Will a Hybrid Car Save You Money?

• The costs involved in buying and maintaining a hybrid
• The potential savings you’ll get from owning and driving a hybrid

Hybrid Costs

Initial Cost: The Hybrid Premium

• Mild hybrids have smaller premiums, since they contain less expensive technology.
• Full hybrids have higher premiums, since they contain more advanced technology.

• It's harder to find them used: Hybrids are still new enough that it’s hard to find them in used car lots. So nearly all buyers must pay new-car prices for hybrids. These prices are higher than those of each hybrid’s used, gasoline-only equivalent.
• There are fewer dealer incentives: Dealers offer reduced prices on cars that are difficult to sell—but hybrids are not difficult to sell. In fact, they’re currently so popular that dealers have a tough time keeping up with demand. So it’s difficult to find a hybrid on sale or negotiate a better price: most often you’ll end up paying the dealer’s price.
• They often come fully loaded: When buyers shop for conventional cars, they have choices ranging from the bare-bones model with manual windows and no air conditioning to a luxury model with heated seats and a premium sound system. Hybrid buyers have fewer choices on options packages. Many hybrids come standard with pricey features, such as luxury trim, which drive up the price.

Possible Additional Hybrid Expenses

• Dealership service rates: Hybrid cars don’t require any more maintenance or repairs than conventional cars, and most of the maintenance is familiar enough that the average mechanic can complete it without problems. However, car owners who prefer to have hybrid-certified technicians work on their cars will likely have to pay the higher service rates found at dealerships, since it’s often hard to find independent hybrid-certified mechanics.
• Higher insurance premiums: Hybrid car insurance can cost up to $100 more per year than comparable coverage for conventional cars. Insurance for hybrids is more expensive for two reasons:
  • Insurers expect to see higher personal injury and vehicle damage costs, since hybrids are smaller and lighter than conventional cars.
  • Insurers expect accidents involving hybrids to result in a total loss more often than in accidents involving conventional cars.
  • At the same time, some insurers offer discounts to hybrid owners, as hybrid drivers tend to drive more carefully on average than drivers of conventional cars.
• Faster depreciation: Many experts predict that hybrid cars won’t hold their value as well as conventional models, since hybrid technology is evolving so rapidly. This is a matter of some debate, though, and current data seems to indicate strong resale value for many hybrids, particularly the Toyota Prius.

Hybrid Savings

• Fuel savings for hybrid owners: Hybrid cars are an investment whose return rises as the price of gasoline increases. Hybrid car owners know that as fuel prices rise, they’ll pay off the hybrid premium more quickly. Assuming gasoline prices of $3.00 per gallon, a hybrid car can save its owner as much as $650 per year.
• Tax benefits for hybrid owners: As of 2006, the U.S. government gives a tax credit to buyers of qualified hybrid vehicles. Tax credits are better than tax deductions because they can be applied directly to the amount you owe (or to your refund amount), whereas deductions only reduce your taxable income. The hybrid car tax credit is calculated based on the estimated fuel savings that a hybrid provides compared to its closest gasoline-only counterpart. This number ranges from $250 for the GMC Sierra/Chevy Silverado to $2,600 for the Ford Escape 2WD. At present, though, only the first 60,000 hybrid cars sold annually by each manufacturer qualify for the tax break.
• Time savings for hybrid owners: In Arizona and Virginia, owners of qualified hybrids can use lanes and roads designated as high-occupancy vehicle (HOV) areas, regardless of the number of people in the car. Though other states are considering adopting such HOV policies, California already dropped its HOV policy, and Virginia has extended its policy only through 2008. It’s unclear whether this perk will last, so be sure to check with your local government for updates.

The Bottom Line on Hybrids Savings

• Nearly all hybrid owners who own their cars for five years or longer will save enough in fuel and tax credits to earn back the hybrid premium they paid.

• Own less luxurious models
• Drive long distances
• Drive hybrid trucks with full-capacity loads