hybrid car? Don't rush out to the dealership just yet.
It's not that we don't want to do our part to help protect the environment. We're all for burning less fossil fuel. Financial experts argue, however, that hybrid drivers are paying too high a premium for a vehicle that offers only marginally better fuel efficiency than the other economy cars already on the road. And as the government starts to roll back its tax incentives for hybrids next year a $2,000 tax deduction will be incrementally phased out by 2007 these cars will stretch wallets even further.
"If you're looking at your pocket, you're not gaining anything there anytime soon," says Gabriel Shenhar, senior auto test engineer for Consumer Reports. It's wise, he says, to wait until auto makers improve hybrids' powertrains and bring prices more into alignment with regular models.
Where's the Savings?
Sure, hybrids are cheap compared with a $55,000 Cadillac Escalade. But if you compare them with their counterparts economy cars you could end up coughing up anywhere from 25% to 30% more at the dealership and not save much at the pump.
Consumer Reports compared the 2003 Honda Civic Hybrid model, which gets 36 miles per gallon and sells for roughly $21,000, with the 2003 Honda Civic EX, which gets 29 miles per gallon and sells for an average of $18,500. The results? Not including the tax break (which would vary depending on one's income), it would take you 21 1/2 years in gas savings to pay back the extra money you initially laid out for the hybrid, says Consumer Reports' Shenhar. With the tax break, it would still take four years to break even.
Here's some more bad news. The folks at Edmunds.com predict that hybrids will depreciate faster than other models. Why? Auto makers are improving the hybrid powertrain so quickly that it's unlikely that in a few years a driver in the used-car market will want to purchase a hybrid with early technology. Already it's pretty hard to see why someone would buy a 2003 Toyota Prius when they could have the 2004 model, which handles better, has more power and gets much better mileage.
Making matters worse, the IRS no longer wants to subsidize hybrid cars. Back in 2002 the IRS gave hybrid owners a $2,000 tax break on new purchases. This was supposed to encourage Americans to buy hybrid cars, and thereby protect the environment and decrease our dependence on oil from the Middle East. But come January, that tax incentive will start shrinking; it'll be phased out entirely by 2007. According to the IRS, the $2,000 deduction will be cut 25% in 2004, 50% in 2005 and 75% in 2006. The Senate energy bill, which is still being debated, would deliver two tax breaks worth up to $3,500 for fuel-efficient cars of all stripes. (Experts estimate hybrids could qualify for up to $2,000.) But passage of the bill in its current form is anything but certain right now.
Living Up to the Hype
What we don't know yet is how much the new hybrid SUVs, the Ford Escape and the Lexus RX Hybrid, will cost, or what their gas mileage will be. According to the early buzz, they should be priced at least somewhere in line with other lightweight trucks, and offer far better fuel economy. If they could achieve both goals, there wouldn't be any reason not to own one, says Edmunds.com's automotive expert Ed Hellwig.
Ford plans to unveil its Ford Escape early next summer, and claims it will get an astonishing 35 to 40 miles per gallon and have the power of a V6-like engine. Consumer Reports' Shenhar is skeptical. He doesn't understand how a heavy SUV can get the same mileage as the 2003 Toyota Prius got in the Consumer Reports test. Still, even if the Lexus or Ford SUVs do achieve superior fuel efficiency, some argue against owning the first-year models of any new car. Better to wait 12 months for the kinks to be worked out.
Waiting doesn't mean you have to drive around feeling guilty that you're killing the environment. "You can get comparable or close hybrid fuel consumption with several small cars with efficient engines and manual transmissions," Consumer Reports' Shenhar says. While the Honda Civic hybrid gets 36 miles per gallon and the 2003 Prius gets 41 miles per gallon (Consumer Reports hasn't tested the 2004 model yet), a regular Toyota Echo with a manual transmission gets 38 miles per gallon. It's also considerably cheaper, starting at around $10,000.
Indeed, you can boost fuel efficiency for any car if you choose a manual transmission over an automatic. "The average stick-shift vehicle gets 17% to 18% better gas mileage than an automatic," Shenhar says.
And if you have three kids and sports equipment to lug around, consider a wagon rather than an SUV. While the average wagon gets mileage in the mid-20s range, an SUV usually scores in the midteens. Wagons are a lot safer to drive, too. That's an important consideration when you're hauling your priceless cargo.