Experts examine value of buying a hybrid car

Tom Drennen knows a good value when he sees one. After all, the economist thinks about what value means in the world. So it might have been a surprise that even though he looked into the value of hybrid cars -- which use gas and electric power -- and determined that they are not a cost-efficient alternative to traditional cars, he decided to buy one anyway.

"I think it's the right thing to do for the environment. I think global climate change is a real issue, and it bothers me to be driving a car that's spewing carbon dioxide and other pollutants into the air," said Drennen, who is on a waiting list to get a Toyota Prius hybrid car.

Drennen, an economics professor at Hobart and William Smith Colleges in Geneva, N.Y., and other observers have calculated costs and made projections to determine whether consumers can save money buying these cars, which run on both gas and electricity. Though hybrids cost more than traditional cars, they get better gas mileage, and buyers can get a tax credit for choosing them.

Hybrids have become available only in recent several years. There are currently only a few models available in the United States, but several more are expected to be rolled out soon.

The fuel efficiency of hybrids has obvious environmental advantages, a draw for many consumers. But the fuel efficiency also might mean more to consumers now as they face soaring prices at the pump.

According to the Energy Information Administration, a branch of the U.S. Dept. of Energy, the average retail price for regular gasoline was $1.94 per gallon on June 21. Though it marked the fourth week in a row that prices had slightly decreased, the price was still 44 cents higher than the same time a year ago.

Drennen looked at how much a consumer would save on gas by driving a hybrid versus a traditional car and whether that amount would be more than the price difference of the vehicles.

He compared Honda's traditional Civic model and its hybrid Civic. He said there was a $3,000 difference in initial cost. He found that the fuel savings for the hybrid over the standard Civic was about $220 per year assuming $2 per gallon and driving 12,000 miles per year.

"From an economic standpoint, it would take over 10 years to pay for the difference and recoup your money in fuel savings. The average person does not want to wait 10 years," he said.

Consumers will get some relief from the price difference in the form of a tax break given for hybrid cars. The IRS has issued a clean fuel tax deduction for individuals who are the original owners of qualifying hybrid cars. The deduction is $1,500 for hybrids bought this year, and will be scaled back by $500 per year through 2006, when it expires.

Gabriel Shenhar, senior auto test engineer and special publications program manager for Consumer Reports, said some hybrids are more cost-efficient than others.

He looked at the 2004 Toyota Prius, which is on back order at many dealerships. He said it got about 44 miles per gallon on average (Toyota said the Prius gets a combined 55 miles per gallon). Shenhar said other similar sedans typically get an average of 24 mpg. "So if you plug in annual average mileage of 12,000 or 15,000, that's cutting your fuel bills by half," he said.

But comparing the Honda Civic hybrid and standard engine versions, the fuel savings were different, Shenhar said. Tests showed that the hybrid got 36 miles per gallon overall while the traditional Civic got 29 miles per gallon (Honda said its hybrid got as much as 48 miles per gallon).

"For that margin in today's gas prices it would probably take you 10 or 11 years to pay back that purchase price difference" of about $3,000, he said. "So if you're looking to protect your pocket, that's not the answer."

But Shenhar said most people aren't buying hybrid cars because of their potential savings.

"Part of the feedback we get from readers is that driving hybrid cars is more than a financial decision," he said. "People feel they are part of a bigger thing. They feel like they are pioneers of a movement that takes care of the environment and reduces the nation's reliance on foreign oil."

Lester Lave, professor of economics and of engineering and public policy at Carnegie Mellon University in Pittsburgh, said he examined an older model of the Prius and compared it with the Toyota Corolla. Lave looked at how many gallons of gas would be used driving 150,000 miles -- the approximate life of vehicle. He then calculated that gas would have to cost roughly $3.50 per gallon to make up for the $3,500 price difference.

"If you're looking at it from the standpoint of an individual, it's not cost-effective," Lave said.

Another consideration is the maintenance costs of these cars. Their gasoline-powered engines work in tandem with electric motors that are powered by a high-tech battery.

Although most hybrids carry a warranty on the batteries, observers have said it could cost thousands of dollars if the batteries have to be replaced.

Additionally, few people can predict exactly how these cars might depreciate in value because they haven't been available long enough to stand the tests of time.

"There's uncertainty around these cars and how much maintenance they will require," said Bob Kurilko, vice president with the automotive information Web site Edmunds.com. "We're anticipating with all the testing that has been done by manufacturers that these cars are going to hold up extremely well. But until they've been out there eight or 10 years, you really don't know."

Drennen said the economics of hybrids could change as more are introduced into the markets. "We are going to see more and more of these. And as they get experience, the cost will come down, and then it will make economic sense," he said.