Hybrid Cars - Are They Worth The Extra Cost?

Got $22,000 extra lying around so you can go out and buy a Toyota Prius? That's what the base model costs in the new year. It's not a king's ransom, but it's not cheap either. So it's bound to make you wonder if a hybrid car is really worth the cost.

This is where you have to do a little math.

Let's say your hybrid car (whether it's a Prius or something else) saves you roughly $250 per year in fuel costs due to improved gas mileage. That's not an unreasonable guess if you drive something like 15,000 miles per year and gas costs roughly two bucks a gallon.

And let's say your hybrid costs you roughly $3,000 more than a comparably equipped non-hybrid sedan from the same auto manufacturer.

Now simple division gives you a way to evaluate whether you're actually saving any money. Divide the $3,000 difference in price by the $250 you save on gas each year to get the number of years before you actually start saving money. In this example, it's twelve years.

Yep, you'd have to save $250 per year for over a decade to make up for the price difference when you buy a hybrid. Most people don't keep their cars that long, so their "investment" in a hybrid never pays off.

But what if gas is ridiculously expensive? Let's say it goes back up to almost five bucks a gallon, which it probably will eventually. Now let's do the math again…

We have the same $3,000 price difference we have to overcome before we actually start saving money. But our gas savings is probably closer to $625 per year since gas is two-and-a-half times more expensive in this scenario. The result?

You'd have to drive your hybrid for almost five years before you start saving money. And people usually don't keep their cars that long either!

So based just on price difference and the cost of gasoline, hybrids don't usually save most buyers money. That's not the entire story, though.

A 2006 study by Intellichoice computed the cost savings for hybrids based on total cost of ownership for the vehicles. That means they included depreciation, financing costs, fuel, repairs, maintenance and fees. They noted several facts about hybrids:

They cost more than non-hybrids
They hold their value better over five years
They have higher insurance costs
They save gas

When they added it all up, they showed that hybrids do indeed have a lower total cost of ownership than non-hybrids. (The $2,000 federal Clean Fuel Vehicle Deduction is not around anymore, so that's not worth thinking about.)

So will a hybrid save you money? Or to ask another way, is it worth the extra cost? That's a definite maybe. If you're looking at savings at the gas pump alone, probably not. But you can likely justify the purchase of a hybrid car if you consider the total cost of ownership over five years. The choice is up to you. Now you know how to calculate the costs and savings with hybrid cars