Hybrid Car: A Smart Purchase?

When it comes to safeguarding the environment, hybrid cars (vehicles that combine gasoline engines and rechargeable batteries) do have a positive impact. But how does owning one affect your wallet? While it may be too soon to tell, it seems that being green may cost more money than you’d expect.

Higher prices
The sticker prices for new hybrids average several thousand dollars higher than those for comparable cars with conventional engines. As a result, your initial out-of-pocket cost to purchase a hybrid can be significantly higher than for a conventional car. If you finance the purchase, that can translate into higher monthly loan payments or longer-term loans.

Tax credits offset the cost … for now
The federal government offers a tax credit (up to $3,400) for purchasing a new hybrid vehicle; the amount of the credit you receive depends on the car’s make and model. While this credit can at least partially offset a hybrid vehicle’s higher purchase price, timing is everything: Once a car maker sells 60,000 hybrids (of any model), the credit for all that manufacturer’s vehicles begins to phase out. At least one manufacturer (Toyota) has already exceeded the 60,000 mark.

The credit won’t reduce your tax liability below zero and, if you’re eligible for other credits, must be taken last in line. If the amount of the credit exceeds your tax liability, the difference generally can’t be carried over to another year. And the credit won’t reduce your alternative minimum tax (AMT) liability, if you’re subject to it.

Saving at the pump
One of the biggest selling points for hybrid cars is their fuel economy–more miles per gallon, which means you’ll save a bundle at the pump, right? Well, not always. It depends on how and where you drive. While you’ll get good gas mileage, real-world Environmental Protection Agency (EPA) results indicate that hybrids don’t always get the significantly better numbers claimed by manufacturers, especially if you’re a low-mileage, short-trip urban driver. And fuel savings are a function of gas prices: The higher the price per gallon, the more (and the faster) you’ll save. At lower gas prices, it takes longer to recoup your higher investment in the car.

Maintenance costs
Since maintaining a hybrid is essentially the same as maintaining a conventional car, these costs aren’t a significant variable in the savings equation. However, hybrid car batteries can cost $1,000 to $3,000 or more. While they’re covered by generous warranties (up to eight years), if you keep the car beyond the warranty, you might have to replace an expensive part.

Resale value
An important consideration in the cost-effectiveness equation is the resale value of the vehicle you purchase; if the car holds its value, it’ll cost you less in the long term. Because hybrids are relatively new, the jury is still out in terms of whether they’ll deliver greater relative resale values than their conventional counterparts. If they do, owning a hybrid may offer significant savings. However, hybrid technology is still improving, and this may adversely affect the resale value of the current models: Will a buyer want a used hybrid when new model hybrids may be more fuel efficient?

In the end, it’s about more than money
As each of us motors from point to point, every gallon of gasoline consumed sends 19 pounds of carbon dioxide into the atmosphere, and carbon dioxide is linked to global warming.

In the final analysis, a hybrid car purchase isn’t all about the dollars potentially saved. In fact, we have countless clients who own hybrid cars, and the least important consideration in their car-buying journey was cost. They ask us, “What’s the sticker price of a clean environment?”. Hybrid ownership is a badge of honor, a call to action for saving our Earth’s natural resources. They are proud of their courage to make a difference.

As a result of their thoughtful purchases, our hybrid-driving friends may not be saving a ton of money, but they are steadily saving tons of greenhouse gases. They proudly take that fact to the bank.