Wed, August 20, 2008
Should You Dump Your Gas-Guzzling SUV for a Hybrid?
Although gas prices have retreated from their highs, the recent surge over $4/gallon is not yet a distant memory. Gas prices have us thinking more about how much we spend on gas. Does it make sense to trade your car in for a fuel-sipping hybrid?
Before I changed careers, I drove about 350 miles back and forth to work each week. I considered buying a hybrid, but with gas around $2/gallon, the numbers didn’t make sense, even with the tax credit available at the time.
If you’re thinking about buying another car in order to cut down your monthly gasoline bill, Edmunds.com has an online calculator that allows you to estimate whether buying a more fuel-efficient car makes financial sense. The calculator takes into consideration the trade-in value of your current vehicle, the cost of the replacement vehicle, and the fuel efficiency of each.
Something the calculator doesn’t take into account are the tax credits still available to buyers of certain hybrid vehicles, described on the IRS site here. The credit for a given vehicle is partly determined by the quarter in which the vehicle manufacturer records the sale of its 60,000th hybrid or advanced lean burn technology vehicle. The credits drop as a manufacturer makes more hybrids. The IRS link shows how much the credit is worth for each vehicle; credits range from about $1,300 to $3,000.
Just for laughs, I used the calculator to see what the breakeven time would be if you bought a 2009 Toyota Camry Hybrid using a 2005 Hummer H2 as your trade-in. With 33 mpg for the Camry, 14 for the H2, and gas at $3.70 a gallon, the breakeven time was over two years. There isn’t a tax credit for the Camry, but a big part of the problem is that hulking SUVs are going begging these days. Gas-guzzler values are depressed; hybrids are really popular and cost more to manufacture than non-hybrids.
If you buy a vehicle that qualifies for a tax credit, you obviously have a more attractive financial scenario. Because the IRS is scaling the credit back as each manufacturer ramps up production, the biggest credits go to the cars with the least manufacturing history. Presumably the IRS’s intention is to provide incentives for people to buy vehicles from carmakers who are late to the hybrid party. Mostly, these are US automakers, although I did see a couple of Volkswagens on the advanced lean burn technology list.
There may be some situations in which a vehicle swap nets a very short payback time, but obviously it will depend on the specifics. If you have a 120-mile daily commute – and there are some of you out there – it may pay to make the switch. If you’re seriously interested in buying a hybrid, it makes sense to plan to own it a long time. Personally, I’d feel better with a car from a manufacturer that’s been making hybrids for a while. There is a raging debate about how long hybrid batteries can be expected to last, and some hybrid manufacturers have had problems with their battery technology. It will pay to do some careful research before you buy, and be sure to look beyond the benefits of increased gas mileage.
