Will a Hybrid Car Save You Money?

by Ron Haynes

With the price of gasoline continuing to skyrocket (supply and demand curves are so annoying), many people may consider buying a hybrid car, but there are costs associated with hybrids that aren’t taken into account by many who walk onto the dealer’s lot. To determine the true cost of buying and maintaining a hybrid car, and to assess whether a hybrid car will actually save you money, you must take into account:

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

Hybrid Car Costs

The costs of owning a hybrid include the initial price – sticker prices for hybrids are higher than prices of comparable conventional cars – plus a few additional expenses you’ll incur in maintaining your hybrid car.

Initial Cost: The Hybrid Premium

Hybrid cars contain new, much more expensive technology – and you’ll have to pay for it up front. When buying a hybrid car, expect to pay a “hybrid premium” of $2,500 to $10,000 more for a hybrid than for a comparable gasoline-only vehicle and the more advanced the hybrid’s technology, the higher the initial sticker price will be. In addition to the hybrid premium, there are a few other reasons why hybrids cost more to buy than comparable conventional cars.

  • It’s harder to find them used: Hybrids are still new enough that it’s hard to find many of them on 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. Hybrids, in my experience, have fewer choices on options packages. Many hybrids come standard with pricey features, such as luxury trim, which drive up the price.

As the hybrid market grows and automakers produce hybrids in more styles and at a wider range of price points, the issues above should matter less, and prices should drop … again, that pesky supply and demand thing …

Possible Additional Hybrid Expenses

Some hybrid drivers may encounter additional premiums to maintain their cars, though these costs are becoming rarer as hybrids grow in popularity:

  • 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.
  • Potentially 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.

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    • 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.
    • Time savings for hybrid owners: In a few states, 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. 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

    To determine whether a hybrid will end up paying for its premium up-front costs:

    Divide the number of miles you drive each year by the average fuel economy you expect from a conventional vehicle then multiply the resulting number by the price per gallon of gasoline.

    AreHybridsWorthIt

    Then do this for the hybrid you’re considering and see what the difference is. If you drive 15,000 miles per year in a 25 mpg car, at $4.00/gallon you’ll spend $2,400 each year in gas. If the hybrid gets 40 mpg, you’ll spend $1,500 in gas each year. The question then becomes: is the $900 you’ll save in gas worth spending the “hybrid premium?”
    The answer depends on how long you plan to drive the car, your anticipated future driving habits, and what you would have done with the money had it not been spent on gasoline for a conventional vehicle.

About the author

Ron Haynes has written 1001 articles on The Wisdom Journal.


The founder and editor of The Wisdom Journal in 2007, Ron has worked in banking, distribution, retail, and upper management for companies ranging in size from small startups to multi-billion dollar corporations. He graduated Suma Cum Laude from a top MBA program and currently is a Human Resources and Management consultant, helping companies know how employees will behave in varying situations and what motivates them to action, assisting firms in identifying top talent, and coaching managers and employees on how to better communicate and make the workplace MUCH more enjoyable. If you'd like help in these areas, contact Ron using the contact form at the top of this page or at 870-761-7881.


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{ 5 comments }

BuckTrak Budget Planner

I didn’t see it mentioned, but I believe the batteries in hybrids will be the biggest expense for hybrid owners going forward. They are heavy and expensive to replace, although improvements in technology and design should lighten batteries and lower their cost inevitably. We just purchased a brand new smaller SUV from one of the manufacturers who offer 100k/10 year warranties, and believe that while we have a conventional engine – the fact that we have a great warranty, a four-cylinder that gets over 30 mpg, and should avoid major repairs for years (we expect) – we’ll come out ahead of a hybrid buyer who might spend double for the “hybrid premium”.

Ron

Yes, the batteries are very expensive, somewhat like replacing the engine on a conventional car. The problem as I see it, is that you can properly maintain a conventional engine and get hundreds of thousands of miles out of it, but the batteries in a fully electric or hybrid car — when they go bad, they can rarely be fixed.

Scott

Aren’t you forgetting to include the cost to recharge the battery in the hybrid car. It isn’t free. If you recharge it from home you power bill is going to increase…. If it is recharged at work your employers power bill will increase.
No matter where you plug it in, there is a cost and it must be part of the equation.

Debi

Don’t hybrid cars need to be plugged in to an electrical outlet? What about the cost of electricity? Or if the power goes out? Or is this just for electrical cars? Not the same as hybrid?

Ron

Yes, if you have to plug it in to recharge, then your power bill would probably skyrocket, but many hybrids aren’t plugged in and generate their electrical power from the movement of the car itself. Those still run on gasoline, just not a lot of it. It’s that combination of electrical power and gasoline power that makes they “hybrids.”

You’re probably thinking of the Chevy Volt which IS 100% electric (kinda like a golf cart?). That will definitely run up your power bill but since GM has only sold a few of them, I didn’t include it’s requirements in the article.

Very good point though, I should have mentioned it!

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