Hybrids in the News

backy · March 2006

Well, this CR study is really screwed up, isn't it?

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.

backy · March 2006

That's not quite what I meant. The Prius II is a much more desirable car than the Prius Classic largely because the Prius II is a 5-door hatchback with much more interior room and versatility than the Prius Classic. There isn't much more Toyota can do packaging-wise to the Prius III to make it more desirable than the Prius II. Although there will certainly be improvements in technology.

bamacar · March 2006

Yes, screwed up is something we can all agree on for this CR article.

It will be interesting to see if they address it in next month's issue, and how thoroughly the errors will be corrected.

kdhspyder · March 2006

My post #4731 were all for a 2002 models including the Classic Prius.

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.

bamacar · March 2006

They appear to have already made the changes to the numbers on the website. It just happened in the last few hours.

markjenn · March 2006

Yes, and the website doesn't make any reference to the bogus print numbers. Such an extraordinary mistake with such far-reaching conclusions should be followed up with an extraordinary retraction and follow-up article.

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

snakeweasel · March 2006

Extreme example: 60k vehicle worth 50k in 5 years. 15k vehicle worth 5k in 5 years. Looking at capital, the cost is the same.

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.

markjenn · March 2006

Yes, CR does include an extra "Financing" cost in their calculations which accounts for the extra cost of capital associated with financing (or the lost interest if you pay cash) the extra amount the hybrid costs.

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

snakeweasel · March 2006

Yes, CR does include an extra "Financing" cost in their calculations

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.

stevedebi · March 2006

"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."

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.

markjenn · March 2006

No editor at CR should have been noticed that CR's top SUV pick (Toyota Highlander Hybrid) costs a net $13,300 more than an equivalent non-hybrid version over a five-year period? (The correct number is $5500, an error of 241%.) You've got to be kidding.

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

markjenn · March 2006

snake, you're double-counting things by your analysis. It's too complicated it get into here and I know you think your way of doing it makes sense, but it doesn't. Sorry, I'm sure I'm not going to convince you.

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

kdhspyder · March 2006

I concur with snakes' analysis. From a purely economic standpoint a prudent buyer should not purchase a $60K vehilce to get from A to B when a $15K vehicle will do. The value of not spending that $45K is a cost.

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.

markjenn · March 2006

The lost opportunity cost or the financing cost are the same thing. If you assume you are paying cash, then you include a cost for the amount you'd earn from investing the money. If you assume you are financing they you include a cost for borrowing the money. They're the same thing. You don't include both, because if you finance, you don't have the money to invest.

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

snakeweasel · March 2006

The lost opportunity cost or the financing cost are the same thing.

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.

kdhspyder · March 2006

I disagree that lost opportunity costs and financing cost are th same thing.

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%.

markjenn · March 2006

CR (correctly) doesn't get into what each individual's difference might be between what they can make on investments and what it costs to borrow. They assumed the buyer would simply finance the extra hybrid amount - period.

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

kdhspyder · March 2006

2002 Tradein values ( Black book auction values )

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

gagrice · March 2006

Question One?
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.

kdhspyder · March 2006

Q1 'Rough' Black book is ~ $8000. Depending on condition maybe $1000 less but certainly no higher.

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.

gagrice · March 2006

Q1:
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.

backy · March 2006

In Vermont at least, the laws say that the extended emissions warranty pertains to "the ultimate purchaser and each subsequent purchaser".

http://tinyurl.com/h5o9h

gagrice · March 2006

I looked for that on the CA website. Never found it. I think VT is similar to CA on emissions if memory serves me. To my way of thinking it should force the auto makers to replace anything that changes the emissions levels. Such as atalytic convertors, sensors etc.

backy · March 2006

And in a hybrid... batteries and such.

library1 · March 2006

Value and Cost and Money are three separate items.

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.

gagrice · March 2006

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.

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.

kdhspyder · March 2006

ahh.. but as the iihs states, dont compare different weight classes. The NHTSA 'indications' are at best a 'go/no go' guidance. The tests as they admit are outdated and no where near as difficult as the rest of the world's testing.

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.

library1 · March 2006

Look at http://www.iihs.org/brochures/ictl/ictl.html
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!)

gagrice · March 2006

I don't think they have tested the Prius at IIHS yet, have they? I know the Prius Classic was given a wink by the NHTSA to get them out to the public. They are less than stellar safety wise. I think the truth is they never tested the Prius until 2006 and realized they are not top notch safety wise. What other reason to go from 5 stars to 4 stars?

gagrice · March 2006

I questioned that very chart a while back. First it does not include the Prius II at all. It is 2001-2003 MY listing. Second according to all I have read the Prius Classic was built on the Echo chassis. So whatever the Echo got should have carried to the Prius. You also have to take into account these are based on actual injuries and costs related to accidents in given vehicles. How many Prius were sold in that 3 year period? How many actually crashed to give a legitimate accounting? I think we will have to wait a while till the database gets a few more collisions to make an honest appraisal of the Prius crash worthiness.

kdhspyder · March 2006

Where did you get these impressions from? Other than 'stirring the pot' as is your inclination

.

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?

gagrice · March 2006

You have not accounted for the down grading of the Prius from 2005 to 2006. I find that interesting. What did Toyota cut out to cause that? I am very familiar with the EU tests. You also know that the vehicle sold in the EU is of a higher quality in several ways to the US version. It is also more expensive. So how can that be used as an example. The facts are you are 33% more apt to get a serious head injury in the 2006 Prius than the 2005.

PS
I did not bring up the IIHS ratings for the Prius.

gagrice · March 2006

Where did you get these impressions from?

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.

backy · March 2006

And you believe everything you hear from a salesperson? Not a good idea, IMO.

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.

stevedebi · March 2006

"The Prius is not built on the same platform as the Echo."

Actually, I think the Echo was based on the Prius platform. The Prius was developed first.

backy · March 2006

The 2004 Prius first shipped in fall 2003. The 2000 ECHO first shipped in fall 1999. Are you saying that the original Prius, the ECHO, and the 2004+ Prius all use the same platform? Do you have any substantiation for that? I just find it hard to believe given the differences in the cars.

gagrice · March 2006

The 2004 Prius is completely different. I believe the 1997-2003 Prius was the same platform as the Echo. I have to believe the Toyota sales manager until I see some proof to the contrary. The only significance to the CR report is resale value of the older technology. I believe the hybrids will age faster than the ICE only vehicles. When they lose the glamour they lose their resale value.

varmint · March 2006

Whether the original Prius was based on the Echo platform or not, you cannot assume it would have achieved similar crash results. There are significant differences in the engine compartment and passenger compartment. Structure is only half the battle. Passenger restraints and things like the distance from roof or pillar to the occupant's head are equally important. And based on my recollections, the Prius and Echo were not that similar inside.

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.

kdhspyder · March 2006

The bigger consideration is the supply and that the Prius is Toyota ( Civic a Honda ). Both of these factors favor the hybrids holding value.

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

snakeweasel · March 2006

if I may ask what was the original selling prices for those two cars?

kdhspyder · March 2006

Gen1 Prius ( pretty basic ) CD + cruise was $21500
2001 Camry LE ( last yr of Gen4 ) CD + cruise + pwr seat was ~$19500 typically, if memory serves me well.

markjenn · March 2006

Both cars cost around $20K new.

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

snakeweasel · March 2006

So the Prius is at 37% of the price while the Camry is at 34%.

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.

snakeweasel · March 2006

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.

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.

library1 · March 2006

The table inside summarizes the recent insurance injury, collision, and theft losses....Results are based on the loss experience of 2002-04 models from their first sales
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.

kdhspyder · March 2006

Sticker/selling price on the Prius Gen1
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.

kdhspyder · March 2006

Interesting side notes from this data:

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?

backy · March 2006

Good point. I always wondered why the insurance rates for my $27,000 minivan were lower than those for my $12,000 compact sedan. They were about equal in crash safety ratings. I figured it must be based at least partly on driving behavior.

gagrice · March 2006

More interesting side notes on insurance.

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.

backy · March 2006

Maybe that is because your Sierra Hybrid is BIGGER than any car on the road?

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