Does it Pay to Buy a Hybrid Car?

Ever thought that 60 miles per gallon would cut your monthly gas bill in half? Me too. The idea of the hybrid is almost too good to be true. And from a financial standpoint, it is too good to be true. The following information is a cost comparison between the Honda Civic Sedan and the Honda Civic Hybrid Sedan. Essentially the same car, except the hybrid uses half electric, and half gas power, thus improving gas mileage. According to Honda, the Civic gets 40 mpg on the highway, while the Hybrid Civic gets an amazing 51 mpg. This is where the salesman gets you. “It will help protect the environment while saving you tons of money on your gas bill every month”, a salesman might say. This is very convincing, as it appeals to both our emotional side in protecting the environment, as well as our wallet. But let’s take a closer look at the two:

  • Civic Sedan: Starting MSRP – $15,010
  • Civic Sedan: Highway MPG – 40
  • Civic Hybrid Sedan: Starting MSRP -$22,600
  • Civic Hybrid Sedan: Highway MPG – 51

Now, I have compiled a spreadsheet that will aid you in your financial evaluation of the hybrid vs regular car purchase. As always, I have run an initial estimation only, you will need to download the spreadsheet at the bottom of the post, and update the numbers per your circumstances. Let’s look at the findings:

Buy a Hybrid Car Financial Comparison

Make/Model Price MPG Hwy Miles Per Yr Price/Gal Gas $/Month
Honda Civic Sedan $15,010.00 40 15,000 $2.75 $85.94
Honda Civic Hybrid Sedan $22,600.00 51 15,000 $2.75 $67.40

         
Monthly Savings with Hybrid $18.54      
Yearly Savings with Hybrid $222.43      
Price Difference $7,590.00      
Months to Recoup Price Difference 409      
Years to Recoup Price Difference 34.1      
           
           

The results are staggering! Look at how long it will take for the gas savings to pay you back for the difference in price of the car. 34 YEARS!!! Clearly not a wise investment. However, if you still are considering buying a hybrid car, the government does offer some tax advantages. The Energy Policy Act of 2005 allows a tax credit to be applied to an owner of a new hybrid car, as long as it meets the programs requirements (at least until 2009). The tax credit is derived from statistics run on the particular make/model hybrid car you purchase, but usually will fall somewhere around $1,500-$3,000. This is a deduction however, not a check. Depending on your tax bracket, the actual dollars of tax savings will vary. The nice thing though, is the deduction can be applied on top of the standard deduction!

Having said that, if you are in the 20% tax bracket and got a credit of $2,000, your tax savings would be $400. Not bad, but you will still need to drive that Honda Civic Hybrid Sedan for about 30 years to get the payback. The bottom line is, if you want to buy a hybrid car for the cost savings, forget it. If you have a green thumb and want to help the environment, then it is still an option. Be warned though, the life cycle to obtain and use the additional batteries for the hybrid car puts extra pressure on the environment, not found in regular gasoline cars.

I hope that I did not shun everyone from buying a hybrid car, I still believe in the concept myself. However with the current technology, it just doesn’t make sense financially. I look for the day of the fuel cell car, or other concept car, that takes away the need for gasoline…

Here’s the spreadsheet:

Buy a Hybrid Car Financial Comparison.xls

4 thoughts on “Does it Pay to Buy a Hybrid Car?

  1. Pingback: Personal Tax Planning: Don't Miss These Write Offs

  2. My understanding is, if it is a “Tax Credit” you get the full amount off your taxes. If it is a Tax Deduction” it is subject to your tax bracket %.

  3. What about the cost of plugging your car in? That electricity isn’t free! Also, my understanding is that when those cars draw power at night that the plants supplying the electricity pollute greatly b/c they have to run at less than full capacity.

    • @SmartSaver – yes, the electricity costs money, but only a fraction of what gasoline costs. I am not sure about the efficiency of the power plants. If the government would lift all the regulation, we could have nuclear plants that produce better power, with less harm on the environment, at a cheaper cost.

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