Thursday, November 1, 2012

Which Newfangled Vehicles will Save You Money?

The past few years have been an exciting time in the automobile industry. For many decades, "innovation" meant changing the tail fins or adding bluetooth to the radio. But now, in the face of rising gasoline prices and global warming, the industry is finally responding with some truly innovative new products and drivetrains. We've seen exotic cars like the Tesla Roadster, all-electric vehicles that change the way we think about range and fueling, and increasingly a lot of just plain improved gasoline, diesel and hybrid vehicles.

A lot has been written about the carbon footprint of these new options. And there will always be early adopters willing to spend anything on the latest low-carbon vehicle. Most of the rest of us are interested in lowering our carbon footprint, but we also need to save money. More importantly, advanced-technology fuel-saving vehicles will really take off when they offer consumers overall savings. But with a bewildering array of alt-fuel vehicles coming out every day, it becomes increasingly hard to tell which car will actually do that for us.

The problem is that so many of the assumptions we've taken for granted have been uprooted. A car that saves money for one driver might not for another. Hybrid technology saves gas in city driving but not highway. Diesel vehicles get impressive fuel economy, but diesel fuel also costs more. Electric vehicles bring a whole new dimension to the cost issue, and plug-in hybrids make things even more complex. And many of these new cars get better fuel economy in the city than highway, uprooting decades of thinking about fuel economy.

To help bring clarity to this conundrum, I put together a spreadsheet (below). At the top, you fill in your prices for gasoline, diesel fuel, electricty and your particular city/driving mix. Then you make a series of columns for each car you're considering. I've filled in some columns for cars I might want to conside buying (ideally, small wagons). In general, you enter yellow cells and white cells are computed for you. Then, a "total" cost of ownership is provided at the bottom. Note that this does not include factors such as insurance and repairs. And it assumes you will keep the care for 100,000 miles and then sell at whatever the resale value is at the end.

(To play with yourself: click on the diagonal arrow to open the spreadsheet in a new menu. Then choose "Download" under the "File" menu.)
So what does this spreadsheet tell us?

Electric Vehicles

A quick glance tells us we might save money with the Nissan Leaf. This all-electric vehicle is cheaper than plug-in hybrids like the Chevy Volt because it has no gasoline engine. And electric vehicles certainly cost the least per mile to drive. If someone else pays to charge your vehicle at work or at the mall, they cost even less (put in $0.00 on your electric cost to see how much less.)

But before running out and buying a Leaf, beware that the resale value of the Leaf of $10,000 may be optimistic. Priuses with 100,000 miles can sell for $10,000. But we just don't know how things will hold up with all-electric vehicles. Battery packs will be more expensive than those for the Prius, and that could affect their price. So could brand perception of Nissan vs. Toyota. Here's an in-depth analysis of how Leaf battery issues might go over time.

On the other hand, other than the battery, the Leaf has very little on it that can wear out. It could last until the body rusts through --- which is a long time with today's high-quality paint jobs. And even if you spend $9K after a decade to replace the batteries, that's still a lot less than a new car.

Other things to note: The Leaf's price includes a $7.5K tax credit which will not survive forever, and it is only appropriate as a second car due to range and charging issues common to all electric vehicles.

Conclusion: An electric vehicle such as the Leaf could be a cost-effective second car for the early adopter willing to take a little bit of a risk. If thins turn out well with maintenance, battery and depreciation, it could be an amazing value. If not, it could be near worthless after a decade.

Hybrid Vehicles

For the one-car family or someone not ready to take the risk of an all-electric vehicle, hybrids make more sense and are also quite economical. Hybrid technology is now over a decade old, and we have extensive data on how well it holds up. The answer is, remarkably well. In fact, the Toyota Prius has the lowest depreciation of any vehicle. I continue to be amazed that you can drive one of them for 100,000 miles and then sell it for $10K --- twice the new sales price of my 1980 Honda Civic.
Assuming resale values hold, the Toyota Prius V looks like a sold winner on price. It saves enough fuel, and holds its resale value well enough, to justify the initially higher sales price compared to a traditional gasoline car such as the Toyota Matrix or Ford Focus.  And plus, it's COOL, it has lots of extras on the inside.

The Ford C-max, a close competitor to the Prius V, offers another intruiging possibility. Its overall cost is rather similar, but it gets even better fuel economy. The real question is whether or not it will hold its resale value as well as the Prius. I assumed it would hold its value better than most cars, but not as well as a Prius; but that is a guess. Lowered resale value is also an issue with the Prius: resale values could drop as hybrid vehicles become more common.

Conclusion: The eco-conscious buyer with low financial risk tolerance need look no further than the Prius. It will cost you more money up-front, but you will make it back at today's gas prices. Other hybrid vehicles will likely offer a similar value proposition.

The Losers

Finally, for the vehicle choices NOT on the efficient frontier:

  • Diesel: Diesel engines are great for trucks, and they offer impressive low-RPM grunt. But they are heavier than gasoline engines and cost more to build. And the higher price of diesel fuel makes them almost as expensive to run as traditional gasoline engines.

  • Traditional Gasoline: Rising gasoline prices and falling cost of hybrid technology mean that traditional gasoline engines are no longer cost effective.

    So go ahead, buy that Prius you've been eying. You can afford it (once your current car dies).

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