Is Buying a Hybrid Car Still Worth It?
By: manybanking.com Staff

By manybanking.com Staff
When gas prices were over $4 a gallon in the middle of 2008, hybrid cars like the esteemed Toyota Prius (Stock Quote: TM) were hard to come by at dealerships due to huge demand.

Eager customers were willing to wait for months to pick up their shiny, new “green” car. Now that the gas prices have come back down (the current national average for regular unleaded is about $2/gallon), the question is: are hybrids still worth it financially?

For starters, when buying a hybrid, you have to make a higher upfront investment in the purchase price. Hybrid vehicles can be several thousands of dollars more than comparable gas-only vehicles, though over time, a hybrid will save you money. To determine if the upfront investment is worth the future savings, let’s calculate how long it would take a hybrid to acquire enough savings in gas to justify the higher purchase price.

To do this, we will do a simple comparison of the 2009 Toyota Prius to the similar (though not precisely comparable) 2009 Toyota Camry. The starting price for a 2009 Toyota Prius is $22,000 and it gets a combined gas mileage of 46 miles per gallon (mpg). The starting price for an automatic 2009 Toyota Camry is $20,195 and it gets a combined gas mileage of 25 mpg. The difference in price is $1,805.

Assuming gas is $2 per gallon and normal usage equals 15,000 miles per year for both vehicles, the Toyota Camry would cost you $1,200 per year in gas. On the other hand, the Toyota Prius would only cost you about $652 in gas per year, saving you $548. Consequently, it would take you 3.29 years ($1,805/$548=3.29) to justify the higher purchase price of the Prius with just gas savings alone.

If you drove more miles, it would take less time to “break-even” on your Toyota Prius purchase. For example, if you drove 25,000 miles a year, the Toyota Camry would cost $2,000 in gas per year while the Toyota Prius would cost about $1,087. With a difference of $913 a year, it would take less than two years to hit the break-even point ($1805/$913=1.98).

The break-even point on different hybrid cars tends to vary significantly; depending on how much more expensive the hybrid is than a comparable gas-only vehicle and the difference in gas mileage.

Overall, the Toyota Prius is the gold standard in gas mileage for hybrids. Others do not offer the same level of fuel economy. For example, the 2010 Ford Fusion Hybrid (Stock Quote: F) gets a combined gas mileage of 39 mpg. Hybrid SUVs get even lower gas mileage, such as the 2009 Toyota Highlander Hybrid AWD, which gets a combined gas mileage of 26 mpg.

Another important factor to consider when judging the financial feasibility of a hybrid purchase is the affect of federal tax credits. Substantial tax credits are available on some hybrid vehicles. Determined by how many of each vehicle the manufacturer has produced, consumers can receive a full $3,400 tax credit only if the manufacturer has produced less than 60,000 units. After that, the credit is reduced incrementally before eventually phasing out. Because so many Toyota hybrids have been made, they no longer qualify for the federal tax credit. However, you can get the full $3,400 credit for the 2010 Ford Fusion Hybrid or the 2010 Mercury Milan Hybrid.

—For more ways to save, spend, invest and borrow, visit MainStreet.com.

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