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The Fuzzy Math of Matthew Yglesias and Edmunds.com

Well, it looks like I get a chance to burnish some Enviro-cred, something I need a great deal of out here in the Northwest. Matthew "Drill in ANWR" Yglesias points to a press release by a car wonk magazine that claims buying a hybrid car doesn't make good money sense.

Let's point out that the major advertisors on Edmunds.com are car manufacturers, note that the press release focuses on the maximum price difference rather than the minimum, then roll up our sleeves and run through the numbers with a bit more depth. There are two questions you must ask about any statistic: (1) Does it convey the proper information? (2) Are the assumptions used to arrive at the final result reasonable? In the case of the Edmunds study, we'll use Edmunds.com Total Cost of Ownership calculator, which is a really handy device, will be our main estimates. Let's make some comparisons.

(you'll notice that mathematicions don't put commas in four digit numbers. Why? I don't know)

Wow. Before we even get to questioning the statistic's merit, we have to question their arithmetic. Already, the $2000 clean fuel car tax credit, if it were refundable, would almost completely eliminate the cost advantage of the non-hybrid car.

The marginal cost of other hybrids except for the Prius is similar; the Escape hybrid costs about $2800 more than the AWD Escape. The Accord hybrid is about $3600 more than the Accord V-6, but Honda has intentionally made the hybrid a better car -- so they try and upsell you both on fuel economy and horsepower when you get to the dealership. The Prius is in fact over $5100 more than the Corolla, but only $600 more than the Camry, so it's tough to get a good head-to-head comparison.

Now that we've fixed the math, how are the good folks at Edmunds' making an ass out of you and umption? Well, for starters, they assume you're going to sell the car after five years. In practice, that's a realistic assumption; though I'm having trouble getting the average lenth of time a new car owner holds onto their care, the age of the overall vechicle fleet is around eight and a half years. But there's a difference between the average consumer and any given consumer. After all, Bill Gates and I have an average net worth of around $20 billion, though neither of us has a net worth within shouting distance of $20 billion. So if you are car shopping , you know whether or not you plan on keeping your car for two, three, or six, or ten years. That makes a big difference in the marginal cost; every year the hybrid saves you another $220 in gasoline, plus it probably depreciates at a slower pace. So you'll need to hold the civic hybrid for about seven yearsbefore it pays for itself. In addition to assuming you'll sell the car in short order, Edmunds also assumes you drive 15,000 miles a year. Those of you with commutes of 30-miles each way will laugh at this number. Drivers who log 20,000 miles in a year will make up for the hybrid premium within five years rather than seve.Finally, Edmunds assumes that if you don't buy a hybrid, you'll buy the equivalent non-hybrid car. But car shopping doesn't work like that; you may have your eye on the Civic Hybrid, the gas guzzling Ford Mustang, the Dodge Neon, and the sensible Toyota Camry, all at the same time. Because the non-hybrid Civic is already a fuel efficient car, you don't save that much money on fuel. But you save a boatload in comparison to other cars of roughly the same quality.

So, what are the conclusions:

• The Civic Hybrid is the best deal, followed by the Escape Hybrid, followed by the Accord. The Prius doesn't have a comparable non-hybrid, but would otherwise be about the same cost as a Civic.
• If you plan on owning your car for more than three years or 45,000 miles, buying a hybrid is a better deal than the equivalent non-hybrid, but only because of the tax credit.
• If you plan on driving your car into the ground, buying may hybrid is a better deal, even without the tax credit.
• If you live somewhere where gas is expensive (say, anywhere on the West Coast), buying a hybrid makes even more sense; at $3.00 per gallon, a tax-credited hybrid pays for itself in eighteen months.
• If you are choosing between a Civic Hybrid and almost any other car in roughly the same class, buying a hybrid is a better deal, even without the tax credit, because the non-hybrid Civic gets very good mileage for cars of its size.
• Check your state and local laws, which may offer tax credits, deductions, or abatements on hybrid vehicles that further lower the marginal cost of a hybrid car.
• Replacing the tax credit with higher gasoline taxes impossible; it would require gas prices of at least $7.50 per gallon to offset the $2000 credit over five years of ownership. Even if we assume hybrid cars last ten years, gas would still have to reach European prices ($3.75 per gallon) before it would make sense to eliminate the tax credit.
• As economies of scale and competition kick in, the marginal cost of a hybrid will drop slowly, and they will become cost competitive.

And now I'm off to ponder whether I'd rather get a Cadillac CTS or a Subaru Outback and a hypothetical semester of grad school. Your thoughts are welcome.

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Last updated by Nicholas Beaudrot on 09:33 02 June 2005