Drive Time
The Price of Saving Fuel
Measure the five-year ownership costs to see whether it really pays to buy a green vehicle.
By Jessica L. Anderson, Associate Editor, Kiplinger's Personal Finance
July 2010
With the economy in recovery mode and summer driving on the upswing, gasoline prices are ticking up -- prompting more new-car buyers to consider an alternative-energy vehicle. According to a survey by Capital One Auto Finance, a third of respondents say it's likely their next car purchase will be green.
If your goal is better fuel efficiency and green bragging rights, no matter the cost, you have plenty of options -- hybrid, clean diesel and, this fall, plug-in hybrid and all-electric vehicles. But one thing that holds buyers back is the extra cost of an alternative-energy car. You'll pay an average of $5,500 more for a 2010 hybrid than for its gasoline-engine counterpart (although the premium can be much lower). The premium is about half as much for diesels; the average markup is $2,800. Diesel vehicles have cleaned up their act and are now every bit as clean as gasoline-engine cars (with up to 30% better fuel economy), despite a lingering image problem from the last generation of soot-spewing models.
Run the numbers. One way to see whether it pays to buy a green vehicle is to calculate the five-year ownership costs. That lets you crank in the long-term savings at the pump as well as tax credits available for many hybrid and diesel vehicles. When we compared the ownership costs of hybrids versus conventional vehicles in early 2009, gas prices were hovering just above $2 a gallon, and few hybrids earned back their extra cost with savings at the pump. But with gas now closer to $3 and with more eco-friendly vehicles on the market, you can more often save green by buying green.
We updated the calculations, pitting 19 hybrids and 11 diesels against comparable gas-engine vehicles. The numbers assume that you drive 15,000 miles a year and that regular gasoline is $2.85, premium is $3.15 and diesel is $3.08, with a 3.5% annual increase for each fuel. The math also includes depreciation, maintenance and repairs, and it assumes you finance the vehicle with a five-year loan after a 15% down payment. Finally, we account for federal tax credits for vehicles that still qualify for them; they've expired for Ford, Honda, Lexus and Toyota hybrids. (If you're hit by the alternative minimum tax, the credit won't help you, so your payback time will be a bit longer.)
Winners and losers. Diesels pay back their premium more often than hybrids do. Over five years, every diesel except one -- Volkswagen's Golf TDI -- costs less to own than the comparable gas-engine model. The savings range from $307 on the BMW X5 35d to $6,082 on the Mercedes-Benz GL350 Blue-Tec (the $60,825 diesel GL is priced $1,000 below the gas-engine GL450 and has a tax credit of $1,800). Among hybrids, you're more likely to be on the losing end of the deal as long as a gallon of gas still costs about $3. You'll save the most buying the superluxury Mercedes-Benz S400 hybrid ($92,475). It beats the S550 by $6,764 over five years -- mainly because it costs $3,650 less than the S550 and carries a tax credit of $1,150. But in general, the more expensive a hybrid, the less likely it will save money over its gas-engine sibling. For example, the biggest losers are the Chevrolet Tahoe and GMC Yukon hybrids (both about $52,000) -- which would cost you $10,000 more than their gas-engine comparables over five years -- and the Lexus LS 600h L ($109,675), which would cost a whopping $41,428 more to own.
At the other end of the price spectrum, Honda's Insight comes in under the gas-engine Fit by $1,795 after five years -- even without a tax credit. But the Toyota Prius II is $3,335 more expensive over five years than the Corolla LE. The nearly $6,000 premium accounts for most of the difference.
Use our Green Car Calculatorkiplinger.com/tools to run the numbers yourself. You can compare nearly all the 2010 hybrids and diesels against traditional models and against one another.
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Reader Comments (15)
Posted by: David at 06/08/2010 12:22:21 PM
Or, you could do it because you want to pollute less, use less oil, and care about the world around you and not just the dollars in your bank account. Oh wait, this is America - we only care about money here.
Posted by: CB at 06/09/2010 06:36:25 PM
Thank you David - well said!!
Posted by: Douglas at 06/15/2010 07:07:42 PM
First, the whole concept of figuring out the payback "compared to" is off of the mark. If you are buying a new car and chose leather seats do you figure out how long it will take for them to pay for themselves? No. You buy it because you want it. If I'm the kind of person who wants what a Prius has to offer, why would I even be looking at a Corolla? Second, in this part of CA I'm paying $3.20 reg. already. Third, you're comparing cars with loans. (?) High or low interest rate environments change the equation. Just compare the cars. Fourth, thanks for even mentioning the gas price you are using. The last time I saw a comparison like this, he didn't give the numbers and when you ran them back you could tell he thought gas would be under $2 forever. Fifth, I'm gad everyday I use less oil, pollute less, and pay less. You can't compare that to anything.
Posted by: Tom at 06/18/2010 02:45:00 PM
So where is all of this clean electricity coming from for electric cars? Is the increased electric capacity coming from nuclear, solar, wind? What happens in the middle of the summer when there isn't enough power available and there are brown outs and black outs?
Posted by: Bob at 06/18/2010 04:21:25 PM
Buy a late model used car that you can pay cash for and the lower initial cost offsets the price of gas and ownership costs go down greatly. You also forgot to include the higher insurance costs for the more expensive cars.
Posted by: Tom at 06/19/2010 08:41:32 AM
I agree that comparing financing on a car thats more expensive than another obviously puts that car at a disadvantage. Also, it was funny to read the line that said you save the most money buying a $90,000 car.
Posted by: Michael at 06/19/2010 11:09:10 AM
Many states have additional tax credits that will lower the hybrid premium. We got $3000 back from Colorado for a new Prius.
Posted by: CP at 06/19/2010 02:08:48 PM
Well said David...I am so sick of all the comparisons that are based on loose interpretations on all the factors. All you really need to do is understand the person writing the article... Jessica, next time tighten up your argument and stop wasting our time.
Posted by: Mike at 06/21/2010 10:34:02 AM
@David...Yes, if you have the money and want to display your eco badge in the form of Prius ownership, then this is a great way to care about the world, I agree. However, many families don't/can't make these decisions. They are purchasing used cars or very base model new cars, so don't paint everyone as a glutton/idiot. I have a dubious opinion of the eco-ness of these hybrid cars anyway. If you think coal mining is bad, do some research on metals mining and the dumping of used batteries, etc. The thing with a hybrid is they won't last. A true environmental car would be like say, a 1985 Mercedes diesel that's still on the road today. However, that doesn't create as many jobs! But think about all the people driving to and from work dailiy, mining metals, etc. just to make eco-boomer-yuppie cars every 2 or 3 years. True environmentalism is a world where things are made to last. Fat chance. So, don't just say if someone isn't driving a hybrid they don't care.
Posted by: Bob at 06/21/2010 12:01:51 PM
While everyone gets carried away by MPG when buying a car, I look at a vehicle's cost per mile. That includes initial cost, financing, insurance, and MPG along with the number of miles that I expect to drive the car. I buy low mileage late model used cars and expect them to last reliably at least until they reach 150,000 miles. At that point reliability could begin to be questionable and I sell the car. I divide the cost by the miles I expect to get from the vehicle and come up with a cost per mile. Since I pay cash, financing is always zero and my insurance cost is fairly constant based on the price range of the car I'm buying. Unless you are in the market for a real gas guzzler, MPG even at $4/gal. isn't usually that big of an issue. On a cost per mile basis the 2004 Impala I just bought will be far, far, far cheaper to own and operate than any new or even late model high MPG car on the market. To me, a green car keeps more green in my wallet.
Posted by: JD at 06/21/2010 01:21:13 PM
...Facts are facts - the green agenda often tries to sell themselves with misleading claims of saving money. This article lays out the well-known fact that that is a lie. You can argue on other terms all you want, but that's changing the subject....And please, stop insulting our intelligence with claims of "pricelessness". There is a value to everything, and it is not infinite. I'm environmentally conscious, but not nearly stupid enough to spend $10,000 to make an undetectable difference.
Posted by: E Coloney at 06/21/2010 07:46:25 PM
Avoid anything with a battery. The pollution made in manufacturing and recovering batteries will poison the earth (and your children) for years. The best thing to do is CONSERVE fuel: combine trips, don't sit and idle, go easily from stop lights/signs, keep your speed down. Just think, half the trips equals DOUBLE your mileage and that doesn't count the savings in oil changes, tires, brakes, depreciation, etc. Some weeinie in a Prius driving all over hell's half acre uses far more gasoline than I do in my truck.
Posted by: Jessica Anderson at 07/16/2010 12:42:32 PM
Hi, Jessica Anderson here, author this article. Thanks everyone for your comments. To be clear, Kiplinger's is a financial magazine, so we do approach all our coverage with that angle--dollars and cents to you, the consumer. Whether your personal driving habits are green or guzzling are up to you, but we'd like everyone to be informed. Now, as to questions of comparison--we're looking at overall ownership costs over five years. These numbers include interest on the loan, insurance costs specific to each vehicle, depreciation, maintenance, repairs and fuel costs as well as taxes and fees and the opportunity cost of being able to invest that money elsewhere. The purpose of comparing a green car to its gas-engine variant (or the closest model in the case of dedicated hybrids like the Prius) is to see the true cost to own past just the initial sticker markup. The calculator on our tools page (http://www.kiplinger.com/tools/hybrid_calculator/index.html) lets you compare any green car to a variety of other models if you're cross-shopping different hybrids, diesels or other models. Hope this helps.
Posted by: Mike at 07/30/2010 10:11:48 AM
Kudos to David and others who point out the groupthink media bias when repeating the "Hybrids don't payback or make economic sense". I find it funny that the car magazines (who popularized this criticism) never make this distinction when comparing high performance cars, often picking the much more expensive vehicle that provide only marginally better performance. BMW or Porsche would never be chosen using the same logic regarding cost to performance. We own a turbocharged, european car that gets marginally better milage then a regular vehicle, and a 2004 Prius, which has averaged 44 MPG for the life of the vehicle. That is double the average fuel economy of the US fleet. And better yet the Prius does not pollute when you are not going anywhere, automatically shutting off its engine in traffic jams and at stop lights. If you believe that CO2 emissions are a problem (climate change) and want to use economic metric's to asses an investment then you should include Carbon Capture costs in your economic analysis. Hybrid's (or any hyper-mileage technology vehicle) offer a significant improvement. In fact using the Terrapass calculator google Terrapass The Prius creates 2.5 tons (4,995 pounds) of carbon per year. While a car like the Chrysler Sebring creates 5.34 tons (10,671 pounds) per year. Here is the D.O.E. current capture cost: "The cost of CO2 capture using current technology, however, is on the order of $150 per ton of carbon much too high for carbon emissions reduction applications." from fossil energy gov This figure is for fixed location emission points like power plants, cost for carbon capture in a moving vehicle would be even higher. So the standard mileage Chrysler creates 2.84 more tons of CO2 emissions per year, adding $426.00 per year to the ownership cost. Consumers who have purchased Hybrid vehicles have done everyone a great public service, supporting the nascent technology and helping to alter perceptions of what is possible. This has undercut the industries complaints that efficiency innovations are too costly. We would not have vehicles like the Leaf (Nissan's all electric) and Volt (Chevy's plug-in series hybrid) coming online without the hundreds of thousand of Hybrids sold. Jessica the people that have supported the Hybrid technologies with their dollars don't use the current sub-optimized standard payback calculators. Carbon emissions are a problem, and the majority of Hybrid or High MPG diesel purchasers are very knowledgeable and have include considerations that are not include in the current limited payback model. How about an article about creating a new cost of ownership model? It could include capture cost and improve air quality impacts on public health from reduced emissions.
Posted by: Brent at 08/16/2010 11:48:52 AM
Think about resale too, with a medium mileage hybird, you may have a problem selling or repairing it due to the battery replacement costs when most are rated for around 100k miles. Green tech is great, but it still has a ways to go as the electricity charging green cars usually comes from coal or oil power plants.