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The Math Behind the Hybrid Hype
markmcb writes "OmniNerd has posted a thorough mathematical analysis of purchasing a hybrid vehicle that dispels much of the hype associated with this modern buzz word. The author considers all of the major factors to show just how much money a hybrid vehicle will or won't save you. In the end, it seems the only real winner after a hybrid purchase is the environment."
> the only real winner after a hybrid purchase is the environment.
That is to say, everyone and everything on the planet.
"In the end, it seems the only real winner after a hybrid purchase is the environment"
And that isn't enough?
My Sig: SEGV
umm...
buying a new car is almost -always- a losing proposition, financially. If money is a concern, a 3-year-old Accord or
Camry is probably the best way to go.
He compares the Prius to a Corolla; really it's closer in quality and size to a Camry, which is much closer in price.
Also, the value retention part of it is key in treating it as an investment, but "OmniNerd" doesn't do that, he's just calculating the change in monthly payments. That completely invalidates the monetary comparison from the start.
I.e. the "Math" here is off base, by quite a lot.
Plus, my '05 Prius is very fun to drive, wouldn't trade it for just about anything (well, maybe one of those $40,000 sports cars...)
Energy: time to change the picture.
It is the whole model that is screwed-up.
Getting rid of the cars is the only solution. There is no way on earth (or in hell) to provide three tons of scrap (and the energy needed to move them) to each human on the planet.
Nice analysis, but like most of these type of analyses, they ignore some important factors:
Environmental cost of manufacturing NiMH batteries
$ Cost of replacing batteries at end of useful life (which is likely before the vehicle's useful life is over)
Environmental cost of disposal of NiMH batteries (likely 2 sets per vehicle during useful life, 100 pounds+ each set) That's a lot of heavy metals to dispose of.
I'm always fascinated by the capacity of the US citizen to asked to be taxed further.
Dark Reflection
The article seems to be assuming that Gas prices remain constant through the life of a car. Anyone believe that? How about the same calculations assuming a 10% per year increase in gas prices (which they were this year before Katrina).
I think I disagree with your premise that the US energy model is 'fundamentally flawed'. Surely, it makes sense that cheap energy will stimulate economic growth and add to the wealth of the nation. To this end, it is justifiable to have affordable gas. Venezuela is using this idea right now, last time I checked they were retailing gas for 4 cents/L.
With respect to this line of reasoning, the big white elephant in the room is the environmental costs. What is the point of enriching a nation if it become toxic in 50 years? What need to be happen is for the global economy, not just the US, to come to some concensus on the future of energy availability. More and more signs point to peak oil occuring now or in the next 5 years. That means from now on (or not far from now) energy will be a premium commodity and the costs associated will inflate. Inventing efficient gasoline cars is a useful tactic to stem the tide of oil scarcity, but oil is still dirty. Technology like fuel cells and hydrogen power must be the focus. Preserving the oil economy is folly.
Many people realise this and have argued that the global oil economy is a disastrous thing. I, for one, have no confidence that it will change, however. We are addicted to oil. Everyone in the developed world is addicted to oil. We are not going to stop. It is like an alcoholic who drinks himself to death. He knows he is killing himself but he keeps drinking. That is us. We will use oil until the world is toxic or the economy collapses plunging us into chaos. I'll be dead by the time it happens but unless there a radical shifts in the next ten years I think we are doomed.
So, to single out the US oil stategy is unfair. We all suck.
Have a nice day.
Just a couple of simple points:
1. I currently pay $2/gal and $1 of that is tax
2. The US is over twice the size of Europe so that does present some barriers to public transportation.
3. Actually, I agree with you in principle, just wanted to make the above points.
Those who open their minds too far often let their brains fall out.
Not much to do with oil prices; more to do with infrastructure. I can't imagine getting by in the US without a car, unless I was based entirely in one of the larger cities, say New York. Otherwise, how are you to get to the mall to buy food and clothing?
I've had a 2004 Prius since November 2003. I'm very pleased with my car, and I'll keep it for many years to come, I think. One thing that keeps coming up is that I didn't save any money. What I don't understand is why that focus is applied to the hybrid and not other cars? You can pretty much get a fully functional, well engineered car today for around $12K. So every dollar you spend over that is just for personal taste. When someone buys a $60K BMW, I don't hear people saying "You know, you didn't save any money".
I guess the idea that you might save money with a hybrid casts the image that most people who buy them are out to save money. I'm not. At $24K, the Prius is only a bit more expensive than other cars of it's quality -- but like a BMW purchaser, I would have bought it for even more. BecasuseI think it's cool. I like the idea of using as little oil as I can while still living a convenient and comfortable life. I like the idea of polluting as less. And most of all, I like the idea of voting (with my dollars) for changing technology in automobiles.
So, just want to point out that not everyone who buys a Prius is doing it for a financial reason -- probably not more than with any other car.
Cheers.
However, the arguement is that Europe "taxes the bejesus" out of their gasoline in order to encourage mass transit and energy saving vehicles.
In the U.S., while in principle this would be a good idea, there just isn't the urbanization that there is in Europe. European cities aren't built for car commuting - hell most of them had to be upgraded for horses 1400 years ago. Narrow, winding streets, and cobblestones, do not encourage cars. In the U.S., everything is younger, and most of it is built to accomidate cars, with wider streets, etc. As a result, the U.S. has always had that huge suburban and rural population that drives into work. In many places, there just isn't a mass transit option. I lived in metropolitan Memphis for a long time; there's no mass transit to speak of there, other than an aweful bus system. It's too close to the mississippi and too close to the water table for a subway (no one has a basement in Memphis). But, you know what they do have? A "beltway" (I-240) and a LOT of parking.
It's only feasable to use mass transit for everything if you live in one of the cities like Washington, DC, which has an excellent metro system and inbound rail system, or New York, who's subway system, while not pretty, can get you anywhere you need to go.
Driving places is a culture in America. Very few of us live close enough to walk, or even bike, to work. A friend of mine told me about an exchange student from Estonia whom he befriended, and how when they went to D.C. one day, and Dimitri saw the "Springfield Interchange" (the Mixing Bowl), it flipped him out. A road that's seven lanes wide in each direction, with flyover ramps going everywhere, people merging at 60 miles an hour 10 feet apart... it was like nothing he'd ever seen before.
Raising taxes on gas to $6-$8/gal in the U.S. would crush the economy. We're just not built for it. We're slowly emphasizing mass transit and there's been a small movement towards local community envolvement (i.e. not driving 50 miles to work, but working where you live), and we'll get there... but let's not get drastic.
~W
sig?
"The author was probably aware of these issues, but he didn't include them because don't factor into the consumer decision."
Really? If that were the case, almost zero hybrids would have been sold. The math in this article is not rocket-science, he is stating the obvious, and I imagine 98+% of the people buying them are full aware of the simple economics. I think your point may be valid for many, but certainly not all. Many, many people have bought hybrids (or are considering one), paying a definite premium, solely because they believe they are doing the right thing for the environment and the next generations of earth inhabitants.
It definitely does factor into many (not all) consumer's decisions.
The only athletic sport I ever mastered was backgammon - Douglas William Jerrold
As for needing wars to get that oil, these wars come about by interacting with a stunted, xenophobic society. It is unfortunate that this happens.
This is the kind of rationalization about wars that scares the hell out of me.
If you have to go to war repeatedlly to maintain your energy policy, despite having being bitten once 30 years ago, then something must be wrong with your policy. Especially when alternatives to oil already exists.
It's just that the populations of Islamic societies don't want to be in contact with Westerners.
This blanket generalization scares me even more.
But just to say oil is evil, etc. is not a solution.
Nobody is saying oil is evil. It is the irresponsible use of a limited resource, in an enviromentally damaging way, maintained by a myopic national energy policy which uses wars as a policy tool, that is evil.
Mode (3) smart-aleck mode. Press * to return to main menu.
Ahhh, did anyone check the math. It looks a bit off. First he uses a 1.15 multiplier to account for 'other costs' THEN adds it to the loan value (i.e., interest oriented). If you read the endnote that is based on the fact that loans are for 115% of the value (payoff on old car?). How is that a legit 'cost' of the new hybrid car?
Second he is using the full cost of the hybrid. He is assuming that you dump a perfectly good car and buy a hybrid, NOT that you are bright enough to buy a hybrid when it is time to buy something. That is, he is assuming it is the full cost, not the incremental cost of the hybrid. While that MAY be a correct financial analysis, it is unlikely to be a real world analysis (IMO).
If I want a $22K hybrid and my other choice is a $18K car/SUV at 25MPG, then the 'additional capital expense' is $4K NOT $22K. $4K * 1.15 (assuming I use his magic math) is $4.6K incremental cost at 5.25% over 60 months that's about $88/mo in payment. Given the gas savings and higher trade in allowance, the case for a hybrid may be closer than he paints. Of course that assumes the competition for your car dollar is an SUV at 25 MPG if it is a small car at $15K and 30MPG then the hybrid case is less good.
The real issue is during a "I'm going to buy a new car, what will it be" purchase period. It is fair to deal with incremental costs and incremental improvements in gas mileage/trade-in value. As I read it, the article assumes a 'forced trade' at full cost, not incremental costs. I'm not sure that is a fair comparison.
The real way to make a good economic comparison is to compare buying a new hybrid vs. buying a new conventional-engine car, and do a time-value-of-money calculation to get present values of the cars and gasoline. Sure, monthly payments are what hits you in the wallet when you're making them, but they go away once you've paid off the loan, so you can calculate the Net Present Value of any interest you might pay to car dealers (might be positive or negative, depending on whether they're doing loss-leader loans to keep the car price higher.) Assume you're going to keep them both for the same number of years (otherwise it's way too messy; more on this later), estimate the effective interest rate for money over the next N years (which is not the same as the interest on your car loan...), estimate the future value of the car at the time you sell it (and calculate NPV), estimate the NPV of the price of any repairs you'll need to make, estimate the price of gasoline and amount you'll use over that period and NPV that.
So does it pay off, or not? Depends a lot on what kind of car you'd get instead, how long you'd keep the cars, and on the assumptions you make about the future cost of money, gasoline, and used cars. If you're spending the same amount of money on the car (overinflated price of a hybrid vs. buying a fancy car), it's probably a win. If you're comparing the hybrid to an econobox, it's probably not a win. If you think cars last 15 years, and you're comparing the hybrid to a used econobox now, another one five years from now, and another one in ten years, it's almost definitely a big lose, but you get fewer coolness points for driving around in beaters during the first ten years (after that, your hybrid will also be a beater, and repair costs are much harder to predict than for standard cars.)
I'm not the typical American car consumer - I buy cars with cash, generally new, don't drive very far most days, and keep them till they die of old age or are sufficiently close financially, so I spend less on cars and more on repairs (though replacing the engine in an old van did cost about the same as buying a used van of similar vintage, but since it had spent most of its years in California instead of New Jersey, the body was in really good shape.) A few years back, when my 1985 Toyota was getting old, we were thinking about keeping it running for a couple more years and getting an electric, but then the PT Cruiser came out, so we decided to go with the cool car instead... bought it on eBay.
Bill Stewart
New Fast-Compression-only CPR http://preview.tinyurl.com/dy575ks
I'm sorry but this is the type of idiocy that runs rampant (conservatives as well as librerals use it). If you don't get the result you want you claim the science is wrong. Economics is not a fundamentally flawed science. What you are calling economics is actually finance. This guy ran a financial analysis NOT an economic one.
With a proper and more full economic analysis you would include costs to the environment (say the cost of cleaning up extra pollution, or the opportunity costs of using the oil for gas, or economies of scale when more people purchase hybrids). Poor analysis isn't the fault of economics, it is the fault of the economist.