Which Fuel-Efficient Cars Are Worth The Extra Money?

Recently, the NY Times had an article about how many models of fuel-efficient cars may take years to justify the extra cost. Here’s a graphic from the article with data from TrueCar:

(I note that the NY Times compares the Prius with the Camry. I still think the Corolla is closer in size. You can see from this side-by-side comparison that in terms of length, width, interior passenger volume, shoulder room, and leg room, the Prius is closer to the Corolla than Camry. Also, does the Lincoln MKZ hybrid really only cost $1,400 more than the regular model and is 15+ mpg better??)

Consumer Reports also had a similar article which discussed how the ultra-efficient “40 mpg” models which were upgrades to the normal versions. The Ford Focus SFE, Honda Civic HF, and Chevrolet Cruze Eco all cost between $495 and $800 more, but the breakeven time when using real-life mpg varied widely between 3 and 38 years.

Frank of Bad Money Advice proposes that using break-even time (cost divided by annual savings) is “unnecessarily crude” and proposes using an IRR calculation instead. I usually agree with Frank, but this time I think the break-even time is necessarily crude. One of the biggest variables in car ownership costs is how long you’ll keep the car. Many people will buy a car, pay extra for hybrid or whatnot, and then still trade it in down the road when circumstances change (longer commute, another child) or if something else shiny catches their eye. The average length of car ownership is currently about 6 years.

In his example, he takes the Ford Focus SFE, which costs $495 more then the Focus SE but will save you $145 a year. Thus, the break-even time occurs at 3.4 years. However, if you keep the car for 6 years then your IRR with 0% discount rate would 18.95%, a great rate. If you change the ownership term to 4 years, the IRR is 6.65% (still pretty good). But if you have the car for 3 years, your IRR is -6.19%. As long as you get past the break-even time, your return on investment going to be positive and in with today’s interest rates, likely much better than you could get otherwise with such certainty. If you usually own your cars for 10+ years, then a lot of these hybrid options listed above can still be worthwhile.

However, be careful as going from the “regular” Chevy Cruze to the Chevrolet Cruze Eco will only save you $20 a year in gas while costing around $800 more upfront, requiring decades to break-even. We also see that the real-world mpg of the Cruze Eco was 27 mpg, while the EPA blended mpg is 34.3. The Toyota Corolla averages a real-world 32 mpg on the same test and costs less, and there are lots of used ones available. Also, remember if you already have a relatively fuel-efficient car, it requires a bigger jump in mpg to save you a significant amount on gas, so it may be better just to keep that old Corolla.

Comments

  1. Also, it probably does not take into account maintenance cost. What is more expensive to maintain, gas car or a hybrid? Also, more expensive car means higher taxes (both sales and excise) and higher insurance cost. I doubt these costs are accounted for in the article.

  2. One factor that’s constantly neglected is benefit riding on HOV (high occupancy vehicle) lane. In Northern Virginia, you are allowed to ride on some (95%) HOV lanes. I don’t mind paying extra and not worry about break even on gas car, if I can avoid the waiting and bumper-to-bumper traffic. Northern VA/MD/DC traffic can be brutal. I think CA has similar HOV program, but now has more restriction, which hybrid vehicle, qualifying for HOV lane.

    If I can get home quicker and spend time with the family or alleviate the frustration of traffic, it’s well worth it.

  3. Did they not review any Mazdas? Maybe they decided to just study boring cars ;-)

    Jonathan – I agree, why does Lincoln even sell the MKZ normal if the hybrid is such a better deal?

    bruce, didn’t know that about the HOV lanes – good info!

  4. At least in my experience, hybrid cars tend to have lower maintenance costs (so long as you don’t end up needing to replace battery packs out of warranty – Honda, I’m looking at you). There’s less wear on the actual combustion engine and in the case of the Prius (at least the regular one, not sure about the new Prius-C) the engine doesn’t have any belts or chains in it at all that need to be replaced.

  5. here are some factors that i thought were left out
    1) the potential (and i would argue inevitable) rising cost of gas
    2) the risidual of a more expensive car. even if i only keep the car for 3 years, if the car cost 3k more, i would expect it to hold some of that 3k difference.
    3) maintenance costs, and part lifetimes — as Vlad said — if the hybrid batteries die and you have to replace them, that’s a significant cost. obviously we would need average maintenance costs here.

  6. Sudheer says:

    You might be interested in reading this article.

    http://www.fool.com/investing/.....ddle-.aspx

  7. Mary Anna says:

    Just responding to your aside – I’ve had a Prius for 6 years, and I think the Camry is the fairer comparison. (I’ve had Corollas as rentals, and the prius is significantly nicer and more comfy… and bigger.)

  8. The new Altima (a midsize sedan) gets 38 mpg US highway, without any fancy and costly hybrid system, for thousands less than a Camry Hybrid:

    http://www.autoblog.com/2012/0.....york-2012/

    I’ve read that the environmental costs of manufacturing a hybrid put it even farther in the hole from a “green” standpoint. That combined with with the price premium, makes buying a hybrid a losing proposition.

  9. Someguy says:

    Having owned a Prius and a Camry Hybrid for years, and having had a Corolla in the family for years, too, SomeGal and I both agree the Prius is more in line *overall* with the Corolla. The Camry is significantly nicer on the inside and rides more like a luxury car, while the Prius and Corolla are a little more downlevel interior wise and both ride more like an inexpensive (and lighter weight) vehicle. All three are great cars, though. Also, the new Camry hybrid is supposed to be closer to 38mpg combined.

    Hybrids are generally cheaper to maintain, even factoring in battery replacement at 125K miles. This is based on my own math/experience, and confirmed by a senior service tech separately at the local Lexus and local Toyota dealership.

    Finally, there is increasing evidence that the cost of gasoline in the US is subsidized directly and/or indirectly. The prices in Europe seem more “honest”, so there is some chance that US gas prices will eventually come to parity.

  10. In your discussion of the Focus vs SFE, you’re assuming that the cars would sell for the same amount after three years. If you’ve paid $495 more for the SFE and saved $435 in gas over three years, you’d only need to sell it for $60 more than the standard model to break even.

    Not that I’m a fan of hybrids or think they even make good sense from an overall environmental picture, you’ve got to treat the numbers fairly.

  11. lets all go buy lincolns!!

  12. Chandra says:

    I think you need to consider the maintenance cost also part of the breakeven calculation. I own a Prius with 120K miles, still running on the same set of brakes came with the car. Regarding battery life on Prius, taxi drivers reported on Prius chat that no issues after 250K miles.

  13. S Markley says:

    My car decision was based on the fact that with the amount I drive it would take 10 years to get the extra paid for a prius back since I only drive 15k per year and then the expensive battery and normal tires, brakes, etc are the same and would not be any savings. The fact is that you can get an excellent fuel efficient car without paying more. I drive a Scion XD (Toyota Corolla engine) which gets around 30 mpg minimum around town and I have got up to 45mpg when I drive on trips. The Scion XD is an excellent roomy hatchback that seats 4 adults comfortable and 3 kids in the back regularly with softball gear and coolers in the back. It had more features than every other car that size – hatchback or not, for less money, plus way better crash testing, more airbags and looks fantastic. It was $16,800 out the door with a/c and all the bells & whistles- bluetooth, cruise and built in mp3/gps. All in all the break even time on my car was 7 days – it cost less than ANY other car I could buy! I am constantly surprised that it is overlooked and highly recommend the Scion XD.

  14. I bought my camry @ 0% apr for 60 months with zero down at good price. That point Prius was at very high price with unattractive buy/lease options. Taking this into account I feel my camry is way better than Prius after reading the above.

  15. THe Lincoln MKZ and the Hybrid verson have the same retail price. The standard version has 263 HP and the Hybrid has 156 HP. So its a choice between 100 extra HP or 16 more MPG. Performance or economy.

    Fuel cost is just one factor.
    I think a better way to do this kind of comparison is to look at the ‘total cost of ownership’. Yahoo Autos and Edmunds figure that number. It adds up all the costs such as repairs, fuel, depreciation, etc.

  16. Actually the Lincoln MKZ hybrid and the reg version are the SAME price. I’ve been looking into buying one is how I know off hand. This is the only hybrid I know that reg version and hybrid version cost the same. The 2013 model is lookin’ really nice!

  17. Jenna, Adaptu Community Manager says:

    What an interesting article. Thanks for sharing the comparison. I’d love to get a nice Hybrid, I just need something with off road capabilities and haven’t seen anything really robust yet.

  18. Tim Hebb says:

    Regarding the discussion of maintenance costs, I’ve been driving my all-electric Nissan Leaf over a year now, and it has taken that long for me to realize how much I’m likely to save in maintenance. No oil changes or filters, no spark plugs, coils, or tune-ups, no smog checks, no catalytic converter issues (no tailpipe!), no timing belt, etc. etc.

    I didn’t even open the hood for a year, except to show someone what is under it.

    Because of the regenerative braking, I’m told the brake pads may well last three times longer than on an ICE (internal combustion engine) vehicle.

    Those savings should all be considered in any breakeven calculation. It’s still early, but I wouldn’t be surprised if pure EV’s, with only a fraction of the moving parts of an ICE car, don’t turn out to have dramatically fewer and lower repair costs over the life of the vehicle.

  19. Mother-in-law has a Prius. It’s good sized inside, IMHO. Drives like a couch but it’s really quite roomy inside.

    Best car for the money right now – Mazda3 hatch with skyactiv engine (20k). That thing will almost get 40 MPG on the highway (Edmunds just did a 40 MPG challenge). After that maybe the Jetta Sportwagen TDI but the Jetta is 5k more expensive for a little bit better fuel economy.

    http://www.edmunds.com/fuel-ec.....lenge.html

    The Mazda3 hatch handles better than the Jetta TDI, is more reliable (VW is near the bottom of JD Power initial quality for 2012 – http://www.autoblog.com/2012/0.....nt-woes-p/ ) , 6k cheaper and uses regular fuel. In all ways the Mazda3 wins. It’s one of the few cars in the compact range worth getting. The Jetta TDI gets marginally better MPGs but nothing worth 6k. And certainly nothing worth living with a VW longterm.

  20. Almost 27 years to break even? I knew the Volt blew. Give me the Jetta TDI any day.

  21. The Volt is a luxury car; it should be compared with an A4 or similar to calculate a breakeven.

  22. Good post and great comments. Just made a purchase after a month of weekends shopping. My price point was $20k or less, and 26 or better MPG in the city (bulk of my daily commute). My legacy ride is a ’99 Passat that gets 20MPG (city). I drive less than 9K a year. My candidates were Hyundai Accent / Kia Rio (sister cars), Ford Focus, Honda Civic, Toyota Prius-C and Corolla. My initial ideal was to buy Pre Owned Certified. I kid you not, the better deal was on brand new. The used market is commanding some high prices and it’s very hard to compare apples to apples. The civics i liked were mid-grade and still had stickers of $25K!!! I really thought it was coming down to Prius-C v. Corolla Sport. No comparison on the MPG, but the Prius-C was $5-7K more! Turns out I lucked onto a freshly listed PreOwnedCertified ’11 Corolla Sport w/ 14K miles for $16K and gets 26mpg in the city! My cherry on top is that a new position in some 10% corporate bonds will pay the note! Whoo Hoo!

  23. @Jonathan, I’m not sure I follow your math on the Chevy Cruise ECO, the NYT article shows a price difference of $700 (not $800) and a fuel savings of $156/year (not $20).

    Also, on your point about MPG. Motortrend wrote a great article about this years ago, MPG is a logarithmic scale, which most people are terrible at interpreting (we rarely encounter it). It makes much more sense to look at Gallons per Thousand Miles, which would be a linear scale. Simply divide 1000 by the MPG to calculate the Gallons per Thousand Miles, this will make comparison between cars much easier.
    (The EPA was considering incorporating Miles per Hundred Gallons into their “new” estimates a few years ago, but I guess the plan fell through)

    @Someguy, Sean and Chandra are correct, there is a significantly lower cost of maintenance on the hybrids, but if you end up changing batteries, all that savings is out the window and much more.

  24. @jim – get in a volt. That’s no luxury car. That’s all plastic and poorly thought out at that. It drives like an easy chair

    .

  25. Volt: this is not an econobox; it has every luxury feature you would expect to find in the luxury class. I am saving $150 per month. Smoothest ride on the road.

  26. two years ago, i bought a fully loaded nissan altima hybrid for 4k less than the standard. they were phasing it out and it was only sold in 7 states. guess i lucked out because im getting 37 mpg vs. the standard 28-30 on gas.

  27. Interesting article – thanks for sharing.

    Though comparing a Nissan Leaf to a Versa is kind of ridiculous. The Leaf isn’t luxury, but nor is it as low end as a Versa.

  28. It often gets lost in these stats that it ultimately depends on the driver how many MPG you get out of your car. At the risk of sounding patronising, its all about how much your foot is down on the pedal – if its barely touching, you’re not using much; whereas if you have your foot down far the opposite. Your pedal is basically a tap. This concept seems lost on countless amounts of folks in a Prius doing 80mph on the motorway who will be drinking considerably more fuel than my 1.8 ford…

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