Are Hybrid Cars Really Cost Effective?

The demand for Hybrid Cars is increasing geometrically and the net is abuzz with queries about their real financial advantage. Hybrid cars are new in America and with the recent increase in gas prices more and more American people are trying to opt for them. Hybrid cars use both gasoline and electric engines. The electric engine starts up the car and takes control in low pace while at a higher speed the gasoline engine takes over. During a stop the car engine shuts down completely. These cars are naturally more fuel efficient, less polluting and quieter than regular cars.

But are Hybrids really cost effective?

Now, Hybrid cars are costly. You have to often pay $3,000 to $5,000 more for a hybrid car than its non-hybrid counterpart.

They, however save money by giving much better mileage than their non-hybrid counterparts. Some Hybrid cars get 48 to 60 mpg (claimed) and most get at least 40mpg.

Hybrid cars compared with non-hybrids

Honda Insight(Hybrid): Price: $18,200 MPG: 40 city/43 hwy

Honda Civic: Price: $15,805 MPG: 26 city/34 hwy

Toyota Prius(Hybrid): Price: $23,050 MPG:51 city/48 hwy

Toyota Camry: Price: $19,820 MPG:22 city/33 hwy

* Source: Toyota official site
Honda official site

The savings from fuel does not match the extra price, say within a year, even if we consider the recent high fuel price. Edmunds.com, the auto advice site has conducted an analysis where they show how buying a hybrid is almost always costlier than its non-hybrid version taking in consideration all the costs to own a vehicle and even the fuel prices.

Even thetax credits that were previously available on Hybrids are not available after December 2010. However, there are some other financial advantages like better insurance deals, discounted loan rates and even free parking in some places, which, however, vary from state to state.

Only the Toyota Prius seems to win even in the eyes of the skeptics. Edmunds in its review admits that even while considering $2.28 to per gallon (which is past now) Prius shows an advantage over the competing Camry.

But, what these comparisons seem to miss is that gas prices are going to really change. While thinking whether the savings from gas prices will equal the price difference we are paying for a Hybrid car, we are thinking about today’s price in USA. We tend to forget that in spite of the recent rise in price we are still paying half the price the European nations are paying. We are extremely privileged. UK, Norway or other European countries pay $7-$10 compared to our $3.53 per gallon. Why? It is because fossil fuels are highly subsidized in our country. This has had its usual effect in USA, i.e. overuse of fuel and less development of substitutes. But this cannot continue forever.

The President has already declared his intention to slash oil subsides in 2012 budget which will save the government $40 billion dollars in the next five years. So now we have to compare the price paid for a Hybrid and the savings from fuel keeping in mind the fuel prices of the European nations. Then we will start seeing the gains quickly enough. According to Edmund.com analysis, even with $5.26 per gallon a Ford Escape Hybrid has price advantage over a Ford Escape XLT AWD. And gas prices are already forecasted to reach $4 this summer.

At today’s price, a Hybrid may not seem really profitable. But it is tomorrow’s technology. If we look into the future of auto industry in the context of dwindling fossil fuel resources, we will understand that buying Hybrids and plug-in Hybrids are sure to be profitable in the long run.

Sources: Energy Subsides and their impact by United Nations foundation

Obama slashes oil subsides in Budget 2012

Edmunds.com