Published January 13, 2015
If you've been toying with the idea of buying a hybrid car, the cost equation is tilting in your favor.
Until recently buying a hybrid meant you were willing to shell out for a pricier car because you believe in helping the environment or because you like to own the latest high-tech gadget. Auto-research firms found it could take up to 15 years, depending on the model, of gas-pump savings to offset hybrids' higher sticker price.
But now it's taking less time to break even, thanks to carmakers' new deals on hybrids. Right now, the average incentive for all hybrid models is about $1,638, according to Edmunds.com.
"Up until maybe a year or so ago, we were paying over sticker prices for hybrids," said Philip Reed, consumer-advice editor with Edmunds.com.
But now, "there are hybrids on car lots and they're being discounted. That's unusual. And it's also at a time when gas prices are ... high so people are going to want these cars," Reed said. Watch more with Reed on hybrid economics.
Those incentives are helping to shorten the number of years it takes to recoup a hybrid's higher sticker price.
About a year ago, Edmunds.com found that it would take a bit more than two years to break even on buying a Toyota Prius, when compared with buying a gas-powered Toyota Camry LE. Today, that break-even period has dropped to less than a year, assuming you drive 15,000 miles a year.
Gas prices play a big part in those comparisons. "Obviously, [hybrids] are much more fuel efficient. With gas prices back up again and probably going to stay higher through the summer months, it tends to make it a little more attractive proposition," said Rob Gentile, director of Consumer Reports' Auto Price Service.
Incentives on hybrids may not be your typical deals, Reed said. With the Prius, Toyota (TM) "wanted to reduce the price so they could sell more of them, but they didn't want to put an incentive on it because they didn't want to devalue the brand. So, they began to discount the options. It's a car that has a lot of options on it. If you cut the price on the options, effectively you're dropping the price of the car rather significantly."
Meanwhile, the Ford Escape and Mercury Mariner hybrids come with a $2,500 cash-back deal, plus an additional $1,000 in dealer cash - that's money that the dealer can use to reduce the price of the car, if the consumer is smart enough to negotiate. Note that incentives often vary by region; also, low-interest financing also may be available to consumers with good credit.
You won't find incentives on all hybrids. For instance, there's no special offer on the Honda Civic hybrid or the Lexus RX400h hybrid now, Reed said.
There are plenty of variables that go into figuring out how much a hybrid will cost you versus a gas-powered car. There's sticker price, including any incentives. Then there's how much you drive per year: The more miles you average, the quicker a hybrid will pay off.
For example, if you drive 25,000 miles per year on average, it'll take you a little over one year to offset the higher sticker price of the four-door sedan Camry hybrid versus a similar model gas-powered Camry, according to Edmunds.com data. But if you drive 15,000 miles a year, it'll take you a full two years. That's assuming gas is $2.87 a gallon (the current national average) and current sticker prices, incentives and tax credit amounts are in effect.
Still, when you compare hybrids to the most fuel-efficient gas-powered cars, the break-even point remains fairly long. For instance, it takes more than nine years to break even with the Honda Accord Hybrid, a four-door sedan, compared with a similar gas-powered Honda Accord, according to the Edmunds.com data, assuming 15,000 miles driven per year and gas at $2.87 gallon.
But the higher gas prices go, the better hybrids look: The break-even point between those two Hondas drops to 6.9 years if gas is at $4 a gallon.
With current sticker prices but assuming gas at $4 a gallon, the Lexus GS450h four-door sedan hybrid breaks even right away with the similar gas-powered Lexus GS430 sedan, assuming 15,000 miles driven per year. That particular comparison is aided by the tax credit that's currently available on the Lexus hybrid.
That's another consideration: The tax credits worth as much as $3,150 to consumers who buy new hybrids (they're usually not available to taxpayers who pay the alternative minimum tax). Those credits phase out once a car maker sells 60,000 hybrid vehicles. Thus far, Toyota is the only car maker to surpass that milestone, so the credits available on all Toyota hybrids are slowly phasing out.
For instance, last year a Prius buyer could enjoy a $3,150 tax credit, but if you buy that car now the credit is just $787.50, and there's no tax credit on that car if purchased after September. Go to IRS.gov and search for "tax credit for hybrid vehicles" for more information on the specific amount available on each model.
Another cost consideration is maintenance and repair. There's good news for hybrids on that front, Reed said.
"People are really worried about the batteries and it's proven to be much less of a problem than anybody ever thought," Reed said. "Plus, nearly all the manufacturers have very long and strong warranties to protect you," he said, as long as eight years and 100,000 miles or even 10 years and 110,000 miles for the hybrid components.
Plus, brake repair costs may be less than on a standard car. Because of hybrids' braking systems, "you don't have to do brake jobs as often," he said. "That's a savings that a lot of people don't consider."
Don't forget insurance costs, Gentile warned, noting that some insurers may charge more to insure a hybrid, while others offer discounts.
Still, hybrids have proved popular among plenty of car buyers even before incentives started appearing. That's because cost is not the only driver when it comes to choosing a car.
"It's an emotional decision in several ways," Reed said. For one, concern with global warming is becoming widespread among consumers, he said.
Plus, "people have very emotional feelings about gas prices. People do not work out the dollars and cents of increases in gas. It doesn't hit the ordinary consumer nearly as much as they think it does. They just don't like it."