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Hybrids in the News
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Comments
But in defense of CR here, if they used discounted prices... which would they use? Hybrids ARE available at a discount in some areas (sorry, gagrice, San Diego does not reflect The Rest of the World--in many ways). And discounts on ICE cars vary widely by location. So it would be hard to pick prices for comparison. I can see why CR chose MSRP prices in this case.
It will be interesting to see if they address it in next month's issue, and how thoroughly the errors will be corrected.
I will verify tomorrow but at Edmunds here the TMV trade in with 50K Miles is about $11000. Edmunds TMV's are in the same ballpark as most auction values IMO. I'll confirm on the 'morrow. At the moment Toyota's are bringing stupid numbers at auction in the MidAtl region.
I would have thought that such an article with such extraordinary results would have received editorial review all the way to the top of the organization. Maybe it's not a coincidence that CR's current automotive editor, who issued today's statement, used to be an editor for Motor Trend, another publication widely noted for sloppy and inaccurate reporting.
- Mark
What many people seem to be missing in this topic is the time value of money. Take your example above, in 5 years the $60K car is worth $50K but a $15K car and $45K in the bank will be worth over $57K ($5K for the car and $52K for the $45K invested presuming 3% interest after taxes).
Or if both cars are financed the $870.00 a month difference in the payments will come to over $56K (again presuming a 3% after tax interest rate.
So my question is, does this assesment of if a hybrid will pay back in five years take into consideration the time value of money? In other words to pay back a $2,000 premium over 5 years would require more than $2,000 over the course of those five years.
2011 Hyundai Sonata, 2014 BMW 428i convertible, 2015 Honda CTX700D
http://www.consumerreports.org/cro/cars/new-cars/high-cost-of-hybrid-vehicles-40- - - 6/hybrids-vs-all-gas.htm
Your example numbers are way off. The cost of servicing a $60K loan at 3% is about $150/month, not $870/month. (This is just interest, not principal, but you don't include principal paybacks in life cycle analysis because you account for loss of principal in the "Depreciation" item. You can do the analysis where you actual include principal payback, but then you have to include a cash flow at the end of the analysis for what you'd get back when you sold the car since the loan would be paid off. Either way gives equivalent results.)
One thing I don't know if CR does is actually discount the various cash flows in the analysis, such as accounting for the fact the hybrid gas savings occur in the future and therefore are worth slightly less each year. But with current interest rates, this is a refinement that is probably unnecessary and wouldn't affect the outcome more than a few tens of dollars at most. And it makes the analysis more complex and since they couldn't get the simple things right, you certainly don't want to challenge them with more complexity.
- Mark
Its not the same. The extra financing costs are an added cost. They do not represent the true opportunity cost of the extra cost of a hybrid. FWIW it actually compounds the problem. Say the premium of the hybrid is $2500, financing that will add $48.33 to the monthly payment (based on 6% over 60 months) That will total an additional $2,900 to the total paid. Yet that $48.33 placed in long term CDs over that period would become over $3,200. So in short the extra $2,500 cost you and additional $400 in finance charges or over $700 in lost opportunity.
Your example numbers are way off. The cost of servicing a $60K loan at 3% is about $150/month, not $870/month.
I beg to differ, first off I was using 6% and I was using a payoff period of 60 months. The $870 a month is the difference in the monthly payment between a $60K loan and a $15k loan based on a 6% 60 month loan.
This is just interest, not principal, but you don't include principal paybacks in life cycle analysis
I am doing a cash flow analysis which is what you want to do, follow the cash flow. Since in real life you just don't pay interest only on a car loan and then pay down the depreciation. In real life you pay interest and principal and get the value of the vehicle when you sell it. My example followed that.
One thing I don't know if CR does is actually discount the various cash flows in the analysis,
The didn't in this case. However they seemed to use a gas price that is higher than what it is now to compensate.
But with current interest rates, this is a refinement that is probably unnecessary and wouldn't affect the outcome more than a few tens of dollars at most.
Interest rates would have nothing to do in that case. What would effect it will be the inflation rate and the price of gas in the future.
My main concern is the added costs now. Say my payments are $45 a month more and I say $15 a month in gas, that comes to $30 extra. That $30 is the opportunity cost, that $30 less I have to spend, more I have to borrow or less I have to save. To get that $30 I lose today I would have to get $40-50 five years down the line. Multiply that over the 60 months of the loan and you are talking in the thousands. Thats where interest rates come into play.
2011 Hyundai Sonata, 2014 BMW 428i convertible, 2015 Honda CTX700D
There would be no reason for an editor to check facts behind the article - results are results. They only appear "extraordinary" to those with pre-conceived notions of hybrid value. Since the other Hybrids showed negative values, there is nothing about the original numbers to jump out at an editor. The article was no more special than the rest of the issue, which was related to 2006 model cars.
CR made its "top pick" a car that costs an extra $225/month just because it is a hybrid! (The correct number is $90/month.) Sorry, that should have rung up a red flag at multiple levels in the orgnization to at least confirm the results. The methodology they used is non-sensical.
- Mark
The new CR analysis does the life-cycle analysis correctly by accepted accounting methods and, within the accuracy of underlying assumptions about gas prices, interest rates, etc., is an accurate comparison of the net costs of hybrid vs. non-hybrid cars. (I do have a background in life-cycle engineering costs analysis.)
- Mark
It's not just the financing cost it's the lost opportunity cost of that $45K. It is a factor. What could I do with $2000 or $10000 or $45000 if I didnt spend it on a vehicle.
CR correctly included a financing cost for the extra amount you would need to borrow to finance the extra cost of the hybrid, assuming the buyer financed the total increment. They could have assumed that the buyer paid cash for extra increment and included the lost interest they'd earn on that investment. Assuming the same interest rates, both numbers are the same.
CR did a "net present value" analysis, so there is the finer point of whether CR discounted the future cash flows of gas, insurance, and maintenance back to the present. To be rigorous, they should have because you could theoretically put a smaller amount of money in an interest bearing account and have enough with interest to pay these future expenses. But this effect with today's interest rates is very small and would only change the result by perhaps a few tens of dollars over the five year period.
I got to finally get back to work, so if I haven't convinced anyone that they're doing it right (now), then I'll let you remain unconvinced.
- Mark
No they are not. Opportunity cost is what you are giving up to acquire something. Basically if I go out for lunch tomorrow and spend $8.00 my opportunity cost is what I would have done with that $8.00 if I would have brown bagged it. Opportunity cost does not have to be financial. Anything you do you give up the opportunity to do something else, everything has an opportunity cost.
Financing cost is basically rent on money borrowed.
They're the same thing. You don't include both, because if you finance, you don't have the money to invest.
Again they are not the same. One can have the money to invest and still finance a car. As long as your making more in interest than your paying out it makes perfect sense.
2011 Hyundai Sonata, 2014 BMW 428i convertible, 2015 Honda CTX700D
You might be able to invest whatever the amount is and make 30% in a mutual fund or payoff 14% credit cards or put it in your business and make 50%... but that's not the same as financing an auto loan @ 6%.
Certainly if you're paying cash and you personally think you can make 50%/year interest in card games at Vegas, then the last thing you'd want to do is invest extra dollars in a hybrid car and forgo making a fortune at Vegas.
The precise term for the time value of money in these analyses is the "discount rate" or "capital growth rate". It's just one of the assumptions you have to apply. CR assumed it to be a typical financing rate. If you can pay cash for the hybrid's increment cost, then a better assumption for your particular case is to use whatever you earn from typical investments or from paying off other debts you might have. But you want to be cautious here - yes, you might be able to make 10% interest on the money you save by not buying a hybrid, but 10% interest investments typically have a high degree of risk including loss of principal, whereas putting the money in a hybrid car is relatively low risk.
And it goes without saying that if you're carrying 22% credit card debt, then you can make 22% interest on the money you don't spend on a hybrid simply by paying off the credit card debt. And the 22% interest you "earn" (save really) is absolutely no risk. That's why every personal finance book you open says the same thing: To save money, the first thing you want to do is pay down you credit cards. And for exactly the same reason, it would be a very stupid thing to finance a hybrid's extra cost on a 22% interest credit card. They economics are identical.
- Mark
50 - 60K miles ( Rough to Avg condition )
Classis Prius .. $11500 ( $22500 retail )
Corolla LE ...... $7000 ( $16000 retail ) Wow thought it much higher
Camry LE 4c AT .. $9700 ( $20000 retail ) slightly lower than I guessed
What would you give in trade for a 2001 Prius with 75k miles in average condition?
Question two?
Is the hybrid battery warranty of 8 years 100k miles (CARB AT-PZEV 15 yrs 150K mile) transferable?
I was told by a salesman, the only warranty that transfers to a new owner is the 3 yr 36k mile and any extended warranty that was purchased. I cannot find anything on the Toyota website concerning warranty transfer except for certified vehicles.
Q2 All Toyota warranties go with the vehicle. Now the CARB 'extension' above Toyota's standard 96/100000 hybrid component warranty, I cant speak for that without checking with Toyota corporate.
The salesman you spoke with was mistaken. I am 100% certain of that. Until the Prius I only purchased Used Toyota's.
How does that match up to the projection by CR on resale value? You say a 5 year old hybrid loses 60-65% of it's original value. That seems like a big hit to me. I mostly have bought PU trucks which don't lose nearly that much.
Q2:
I can see that. Someone could buy a Prius with a 140k miles and bring it into CA to get the extra coverage.
http://tinyurl.com/h5o9h
So you "save" X thousand dollars on buying a Corolla. You have little chance of being in an accident, so you have saved some serious money.
But, if you are hit by some idiot? Maybe the dollar savings are equal to the increased medical costs over an accident in a Prius. But, I will forgoe the PAIN. :sick: It is a cost too.
I'm not sure I follow you. The Corolla is rated safer than the Prius for both driver and passenger. According to the NHTSA. If you buy a new Civic it is even safer than the Corolla. So you can save money and your hide.
According to the iihs every vehicle now is 'Good' in frontal impact protection ( in their more difficult test ) - except the new Fusion for some weird Ford reason and the old Stratus/Sebring.
for the IIHS PDF file titled "INJURY, COLLISION, & THEFT LOSSES by make and model, 2002-2004 models"
CARS Injury (100= average medical costs)
Toyota Corolla 167
Toyota Prius 4dr 67
Honda Civic Hybrid 4dr 89
Toyota Echo 193 (- my old car!)
The IIHS has not tested the Prius and given it's success I don't know why not. The NHTSA tests every vehicle, I'm assuming admittedly, but the test methods are out of date. So I give it little credence.
The european ins industry has tested the Prius and it's right next ( alphabetically and quantitatively and size wise ) to the Passat. Want the link?
PS
I did not bring up the IIHS ratings for the Prius.
I guess I did not answer your question. I got that straight from the manager of El Cajon Toyota. When the first Prius arrived I went down for two test drives. In the course of asking questions about safety. The Sales manager told me that Toyota had been given a by on testing as the Prius was built on the already tested Echo platform.
The Prius is not built on the same platform as the Echo. They share a common rear suspension design (beam vs. independent) but that is about all. Anyway, even if the two cars did share a platform, it would not cause the NHTSA or IIHS to give the Prius a "bye" since the cars have much different sheet metal and differ in many other ways including engine, weight, and length. As an counterexample, both the Hyundai Elantra and Kia Spectra have been tested by both the IIHS and NHTSA even though both are based on the same platform.
Actually, I think the Echo was based on the Prius platform. The Prius was developed first.
Right now, Hybrids are selling based on their high-tech image. Because the technology is changing so rapidly, I expect early models will not have particularly good resale value. Who want to buy last year's cell phone or last year's iPod? I don't think that factor will have a huge impact on resale, but it will have an impact.
E.g.
2001 Gen1 Prius ( really basic ) with 75K mi rough book is about $8000; this is the 'old tech' version.
2001 Camry LE ( basic ) with the same miles, rough book is about $6700
2011 Hyundai Sonata, 2014 BMW 428i convertible, 2015 Honda CTX700D
2001 Camry LE ( last yr of Gen4 ) CD + cruise + pwr seat was ~$19500 typically, if memory serves me well.
Looking forward, I'd anticipate hybrid depreciation to be slightly more than conventional, both because the technology is going to be changing somewhat more rapidly (the two-year old IPod factor mentioned), and because of the battery replacement cost. But I doubt it will be dramatic. People cherry-pick data to make a point, but generally, in a given vehicle class, depreciation rates are remarkably similar across many different models.
I view CR's accelerated hybrid depreciation to be a little too aggressive, but who knows. OTOH, I think their prediction of gas prices nearly doubling in five years to be too high and this cuts back the other way. Probably a wash.
You don't want to put too fine a point on these analyses, as you pay too much attention to the trees rather than the forest. The general (corrected) CR conclusion is probably the best overall guideline: the most cost-effective hybrids today (e.g., the Civic and Prius) are probably close to economic break-even, the worst (the big SUVs) are going to run you a grand or so per year extra.
And there are other confounding factors that change each individual's economics. Are you going to finance the extra hybrid cost or just use cash? (This changes who much bite the initial hybrid cost hits you with.) And does your tax situation allow you to take full advantage of the tax credits? And what about state tax credits?
I don't see a safety angle to hybrids, either way. I've never seen any data that indicates hybrids are either more or less safe as a class of cars, and for models in which there is both a hybrid and non-hybrid version, I've never seen any data showing either model is safer than the other.
- Mark
Now the question is are these selling prices or sticker prices? IIRC the prius was selling at sticker plus while the camry has always been selling for less than sticker.
2011 Hyundai Sonata, 2014 BMW 428i convertible, 2015 Honda CTX700D
I ran a slightly different analysis of CR data. I used their data to calculate the Internal Rate of Return (IRR) for the cars they looked at. Presuming maintanince and repair and insurance costs are spread out equally over the 5 years and that $5K is put down and the car is financed at 6% for 60 months. I calculated that most of the hybrids will return a greater percentage of the money invested, but just barely.
That does not mean that the Hybrid was cheaper, most cases you spent more on the hybrid.
2011 Hyundai Sonata, 2014 BMW 428i convertible, 2015 Honda CTX700D
through May 2005. For vehicles that were newly introduced or redesigned during these years, the results shown in this publication are based only on the most recent model years for which the vehicle designs were unchanged — either 2003-04 or 2004 only.
TRANSLATION:
1. This is for the Prius 2004 MY. The first gen Prius was almost as good. You may be able to find the earlier table at the IIHS website.
2. This is not a test. These are the actual medical costs of injuries for people who's Prius was in a crash.
3. Its a good idea to have an authoritative source for any discussion.
Typical Transaction price on the Camry LE. ( sticker was in the $21000 range )
The price variation on the Camry was much greater since the volume was 40-50 times greater overall.
What's remarkable to me is that this very basic odd looking vehicle still brings $8000 in tradein/auction. However as I said previously it benefits from being in the Toyota family and the supply being traded in is pretty thin ( there weren't that many sold until 2004 model plus those that have them tend to be keepers ).
Flip side of that coin with the Camry selling about 400K units annually it equally surprising that it's tradein values continue to be maintained well. My '97 with 185K on it traded for $2300. The transaction curve on tradeins is sharply decending and flattens out after 5 yrs.
Prius driver, trying to conserve fuel are more careful;
They drive at more moderate speeds;
Is the subject data the reason two insurance companies are offering discounts for hybrid drivers?
I think what you are saying about hybrid drivers being more conservative could be valid. I doubt that the IIHS has enough data to draw that conclusion. I do know when I told Farmers My GMC was a hybrid they researched and dropped the premium by $245 every 6 months. That means my Passat is $450 more per year than my PU truck.
A question on the IIHS charts. How can it be that the Honda Civic gets a below average 147 injury score and the identical Civic hybrid an 89? It tells me they have very little data on the hybrids at this time. I would assume because the theft factor is blank on the Prius none have been stolen. I like the fact that my Sierra Hybrid scored a 41 making it safer than any car on the road.