This article appeared originally in the August 2008 Levitt Letter.
How long does it take to recover the $12,000 extra paid for a hybrid engine on a Chevy Tahoe? Let’s do the math.
The conventional Tahoe gets 14 mpg in the city and 19 on the highway. The hybrid gets 20 mpg either way—a savings of 3.5 mpg if you assume half city and half highway driving. At $4.50 per gallon, the conventional Tahoe costs $.27 per mile to drive ($4.50 divided by 16.5), and the hybrid costs $.22 ($4.50 divided by 20)—a savings of five cents per mile. Dividing $12,000 dollars by five cents saved per mile equals 240,000 miles!
The fuel savings will equal $12,000 only if/when the Tahoe hybrid’s odometer reaches 240,000 miles. At 12,000 miles per year, the 240,000-mile mark is 20 years away. And who wants to bet that the Lord will tarry for two decades?!
The complex hybrid technology will likely generate exotic and expensive repair bills. For example, www.cartalk.com verified that the owner of a 2003 Toyota Prius with only 70,000 miles has to spend $2,000 to repair her fuel-saving, electric power steering (most cars use hydraulic power-steering pumps). Spending that same $2,000 on 444 gallons of gas would give me 7,500 miles in my ’98 Infiniti (17 mpg) or 9,800 miles in my ’95 Volvo (22 mpg). On depreciation, however, I save about 30¢ per mile compared with owning a new $26,000 car!1
In his book Gusher of Lies: The Dangerous Delusions of “Energy Independence,” Robert Bryce reports that British motorists presently pay $8.38 per gallon. Norway—$8.73, France—nearly $10, Turkey—$11.29. His point: fuel in America remains a bargain.
More helpfully, Bryce observes that, “Gasoline is a fairly minor expense when you consider the overall cost of car ownership.” In 1975, gasoline made up 33.4 percent of the total cost of owning and operating a car. By 2006, according to the Bureau of Transportation Statistics, gasoline costs had declined to just 17.1 percent. Even though fuel has increased by about a dollar per gallon since 2006, it remains a small part of the cost of ownership. “By contrast, the fixed costs of ownership—insurance, licensing, taxes and financing [and maintenance]—have increased nearly fivefold since 1975.”
For the big picture on economical car ownership, please see the “Wise As a Serpent” installment on page 9 of the April 2007 Levitt Letter, posted at www.levitt.com. And visit the “Drive Free, Retire Rich” presentation at www.daveramsey.com/etc/lms/drive_free/player.cfm
Here’s a thought: Suppose your car gets 17 mpg and a new vehicle with a hybrid motor would yield 20 mpg. At $4.50 per gallon and driving 12,000 miles per year, the annual savings would be 106 gallons, about $477.2 Homeowners can easily save that much (and reduce pollution) by installing $49 programmable thermostats on their climate control systems!
1 $26,000 x 20% = $5,200 first-year depreciation. $5,200 divided by 12,000 miles = 43 cents depreciation per mile, compared to about 13 cents per mile on my 10-year-old car!
2 12,000 miles per year divided by 17 mpg = 706 gallons per year. 12,000 miles per year divided by 20 mpg = 600 gallons per year. And 706 - 600 = 106 gallons saved or $477 savings per year.