The New Hybrid Math

This week, Toyota will raise the price of a few of its cars, including a $400 hike on the Toyota Prius and a bump on the Camry Hybrid by $300. But in the past four weeks, the average price of regular gasoline increased by almost 30 cents a gallon. Therefore, in actual ownership costs, the price of Toyota hybrids is cheaper this week than it was a month ago. Welcome to the new hybrid math.

Buying a hybrid car, like any consumer purchase decision, has never been solely about dollars and cents. As many economists have pointed out, consumers buy things just as much based on their hopes and fears about the world, and desires for their own lives. Nonetheless, the media has repeatedly crunched the numbers on the “payback period” to demonstrate that hybrids don’t add up—until $4 gas turned that argument on its head.

In April 2006, Consumer Reports said that not a single hybrid would recoup its extra cost over five years of ownership—and then recanted its study, designating the Toyota Prius, Honda Civic Hybrid, and Ford Escape Hybrid as economic winners. Since that time, the EPA rating of hybrids has been cut by about 20 percent, and Toyota and Honda hybrids have lost some or all of their federal tax incentives. How did that affect the hybrid cost-benefit analysis?

Edmunds.com’s most recent analysis released earlier this month expanded the list of hybrids that earn a five-year “payback” to five models: Chevrolet Malibu Hybrid, Honda Civic Hybrid, Nissan Altima Hybrid, and Toyota’s Prius and Camry Hybrid. Edmunds used an average gas cost of $3.61 per gallon and 15,000 miles a year of travel. If you expect the price of gasoline to average more than $3.61 over the next five years or to keep the car longer than five years, the math looks even better. And Edmunds is not calculating relative resale values for hybrids.

“Environmentally conscious consumers have been drawn to hybrid vehicles since day one, and were willing to pay a premium for them,” said Jesse Toprak, Edmunds.com’s industry analyst. “But now, as a result of lower price premiums, higher gas prices and, in some cases, tax credits, it’s won’t take long for consumers to offset the price premium and actually save money by buying a hybrid—depending on which one they choose.”

The shifting economic algebra of hybrids is expected to accelerate the red-hot growth of the market for gas-electric vehicles. As most of the auto industry suffers through a dismal year, Prius sales in April jumped by 67 percent compared with last year. “Many of our Priuses sell the same day they arrive on the lot. If they haven’t already pre-sold, that is,” said Bill Kidd, a Baltimore-based Toyota dealership owner, in an interview with Hybridcars.com.

A few other numbers to consider: Toyota recently announced that it sold its one millionth Prius. And despite the $400 price increase and the belt-tightening in the United States, Toyota is maintaining its goal to sell one million hybrids globally every year beginning in about three years.


  • AP

    Hmmm, the Prius isn’t ugly anymore.

  • VaPrius

    It never was… But the new one looks fantastic!

  • robr

    I agree. That is a good looking car. The proportions of the older model aren’t easy on the eyes. This is going to help bring more people over to the hybrid side of the fence, including me.

  • Shines

    Photoshopped by Popular Mechanics a few months back. Looks nice, but I don’t know it will look like that next year…

  • Armand

    I don’t think that’s an official picture of the 2009 model.

  • CivicHybrid

    I will keep my 2006 Civic Hybrid. I am very happy with the 49-51mpg.

  • Tim Fostik

    When I bought my 2003 HCH, I remember the dealer telling me that gas would have to double for the savings in fuel economy to be worth the premium over the regular Civic (yes, and he was trying to sell this to me?).

    Well, back in 2003 gas was something around $1.50/gallon. Not only has it doubled, but it’s looking like it might even end up as a triple.

    The ‘math’ was good back then, and I suspect for it to be better in the future we’re going to need to see 70-80mpg models on the showrooms over the next few years.

    Does anyone know of any technical limitations that would prevent a standard NiMH setup or Li Ion with a small engine to achieve this kind of mileage?

  • Paul Rivers

    Occasionally the anti-hybrid fanatics actually have a point. They like to say that Toyota is just as greedy as any American car company. And here you go – the price of gas goes up, Toyota raises the price of their hybrids for no reason other than “because they can”.

    *sigh* It makes me sad.

  • ohbuck9

    Of course they are greedy! Or at least want to make a great profit. If the hybrids are selling like hotcakes, who can blame them for bumping up the price a little? That’s business. How can you expect them to do things that lose them money?

    The things we can ask for a more affordable/smaller/convenient hybrids in the future. It would be nice to have a Yaris, Sienna, Tacoma, and Corolla hybrids. That would fill most peoples needs and wants. To do this, they have to know that if they would release all of these, would they sell? Obviously, they would have a higher price. This could also be a good reason to up the price on the other cars…to make sure the market doesn’t slow for hybrids.

  • Paul Rivers

    “Of course they are greedy! Or at least want to make a great profit. If the hybrids are selling like hotcakes, who can blame them for bumping up the price a little? That’s business. How can you expect them to do things that lose them money?”

    It’s blindingly obvious that making even more of a profit and “losing money” are not the same thing. They’re already making money off the Prius, just like any other car. Now people are buying more Prius’s, at the expense of the non-hybrid competition. They’re already making a killing with all the Prius’s they’re selling – the only reason they’re bumping up the price is because they’re greedy.

    Your argument seems to be “Businesses are greedy”. If that’s the case, I’m simply agreeing with you. Toyota is a greedy corporation, just like Ford, GM, etc. My disappointment, though, is my own opinion. I’m not going to sick awake at night thinking about it or anything, I’m just a little disappointed.

    P.S. Plus, their’s tons of other ways Toyota could make more money off us that we would enjoy. How about bringing that hybrid minivan that they’ve been selling in Japan for the last 5 years to the US? How about a hybrid RAV4? How about being able to put a sunroof on the Prius? I’d love to see that kind of stuff.

  • domboy

    Sorry AP, the Prius is still ugly.

  • grobs

    call me crazy but i would imagine the price increase has more to do with the yen going from 120 to the dollar last year to about 103 to 104 today? i wouldn’t call that greed, just common business practice?

  • Allan MacDougall

    If you look at what is happening to Toyota stock it is clear that they are not doing very well.

  • Brian E.

    Hmmm…I don’t see how you can add $400 to the Prius, have gas prices go up, and yet have a lower cost of ownership. That is fuzzy math. The amount spent on filling up the Prius is more than before so the cost of ownership is higher. Now, if you are comparing the price of ownership of the Prius to a Mustang…then you have a point.

    I am actually waiting for the 2009 Prius. I will be one of the first in line!

  • EvanL

    All Prius’ are manufactured in Japan. The US dollar has declined some 20% against the Yen since mid-2006. Toyota has absorbed the currency loss for a while now, I’m not surprised Toyota raised the price of the Prius somewhat ($400 is only 2% raise).

  • David Wong

    That picture is of the actual 2009 Prius, by the way. It matches the Road and Track “spy shots” they got of it.

    http://autos.yahoo.com/articles/autos_content_landing_pages/563/exposed-2009-toyota-prius/

  • Giant

    “It would be nice to have a Yaris, Sienna, Tacoma, and Corolla hybrids”.

    Yes, Yes, Ok, and Yes! I would love to hear Toyota’s reason that they did not hybrid-ize the Yaris and the Corolla. Seems to me to be a bit of a missed opportunity.

  • GR

    Is it just me, or does it seem like the picture of the new Prius looks really similar to the current model…but yet looks a lot more attractive?

    The new model also makes me think of those movies where you see futuristic-type cars (ie: I Robot, Minority Report). I think the Prius is setting the bar for cars of the future.

  • Need2Change

    Many people do the math wrong.

    There are many people who buy a $25K Prius rather than buy a $27-$30K Camry or Accord. For these individuals, the payback is the minute they drive out of the dealership.

  • Don Quixote

    We love our pregnant turtle (especially after we put the diamond lane sticker on it!)

  • Anonymous

    The markup by Toyota is small potatoes, I visited our nearby Toyota dealer and noted that the price of the Camry Hybrid included a little item called “market adjustment” to the tune of raising the price $2,995.00!

  • Wetdog

    I’m all for hybrids, I think they are great. The technological end has possibilities that could make possible vehicles in the future that are undreamed of today. Widespread use of hybrid technology could make it possible to make vehicles in the future with totally customizable cabins that could be slipped on and off of a rail system mount on the chasis/engine drive train unit. You could have a sleek sports car this morning, and a honking big SUV in the afternoon—both using the same engine/drivetrain/chasis unit. You could buy several vehicle body styles, and only have to pay for one engine/drivetrain. Or buy the drive unit and just rent the bodies—change out when the mood strikes you.
    Transformers.

    My only complaint about hybrids is that they should all be built using Flex Fuel capable charging motors. Oil is running out–no way around it. It is a waste of technology to build advanced cars to conserve a resource that is running out—that’s just treading water. Flex Fuel wouldn’t add to the cost significantly and just seems like the only logcal thing to do to me. If it is flex fuel, you don’t have to use E-85 if you don’t want to, but want to change your mind, you can. I like to have choices. I’ve never been hurt by having a choice.

  • anon

    Wetdog is right, but missing the point. Any fossil fuel or biofuel is limited in scope and, to varying degrees, availability (which, with increasing demand and limited supply, will equal increased fuel costs).
    The most flexible fuel – capable of being made from sources ranging from fossil fuel to garbage to wind to solar, is ELECTRICITY. Anything else represents a look in the rear view mirror. Anything but an EV will seem like outdated, undesireable technology in 3-5 years. We need EVs NOW!!! I will be the first in line to buy a mainstream (i.e. not goofy looking), mass-produced EV that can hit 65mph and travel 50 miles a day.
    As an aside, I will also be in line to buy PV panels to charge it . . . if Congress will stop the partisan BS and renew (or, better, expand) tax credits for renewable energy this year.
    Incidentally, existing RE tax credits were allowed to expire because the Senate refused to fund RE tax credits by cutting big oil’s $12 BILLION in superfluous subsidies. That’s right – every man, woman and child in the US pays $40 to support big oil companies despite record profits . . . and the Senate can bring itself to cut back. If that does not get you to write or call your Senator, nothing will!

  • Wetdog

    Anon—a hybrid IS an electric vehicle.

    Ethanol IS clean(already being used to reduce pollution, E-10) renewable, sustainable and when burned produces net greenhouse gas = 0. CO2 produced was first taken from the atmosphere by plants to produce sugars by photosynthesis.

    Photosynthesis is process that plants use to produce sugars from CO2, water and sunlight. They are nature’s photocells that store the energy of the sun. Ethanol simply allows us to use the sun’s energy already stored for us. Why build expensive solar panels? Nature already does it for us in the form of every living green plant that exists. And yes, we can even make ethanol from garbage that is 40-50% cellulose.

    Ethanol fits the current infrastructure, is completely versitile and can be used in all types of engines, is an old process that is well known and well proven and not limited in range. The only problems to ethanol is ramping up production and availability to meet our needs—and that is not a technical problem, just a matter of doing it.

    Watch the Indy 500 this week to see what ethanol as a fuel can do—the fastest race cars in the world run on ethanol, the Indy Curcuit racers.

  • Daniel Pease

    Just got a 2008 Prius yesterday for my wife. If it had been for me alone, I would have walked out of the Jacksonville FL dealer. They put me on the hook for $3500 above sticker, saying “everyone does it and some are higher”. I wish I had seen this forum first and done more homework. They will not let us reconsider the purchase now, so I will try to just enjoy the new car. It is a green package 3 touring edition, so it is nice. I really wanted twice as much for my trade and not to get the pkg3 (wanted a 2), but the touring style is good and perhaps woth the extra bucks. They said I coud auction the car off for more than I paid for it (where? eBay?). I called another dealer today and they were wanting me to take the car back and order what I wanted from them for $3K less (not touring, no blue-tooth, no 6-CD changer,etc) and no market adjustment added! I now both dealers are calling the other dealers unethical liars! Wow, nice car, poor purchase experience!

  • estetik

    There are many people who buy a $25K Prius rather than buy a $27-$30K Camry or Accord. For these individuals, the payback is the minute they drive out of the dealership.

  • tup bebek

    Is it just me, or does it seem like the picture of the new Prius looks really similar to the current model…but yet looks a lot more attractive?

    The new model also makes me think of those movies where you see futuristic-type cars (ie: I Robot, Minority Report). I think the Prius is setting the bar for cars of the future.

    00

  • tapra1

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