Efficient Vehicles Must Be Affordable, Too

By David L. Brown

Too much is made of the fuel economy side of the equation when it comes to car buying decisions. As I discussed recently (see the article “Higher Gas Prices: A Blessing to America”) the cost of fuel is only a relatively small part of the total cost to own a vehicle. In that article I used a “True Cost to Own” (TCO) calculator from Edmonds.com to provide as an example the overall cost of owning a Ford 500 sedan. The result was that fuel represented just over 21 percent of the estimated TCO for five years assuming it was purchased new here in New Mexico and driven 15,000 miles per year.

I was curious how the hybrid vehicles that are so popular among “green” consumers would stack up against other vehicles. It is an interesting demonstration. Here for comparison are Edmonds TCO reports for three different vehicles. Again, it was assumed the cars were purchased here in New Mexico and driven 15,000 miles per year for five years. I compared a Toyota Camry Hybrid, a fairly upscale hybrid car; a Ford Focus 2.0 liter 4 cylinder car which is an economy model; and a full-size Chevrolet Impala LT 3.9 liter 6 cylinder sedan. Here are the TOC charts for the three examples:

2007 Camry Hybrid

Year 1 Year 2 Year 3 Year 4 Year 5 5-yr Total
Depreciation $6,418 $2,901 $2,553 $2,264 $2,032 $16,168
Financing $1,916 $1,550 $1,154 $726 $264 $5,610
Insurance $1,214 $1,256 $1,300 $1,320 $1,393 $6,483
Taxes & Fees $1,813 $46 $46 $46 $46 $1,997
Fuel $1,191 $1,227 $1,264 $1,302 $1,341 $6,325
Maintenance $442 $678 $599 $929 $1,830 $4,478
Repairs $0 $0 $93 $224 $327 $644
Yearly Totals $12,994 $7,658 $7,009 $6,811 $7,233 $41,705

2007 Ford Focus 2.0L 4 cyl.

Year 1 Year 2 Year 3 Year 4 Year 5 5-yr Total
Depreciation $5,046 $1,317 $1,159 $1,028 $922 $9,472
Financing $984 $796 $592 $373 $136 $2,881
Insurance $1,360 $1,408 $1,457 $1,479 $1,561 $7,265
Taxes & Fees $941 $32 $32 $32 $32 $1,069
Fuel $1,397 $1,439 $1,482 $1,526 $1,572 $7,416
Maintenance $522 $585 $770 $731 $1,232 $3,840
Repairs $0 $0 $111 $266 $387 $764
Yearly Totals $10,250 $5,577 $5,603 $5,435 $5,842 $32,707

2007 Chevrolet Impala LT 3.9L 6 cyl.

Year 1 Year 2 Year 3 Year 4 Year 5 5-yr Total
Depreciation $6,858 $2,432 $2,140 $1,897 $1,703 $15,030
Financing $1,653 $1,337 $995 $626 $228 $4,839
Insurance $1,223 $1,266 $1,310 $1,330 $1,403 $6,532
Taxes & Fees $1,570 $46 $46 $46 $46 $1,754
Fuel $1,943 $2,001 $2,061 $2,123 $2,187 $10,315
Maintenance $351 $497 $430 $993 $800 $3,071
Repairs $0 $0 $117 $276 $401 $794
Yearly Totals $13,598 $7,579 $7,099 $7,291 $6,768 $42,335

Now the first thing you will notice is that the TOC figures for the Toyota hybrid and the full-sized Chevrolet aren’t actually all that different. The 4 cylinder Focus, on the other hand, is considerably more economical to own and drive. It is true that the total estimated fuel cost for the hybrid is the lowest, at just $6325, and the full-sized Chevy is unsurprisingly the highest at $10,315. However, variations in price and other costs nearly cancel out the fuel advantage of the hybrid vehicle even when compared with the full-sized sedan. The best deal if you are looking for overall economy of ownership is the Ford Focus, which costs $8998 less to own and operate than the Camry hybrid.

Now let’s look at fuel costs as a percent of TOC. For the Toyota hybrid total fuel costs would amount to something just over 15 percent of the total cost; for the Ford Focus it comes to about 22.5 percent; and for the Chevrolet it comes to just over 24 percent, which is higher than what I reported for the Ford 500 in my previous article. Fuel cost is definitely a plus for the hybrid car, but overall it costs about the same to own and operate as a full-size Chevrolet and far more than the economical Focus with its low purchase price.

And when it comes to actual fuel outlay, the difference between the hybrid at $6325 over the five year period and the Focus at $7416 is just $1091, or only $218.20 per year. That isn’t a very significant fuel cost advantage for the hybrid vehicle that costs about $9000 more to own and operate. I leave it to you to decide whether it makes economic sense to invest in a hybrid automobile whose sole advantage may be to save a few dollars on fuel, and yet may end up costing far more to own and operate.

However, please do not misunderstand my point in this exercise. I strongly believe that America must move toward making available more efficient vehicles that conserve precious petroleum. The problem is that human beings respond to economic incentives, and they will buy what they perceive to offer the best overall value. Helping to save oil is a fine idea, but most people will not make buying decisions that are against their own economic interests. If it is the intention to encourage more and more people to buy and use fuel-efficient cars, then those choices must be made economically attractive.

Rising gas prices are already having an effect, but if our government takes the problem of oil imports seriously it could, and should, begin to actively encourage the purchase of efficient vehicles. This could be done through the use of incentives and disincentives. One method would to be add a “gas guzzler” tax on a sliding scale to vehicles that burn more gas. States could join in by creating higher licensing fees for gas guzzlers.

Other methods would include tax credits, depeciation incentives, or cash bonuses to encourage investment in more efficient cars no matter what the power source. Such programs should not necessarily push hybrids, but work to encourage all kinds of alternatively powered cars including electric, hydrogen, or whatever may come off the drawing boards including more efficient conventional engine designs. It would leave consumers with the freedom of choice to continue to drive hulking SUVs if they want to pay the price. Such a program might even be income-neutral to the government, with surcharges on gas guzzlers offsetting incentives for efficient vehicles.

Such a program would have the additional effect of encouraging manufacturers to make more of the efficient cars and fewer gas guzzlers … and the more they gear their manufacturing in that direction and the more competition there is for that share of the market, the more prices will come down. In the end, the goal should be for affordable and fuel efficient transportation that will appeal to consumers while helping to solve our dependence on petroleum. Reality check: don’t hold your breath waiting for this to happen.

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