A Quicker Return on Hybrids?
Wednesday's Wall St. Journal Marketplace section (sorry, no link) carried a very good summary of current trends in auto technology, looking at a variety of different paths to greater efficiency and lower emissions. Their comment on the cost of hybrids echoed my own remarks of May 3, to the effect that it will take years for consumers to recover the higher costs of hybrid drive systems in fuel savings.

But as I read the article, something hit me that should have been obvious before. If the buyer finances the purchase, the hybrid premium is not incurred up front, but spread out over the financing term, and offset by whatever residual value premium the used hybrid might fetch when you sell it.

For example, if a hybrid costs $3500 more than a comparable non-hybrid, but is still worth $1500 more after four years, then at 6% the extra cost of owning the hybrid is about $650/year (after factoring in the present value of the trade-in). This is still more than the current $300 to $400 of fuel savings you'd enjoy (at current gas prices), but we haven't gotten to the tax break for buying a hybrid. Although this benefit is being phased out, you can currently deduct $2000 of the purchase price of a hybrid from your Form 1040. In the 25% tax bracket, that nets you $500, or most of the cost of the first year's hybrid premium.

Add it all up, and at least for someone who borrows to buy the hybrid and is in a typical tax bracket, the extra cost of a hybrid car might not be more than a few hundred dollars over the time you own it. And if, on top of this, you think hybrids are a cool technology and good for the environment, that might look like a pretty good deal.