All,

I just received my Consumer Report annual Auto issue today and they had an article on Hybrid costs vs conventional cars - considering the Hybrid Tax Credits of 2006. While this topic has been beaten to death lately, the numbers they were coming up with just seemed wrong to me - for instance they state that it will cost $3700 MORE to own an 06 Civic Hybrid rather than an EX over 5 years, $10,250 (!!!) more to own an Accord hybrid vs an EX sedan, $13,300 more to own a Highlander Hybrid vs. a Highlander Ltd.... etc.. etc... Well after doing a bit of math with their numbers - they are just calculating the numbers incorrectly (I think)! I wrote them a letter explaining what I think is wrong. Their table in the article looks like this - forgive me for plagarizing!

Purchase price premium $4000 (Civic Hybrid vs. EX sedan Automatic)
Extra Sales Tax $300
Savings from hybrid tax credit $2100
Fuel savings $1700
Extra insurance cost (or savings) ($300)
Extra maint. cost (or savings) $100
Extra depreciation cost $2900
Extra financing cost $500

Total 5 year net extra costs $3700

To me - on a cash flow basis - I don't care about the purchase price premium and believe it is irrelevent to the calculation. The actual "cost" of owning a car is the amount you buy it for minus the amount you sell it for - or DEPRECIATION! They are double dipping with their costs I think. I believe you should exclude the first line item there - actually giving the Civic Hybrid a lower cost of ownership than the EX sedan. This is consistent with what intellichoice.com and edmunds.com (true cost of ownership) have taught me.

What do you guys think? Am I off my rocker or did CR screw up?

Eric

 

They are "double dipping", in a sense. Or at least they've erred in a big way. The "extra depreciation cost" is ONLY there if you assume that the hybrid will depreciate at the same RATE as a non-hybrid, i.e., because it costs more, it will lose more value per year if you are "depreciating" on paper (as for tax purposes - the government doesn't care how much value the item ACTUALLY loses, it makes an assumption based on the type of item), using straight-line or accelerated depreciation, which are measured as a percentage of cost basis lost each year for a set period. So if you are straight-line depreciating over 10 years, a $10,000 car would be presumed to lose 10% of its value, or $1,000, each year. A $20,000 car would be presumed to lose the same 10%, or $2,000, each year. So CR would say you have $1,000 "extra depreciation" each year with the $20,000 car. I think that must be what they are doing.

BUT the only REAL cost (as opposed to theoretical, or tax-based, cost - which is actually a BENEFIT, because it provides more of a tax deduction IF you can take the depreciation, for example if the car is used for business purposes) is the ACTUAL amount of value lost each year, in terms of resale value. And that is, for hybrids, much LESS than a typical car (I think). So there is actually a double benefit (if you can deduct your auto expenses on taxes; wouldn't apply for the typical non-business vehicle) - the INCREASED chargeable depreciation (i.e., you can deduct $2,000 per year rather than $1,000, so you get a bigger deduction and less tax to pay), and the DECREASED loss in actual value!

They are treating it as if the theoretical, paper loss is a REAL cost (when, if anything, it would be a benefit), and ignoring the actual benefit from the greater resale value.

And why do they have increased maintenance cost, when oil changes are only needed 1/3 as often? I'd think you'd at least break even on that, even if the maintenance costs a bit more when it is necessary.

What is it with these people??? WHY do they want SO much to "prove" that hybrids aren't "worth it"??? It's like they're paid off by Exxon or something. I mean, I can see slanting their perspective a bit, but it's like they're working really hard to MAKE the math work out this way, even if they have to LIE. I just don't get it.

 

I'll start out here by saying the if you're buying a hybrid for environmental reasons, this discussion is meaningless.

If you are buying for the purpose of saving money, I think things become very situational and speculative. For example, how many miles do you drive per year? What is gasoline going to cost in 2011 (affects your savings and the resale value)? What will the REAL battery replacement costs be (manufacturers are being extra nice right now for marketing reasons), and what will the real life of a battery be? Will you get HOV lane privs, and if so, how much time (time = money) will that save you?

I think most subjects are just too complicated and situational for a short magazine article to address properly, and I think the current tax incentives make hybrids a reasonable "bet" for most circumstances.

 

All I know is that I ran the cost number fo my situation and was better off going hybrid, and that was BEFORE the 2006 credit was offered. I bought a 2005 Honda Civic Hybrid (HCH) and paid $2,700 more than a similarly equipped non-hybrid version. Connecticut residents pay NO SALES TAX on hyrbid cars that get more than 40 MPG highway (EPA number). That saved me 6% on the purchase price or about $1,300 right off the top vs. a standard civic. I got the $2000 federal tax deduction which saved me $600 more. I am not sure about the depreciation numbers for my car, but I do know that in Connecticut the sales tax savings also applies to used car sales so that when I sell the car later, the person that buys it won't have to pay the state a sales tax, which, believe it or not, they would charge otherwise (robber barrons). This should help hold the value up somewhat better, for what it is worth.

Anyway, $2,700 more at purchase - sales tax saving of $1,300 - fed tax deduction saved of $600 = only $800 more for the HCH and that doesn't include the gas savings!

I drive about 25,000 miles per year or 10,000 more than consumer reports assumes, and I am averaging 48+ MPG lifetime on the car without too many shenanigans This saves me at least $400 per year over a non hybrid civic with gas prices at least $620/yr (according to hybridcars.com) assuming a gas price of $2.25 which when Katrina and $3.50/gallon gas rolled through the car was like the goose that laid the golden egg. If i keep the car for 4 years that adds up to a conservative gas savings of nearly $2,500, which completely washes out the $800 of added cost for the HCH that remained after subtracting the tax savings. If i drive the car longer than 4 years, I win even more.

I suppose Consumer Reports needs to at least acknowledge that the hybrid cost savings would not be there for those that live in states that do not have these types of incentives or for folks that drive average or below average milage each year, but they should also at least point out that for many folks that do decide to make the hybrid purchase, it can be the smart move financially as well as environmentally, rather than simply discrediting the option based on average drivers.

Who ever said hybrid drivers were average anyway?

 

http://www.priusownersgroup.com/?p=833

prius owner fights back!

 

I think there are a few hare brained flaws in the Consumer Reports analysis.

Looking at the Civic Hybrid, they calculate a $4000 price premium. Okay, I won;t argue with that. The MSRP difference is less but you can probably negotiate a better deal on an EX than on a Hybrid.

But then what's with the depreciation cost? Is a Hybrid going to sell for $2900 less than a EX after five years? I don't think so. And if not, then they're double counting the depreciation. You either lose when you buy the car, or you lose when you sell it. You don't lose the same dollar twice.

Next is the finance cost. Did you buy the car for cash or did you finance it? If you bought for cash you already paid $4000 extra. You have no financing cost. If you financed it, you have an extra financing cost but you didn't pay out $4000 extra up front. Again, double counting.

Finally there's the matter of fuel economy and saving on gas. Consumer Reports uses 37 MPG for the hybrid and 28 MPG for the EX. That's 32% more miles per gallon for the hybrid.

The EPA numbers are 50 MPG vs. 34 MPG respectively. That's 47% more miles per gallon for the hybrid.

Reports from actual drivers at http://www.fueleconomy.gov show 46.3 vs. 31.5. That's also 47% more miles per gallon for the hybrid.

Whatever mileage figure we use, I think it's disingenuous for CU to assume that all published mileage figures for the hybrid are less realistic than those for the EX. The mileage advantage of the hybrid is 47%, not 32%. Translated into dollars, the CU figure of $1700 should be corrected to about $2500.

If I remove the depreciation and financing cost from their table, and add $700 in fuel savings, I end up with a 5 year cost advantage of $500 for the hybrid.

The Consumer Reports cover headline says "Hybrid Hype?" (Talk about biased headlining ). My answer is no. There is no hype. At least in the case of the Civic Hybrid the economics are just about break-even. And we get the bonus of environmental and macro-economic benefits.

 

I just sent this email (below) to CR on the article. Comments and/or corrections on it are welcome (good or bad)

I just finished reading your comaprison report of hybrids to all gas and was definitely underwhelmed. As you might guess I am a hybrid owner - 2005 Toyota Prius. While your analysis looks sound on the surface and is accurate as far as it goes, I believe you do us all a disservice by focusing on current hard, known costs only for single drivers. I know that is your primary mission but where miss the boat on the positive cumulative effects of lower CO2, CO, NO, and SO2 on the health of large suburban/urban populations that come from (and could come from) hybrid ownership; and on the reduction in dependency on foreign oil. Please continue below.

The much lower depreciation values mentioned are not what the market is showing either. I would have to pay about 95% as much for my 5 month old 2005 with 12,000 miles on it as I could go buy a new one for. That doesn't sound like more rapid depreciation than an all-gas model to me. Also, shouldn't depreciation be shown as a percentage of initial cost instead of an amount alone? Very misleading to the all-gas side!

To factor in non-dealer service is another miss. If all of the models are under a 3/36 warranty who is going to be concerned about that? I believe it reasonable to also assume that by the time the hybrids start coming off of 3/36 warranties there will be more non-factory service available. Unnecessarily strong to the all-gas side again.

As far as other maintenance costs did you factor in 5000 mile oil changes for the Prius vs. what I assume is 3000 for the Corolla? If this is factored in my apologies but that is a difference of 10 oil changes over 75000 miles and 20 oil changes over 150000 mile.

Finally. What is most unreasonable about this story is the beginning point. Buyers of autos come in millions of shapes and sizes. I think what would serve all buyers (and the country) best is to list "hybrid" as another accessory like you might a V8 instead of a V6 or leather seats instead of cloth. Think about it a moment before you reject it out of hand. If I want a V8 Hemi Dodge 300 with leather seats instead of a V6 300 with cloth seats you show me what the difference in price will be and as a buyer I would decide that the extra 2 cylinders and 150 horsepower are worth "x" current dollars to me or they're not. I don't see the same added price premium, gasoline, maintenance, and insurance cost comparisons on that anywhere - just the initial price. As a buyer I want it or I don't. So you are not really being fair at all - just singling hybrids out for very unspecial treatment.

 

I was reared to believe in CR as the consumer's friend. That was fifty years ago.

But the CR reviews I have seen for the past score of years or so are clearly heavily biased - to the point where it can reasonably be asked if CR is paid to write the articles that way by vested interests.

Like other hybrid drivers, I did my homework before ever going to a dealership. I know what my hybrid is worth to me - and have an idea of how others value their hybrids.

It is painfully obvious that the author(s) of the article haven't a clue regarding the facts. There are some folktales they used from which incorrect inferences are made. The article would get a cold zero if submitted to my statistics class.

I realize that hybrids may not be for everyone. Those who drive hybrids like a Hummer will, in fact, be hard-pressed to realize financial advantage from them. And from the mileage reports in the CR article, I can only assume that they author(s) did in fact drive the hybrids like Hummers (if, in fact, they even took the trouble to drive them at all).

They certainly never investigated the depreciation or maintenence aspects. These "facts" are out-and-out wrong.

In my journalism classes, it was repeatedly stressed how important is was to verify and then double-check the facts being used in a story. I am a statistician and know of the importance of making correct inferences from data.

Using folklore as fact is not consistent with good journalism. The process of drawing conclusions from it (even if the original data were valid) fails every test of good statistical procedure.

In other words, the article is a pile of manure.

 

I think the article is a bunch of hooey. BUT, to be fair, I don't think it was wrong to include both the price premium and extra financing cost. The former is how much more you pay in price of the vehicle, the latter is how much more you pay in interest to finance that larger price. IF you finance, as most people do (I think), you have to pay both. The fact that you don't pay the entire price premium "up front" if you finance doesn't mean you don't pay it at all, you just pay it over time. Unless you sell before the vehicle is paid off, you do end up paying both the higher price and some extra interest.

It was very unfair and unreasonable to "discount" the hybrid mileage so much from EPA, but not to do the same to the non-hybrid. And, as I've pointed out, the whole depreciation thing is ridiculous.

Finally, perhaps many hybrids won't seem to "make sense" to many "average" drivers, concerned with cost alone, but a fair article would at least point out where such assumptions break down - for people who drive more than average on longer trips, in pleasant climes; those who are willing to adjust their driving styles to drive more "gently" when given sufficient feedback to do so; those who might buy a Prius instead of some vehicle that gets 25 mpg; etc., and would also at least *mention* the "non-financial" benefits that some people might find appealing.

I'm thinking of writing something myself...

 

I have zero confidence in CR.

I began my hybrid research back in 2001 and read an article in Consumer Repotrs. It was a 2.5 page writeup on the Prius. 99% of it was a glowing endorsement with a couple of lesser points to make it all seem legitimate. Then, at the end in magnifying glass lawyer print said "Paid Toyota Advertisement".

Yes, I think Prius is a wonderful car but what CR did with that was designed to misslead the consumer.

When I got my car in Jan '04, me & my wife did upper 40's MPG at first, then 50's and higher.
Just as I crossed my first 60MPG tank CR's "professional" drivers reported they were only able to squeeze 34MPG.

I don't know who might be paying CR for this missinformation but they don't seem to have consumers in mind. When was the last time you read an article reporting the fantastic capabilities of these cars?

I'm also not sure of the $4K premium.
The deal struck with the seller is the deal made. I paid around $1,000 more than a comparable EX at the time. The next guy might have done less shopping around, agreed to more things and paid considerably more.

I'm not sure of HCH II but in my case my car came with many desireables not available in other Civic's. (Foam injected frame/body, EBS etc which should account for something)