Smart Buying Essentials

The Hype Over Hybrids

Being all the rage nowadays, it's no surprise that consumers who are interested in hybrid vehicles are also keenly interested in their ownership costs. Everyone knows they get better gas mileage, but people should also know how much it will cost to maintain a hybrid over time. Are they a good value, relatively speaking, or a lousy value? It depends on a lot of parameters, and it so happens that automotive ownership costs are IntelliChoice's specialty.

Indeed, we have been following the trends of hybrid vehicles for several years now, and can comment on the economic performance of these vehicles with some certainty. The truth is (for all cars, not just hybrids) one needs to look well beyond the purchase price to see what a vehicle will cost you over time. Regardless of the "value" claims that you may read in car reviews or hear in ads, a vehicle's economic value is based on how much it will cost to own and operate compared to its purchase price. In a sense, purchase price is "what you pay" and the ownership costs are "what you get." The less you pay for what you get the better off you are. Our annual Best Overall Value of the Year awards identify THE vehicles that promise the best return on investment within their classes.

Here are some facts that we know to be true about hybrid vehicles:

-They cost significantly more to purchase than their 'non-hybrid' counterparts.

-In 2006, all hybrids were IntelliChoice Excellent Values in their respective classes.

-They have about the same maintenance and repair costs for the first five years or 70,000 miles as compared to gas versions of the same model.

-Hybrids hold their value better over five years compared to gas powered versions of the same model.

-Average insurance costs are somewhat significantly higher on hybrids.

-As expected, fuel costs are dramatically lower on these models.

-Hybrids are in demand. Currently most if not all hybrids have Target Prices at or near Manufacturer's Suggested Retail Price (MSRP).

Below is a comparison of Ford Escape and Honda Civic higher-trim level conventional models versus hybrid versions in two different classes:

	Escape Limited 4WD	Escape Hybrid 4WD	Civic EX	Civic Hybrid
MSRP	$26,680	$28,525	$19,060	$21,850
Depreciation	$14,868	$15,457	$9,068	$8,953
Financing	$3,789	$4,254	$2,858	$3,318
Fuel	$8,530	$5,937	$5,127	$3,606
Repairs	$874	$922	$481	$487
Maintenance	$1,820	$1,796	$1,413	$1,214
State Fees	$513	$545	$420	$454

Looking at both the Escape and Civic models you can see that even without the benefit of the tax credit, the hybrids have lower Total Ownership Costs over five years. Repairs, maintenance, and state fees are all very close, and while the hybrids perform much better in fuel they do tend to have higher insurance costs overall. Based on data from the insurance industry and other sources, we speculate the reason behind these higher costs in general is due, at least in part, to the added expense of repairs to hybrids, in the case of an accident-the cost of battery and electric motor replacement, for example.

Ownership costs are based on IntelliChoice's proprietary Target Price. It should be noted that as part of our methodology, we do not set Target Price above MSRP. As a company that evaluates ownership costs, we can't advocate paying over retail price for a vehicle, as that is financial equivalent to just tossing money out the door, both in terms of initial purchase price, as well as added depreciation costs.

The most important area of ownership costs is depreciation, and here there seems to be particular disagreement between automotive research companies-especially when it comes to the spectacularly popular Toyota Prius. IntelliChoice bases its depreciation forecasts for hybrid vehicles fundamentally like any other vehicle: by using historical used value trends. With the Prius for example, it's fairly easy to do because there's a lot of Prius history out there now. What IntelliChoice has found is that the Prius is holding its value amazingly well-the car simply refuses to stop being in demand, both as a new and used vehicle. Its resale values can't seem to drop, and analysis of years of accumulated data allows us to state confidently that in terms of depreciation, the future looks particularly rosy for the Prius. Overall, fifth-year retained value projections show hybrids holding their value 5-10% better than gas vehicles, depending on the make and model.

It is important to remember that value is a relative term, not an absolute term. Value means performing better than the logical expectation. Hybrids do cost more to purchase; many other vehicles cost less. But, when their costs to own and operate are plotted against conventional vehicles with comparable purchase prices, in the end your cash outlay is less. So much less in fact, eight hybrids took top place in their respective classes-including the new Escape and Highlander models. Hybrids are available in an increasing number of segments, giving consumers even more choices.

IntelliChoice's ownership costs are our own. We don't farm out our research. We perform the analyses of vehicles ourselves, independently of the auto industry. In addition, our methodology and calculations belong to us-it's all designed and run in-house, not conjured up out of the blue or borrowed from some fly-by-night company. In fact, IntelliChoice pioneered the concept of automobile ownership costs nearly twenty years ago. So, it's safe to say that IntelliChoice's ownership costs for automobiles can be held up to the highest scrutiny.