Wednesday, November 01, 2006

Hybrids: Save gas, lose money

Consumer Reports says will lose value faster than other cars. Are they right?

By Peter Valdes-Dapena, CNNMoney staff writer

NEW YORK (CNNMoney.com) - Buying a will save you money on gas...but you might still come out behind.

One of two main reasons, according to a recent analysis by Consumer Reports, is an additional cost that has typically been treated as an unknown: depreciation. Another factor, the report found, is purchase price -- s simply have higher sticker prices than their non- counterparts, and gas savings don't do nearly enough to close the gap.

According to Consumer Reports' analysis of six gasoline/electric vehicles, they will lose 2 percent to 3 percent more in value over five years of ownership than otherwise identical non-s.

With the purchase price difference, depreciation and other costs like financing and insurance factored in, only the and Honda would save owners any money -- $406 and $317, respectively, over 5 years. That final figure includes the impact of a federal tax incentives for s. Without those incentives, buyers face a net cost of ownership of $2,700 more than Corolla buyers.

Other hs would cost owners thousands more than non-s over five years of ownership, even after federal tax credits.

For example, a Toyota costs $7,185 more to purchase than the non- version. That results in $558 more in sales tax and $2,653 more in financing costs. It also will cost $358 more to insure for five years and $12 more in repair and maintenance costs. In addition, the will also lose 3.9 percent more in value than the non-.

The will save you about $1,392 in gasoline over that time. So, even with a $2,200 federal tax credit in your bank account, the will ultimately cost you $5,508 more after five years than a similarly-equipped non- Highlander.

Figures originally published in Consumer Reports magazine on March 1 showed the cost gap being much larger and none of the vehicles saving owners any money. A correction posted to the magazine's Website Wednesday morning adjusted for a miscalculation in the rate of depreciation. The corrected figures narrow the gap, but all the vehices still depreciate at a faster rate than non-s, according to the magazine.

Depreciation debate


Depreciation is a major factor in Consumer Reports' analysis. But, experts say, it's difficult to accurately predict depreciation since few mainstream-targeted hybrid vehicles have entered the used car market.

supporter and owner James Bell, publisher of the automotive guide IntelliChoice, recently sold his two-year-old for just $4,000 less than he originally paid for it -- a remarkably low rate of depreciation

Even Bell acknowledges, however, his experience isn't a perfect indicator. Unlike most s, the is a uniquely designed vehicle that exists only as a . There are still waiting lists for new es at dealerships, so some impatient buyers will look for used ones instead.

And even for the Prius, some experts are saying that, because of ' technical complexity and additional costs, used car buyers will become wary of them in years to come.

Still, Bell thinks will hold their value at least as well as, if not better than, regular, non- vehicles. "We don't see any reason at this point to think that a is going to track along as an outstanding value and then suddenly crash," he said. In spite of increased production, systems will likely remain rare enough to command a premium among used car buyers, Bell said.

Nonetheless, there may be more effective ways to save on gas than buying a . Buying a smaller car, for example, or just getting a smaller engine. "s are kind of a luxury item," points out Jeff Bliskell, who wrote the feature for Consumer Reports.

Some luxury items that provide a tangible benefit, like heated seats, generally add to a vehicle's resale value. Whether a powertrain provides a real benefit, and will add to the car's value, will depend on a potential buyer's feelings about the social and environmental impact of fuel consumption.

Raj Sunderam, president of Automotive Lease Guide, a company that predicts residual values of cars for the purpose of calculating lease terms, also sees possibly losing value faster than non-s.

"We would agree with Consumer Reports that this is an area of caution," he said.]

But among the unknowns, Sunderam said, is long-term durability. "There's no track record of how they hold up after 80,000 or 100,000 miles," said Sunderam.

As the number of s available increases, that could also drive used prices lower. But it could also increase familiarity with the systems and ease potential used car buyers concerns about getting the car serviced, said Sunderam.

Still, said Sunderam, given the issues surrounding s, the prudent course is to assume they will lose value faster than non-. It will be up to future used car buyers to prove that assumption wrong.

3 comments:

Fuel Additive Man said...

I would agree that with the high price of hybrids these days they probably aren't the best alternative for saving on fuel costs in the long run. But at least they're on the right track!

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gate valves said...

hybrids are really nice. Its just expensive..

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