The High Price of Hybrids

What should consumers look for to figure out the best model for the environment -- and their pocketbook?

Consumers have had a hard time figuring out if gas-electric hybrid vehicles are worth the sticker prices, which are thousands more than their gas-only counterparts. It turns out even Consumer Reports has trouble calculating the true value and savings associated with buying and operating hybrid vehicles.

The influential consumer testing magazine was forced to admit errors that led it to say, in its April car-buying issue, that none of the gas-electric hybrids on the market today would save owners money, compared with regular gasoline versions of the same vehicles. The calculations were based on five years of driving. Readers pointed out that math errors related to depreciation calculations caused the errors. The magazine, published by Consumers Union, corrected the information on its Web site.


The new calculations show that owners of the Toyota (TM) Prius will save $406 and owners of the Honda (HMC) Civic hybrid will save $317 compared with owners of their gas-only counterparts. However, owners of four other hybrids -- the Honda Accord, Ford (F) Escape, Toyota Highlander, and Lexus RX 400h -- will still end up spending $1,883 to $5,508 more over five years and 75,000 miles, Consumer Reports said.

That's far less than the figures the magazine reported. Previously, Consumer Reports said the additional cost of owning a hybrid would range from $3,700 more for a buyer of a 2006 Honda Civic Hybrid compared with a gas-only Civic EX, to $13,300 for the person who buys a Lexus RX 400h hybrid vs. a Lexus RX 330.

The Web site correction will have to suffice, since it's not practical for Consumer Reports to recall magazines from newsstands and mailboxes the way car companies have to recall their models and fix manufacturing and design glitches. "We deeply regret the error," said CR automotive editor Rik Paul.


While the error is an embarrassment to Consumer Reports, which occasionally takes flak from auto makers unhappy with their ratings, it also spotlights the ongoing controversy over whether gas-electric vehicles live up to their hype. For example, buyers in congested cities undoubtedly benefit from hybrids far more than drivers who do most of their motoring in the country.

The real benefit of hybrids is being able to run the engine on battery power in stop-and-go traffic or the kind of crawling traffic that typifies suburban Los Angeles, Washington, DC, New York, and Boston. At cruising, a hybrid car pretty much gets the same mileage that a gasoline-only car gets. Drivers in those markets, though, get the added benefit of being able to drive a hybrid in a high-occupancy-vehicle lane, which saves time, if not money.

"We absolutely believe that hybrids are a huge answer to the problems we face in the environment, and as more models offer them, prices will come down," says Toyota Motor Sales U.S.A chief operating officer Jim Press. While Toyota is producing hybrid versions of all its vehicles, Honda, in contrast, has frozen its offerings with the Civic and Accord because the company feels that the urban markets for which the vehicles are best suited are well served by those two vehicles (see BW Online, 1/10/06, "Invasion of the Hybrids").


With cleaner diesel fuel becoming available in the U.S. this fall, some automakers, including Volkswagen, Mercedes-Benz and Chrysler (DCX) are adding more diesel models to their fleet. Honda is adding diesels by 2010. Diesels tend to get better fuel economy than hybrids when usage is more cruising than urban stop-and-go. A Toyota hybrid, for example, doesn't make it from Washington, DC, to Detroit, a distance of more than 500 miles, on one tank of gas, as it gets about 38 miles per gallon.

A Volkswagen Jetta TDI diesel-powered car, however, can make the journey without stopping, getting 45 mpg (see BW Online, 2/15/06, "Selling the Love of Diesel").

The Prius and Civic Hybrid delivered an average fuel economy in real-world driving by CR testers of 44 and 37 mpg. Those were the top fuel economy ratings of any five-passenger vehicles tested by the magazine. The Ford Escape Hybrid, which achieved the best fuel economy of any SUV tested by CR, can save an owner about $660 per year in gasoline costs. The reason the payback doesn't come for five years is because of the higher price of hybrids, even after Federal and state tax breaks, as well as maintenance costs. The Ford Escape hybrid costs $26,900 to $28,525, while a gas-only Escape costs $19,380 to $26,680 and offers at least $2,000 in discounts to every buyer.

But the CR calculations don't take into account the emotional dividends that hybrids deliver to owners. Hybrids emit less pollution, with some models classified as Partial Zero Emission Vehicles by the California Air Resources Board. Each gallon of gasoline not burned prevents the emission of 19 pounds of carbon dioxide, which many believe contributes to global warming, says CR. So, for people who buy hybrids out of a sense of environmental responsibility, breaking even on the costs of a gasoline-only powered vehicle is not disappointing at all (see BW Online, 2/13/06, "The Top Ten Hybrid Myths").


"There is no question that the government should step in at this point and close the gap between the cost of hybrids and gasoline-only cars. It's clear that [hybrids] improve the environment, and I'll pay extra to do the right thing," says Berta Carrolton, a graphic designer who drives a Prius around San Francisco (see BW Online, 12/28/05, "Hybrid Owners Drive Away Happy").

Adds Ben Hampton, a Leesburg (Va.) attorney who drives his Civic hybrid to his office in Washington, DC, most days: "If time is money, I save a bundle." Hampton says the additional cost of a hybrid is well worth it because he can drive alone in the HOV lane.

Before it's here, it's on the Bloomberg Terminal.