escalating prices. This is why the Matrix 'appears' to be less than the Prius in TCO. There is no provision for escalating prices. How can one do an analysis looking 5, 6 or 10 yrs out into the future and estimate the TCO but in the same breath say that fuel prices will remain at today's level for the next 10 yrs? It's completely illogical, said Spock.

If one were a small business owner and looking to make a judgement on whether to buy an asset or not, say a vehicle, and the greatest cost involved in owning/operating this vehicle was the fuel to power it wouldn't you think an accurate estimate of 3-5-7-10 yr costs would be a necessary part of the formula?

I specifically referred to opportunity costs of a cash purchase and referred to financing costs in passing. It depends on whether one is a cash buyer with investments or a budget buyer looking to scrape by.

 

I agree but I used a standard percentage simply to prove a point. The resale value point.

In fact Toyota's do hold a much larger percentage of their value than Ford does at nearly every interval. However a Prius @$24000 compared to a Matrix @$20500 would use the same percentage.

 

Deadphish, good analysis you presented earlier, but if you are going to inflate the cost of gas in your calcs, then the cost of everything else ought to escalate too in future terms, including the cost of the cars (perhaps?).
I think what you presented works ok normally, but a discounted cash flow, bringing all costs back to todays dollar costs (present value at a standard cost of capital) would be the proper anal solution.... on second thoughts, why bother, the Prius is just a much better car, with attributes that don't have a financial value, but are worth a lot.

 

where are a majority of the parts coming from? considering plans are trimming more people for robots, and all new workers are lower paid less benefits I see that point as valid maybe in the 1970s

 

Amen brother!

 

Regardless of what the numbers are... do people REALLY still believe that all they're paying to operate a car is what they pay at the pump?

Just the whole idea behind the phrase, "7,000 buys a lot of gas" makes my skin crawl. Does anybody WANT to buy a lot of gas? I'm almost starting to think that I'm not your average consumer! :der:

 

Nah . . . it's just that you are less average than most.