GreenHybrid - Hybrid Cars - View Single Post - Blunder in Hybrid Car Cost Comparison by Consumer Reports

akt0001 · #1 (**permalink**) 03-05-2006, 10:41 AM

I mailed the following letter to Consumer Reports about the blunder they made in their Hybrid Car versus All-gas Car Cost Comparison article in April 2006 issue and am posting it here because of potential interest of the greenhybrid members.

Quote:

It is too bad that after doing a good job of estimating the cost of the various individual factors in owning a hybrid car and an all-gas car model, Consumer Reports (CR) made a blunder in calculating the bottom line in their related report in April 2006 issue. For example, correct calculations of the bottom line would have shown a net saving of $450 instead of an extra cost of $5250 figured by Consumer Reports for owning a Prius instead of Corolla over a 5-year period. There would have been similar differences in the other models compared by Consumer Reports.

The problem lies in the way both the difference in the purchase cost and the difference in the depreciation cost are simply added together (besides the other factors) to calculate the difference in the ownership cost.

The extra purchase price of a car is important for calculating the extra sales tax, finance cost, insurance etc, but once that has been done, only the extra depreciation (along with sales tax, finance cost etc) need to be considered in calculating the ownership cost: the difference in the purchase price must not added to that in figuring out the difference in ownership cost.

For example, using CR data for expenses over 5 years, let us say that Corolla LE depreciates by $8000 (say) from the new price of $16,607 to $8607 in 5 years. Then, the Prius will be estimated to depreciate by $11,200 ($8000 plus $3200 differential estimated by CR), resulting in decrease from new price of $22,305 to $11,105 in 5 years. The capital cost associated with the owning the cars (besides financing, sales tax etc) is only $8000 for the Corolla LE and $11,200 for the Prius for a differential of $3200 over five years. The differential in capital costs is not $8900 ($3200 plus the difference in purchase price of $5700).