Rokki

Does having a hybrid really help?

07:44 AM CST on Tuesday, March 21, 2006

By Shern-Min Chow / 11 News

If you drive you know gasoline prices are up 25 cents in just the last few weeks.

Some people are considering a hybrid car to save at the pump.

But would a hybrid really save you money in the long run?

It's hard to find a hybrid on a lot these days. Toyota introduced its model at a loss to enter the market.

"They were costing $40,000 to build for each car and they were selling them for $20,000," said Owen Rachal, Mike Calvert Toyota.

The big selling point is fuel efficiency. The Prius averages 45 miles a gallon.

"When you pull up now it's 50 bucks to fill up and if you fill up half as often that'd save quite a lot of money," he said.

But buyers often spend $28,000 on the hybrid thousands more than a comparable gasoline car.

So how does it all add up? Consumer Reports did a cost analysis of six hybrids over five years, 75,000 miles and presuming gas would go to $3 then $4 a gallon.

Surprisingly, these first four models will still cost you $1,900 to $5,500 more than comparable gas vehicles.

Only, the Prius and the Honda Civic saved about $400 and $300 respectively, and only thanks to Federal tax credits. They range from $650 to $3,150 based on a hybrid's power and mileage. The credit is limited to 60,000 hybrids per manufacturer.

The city of Houston owns 308 hybrids. Its calculations show emissions and maintenance are substantially lower particularly for brakes.

The mayor wants half its fleet to be hybrid by 2010 but the city's fleet purchase price is $20,400.

"The cost benefit runs to $23,000 to $24,000 before we start looking at it again," said Terence Fontaine, the mayor's deputy chief of staff.

Will the sticker price go down, as technology improves?

"They're very complex and I can't see the price really coming down other than they become more economically viable as the price of gas goes up," said Scotty Kilmer, 11 News car expert.

http://www.dallasnews.com/s/dws/txcn....45d37c89.html

imported_Tricky

Thats strange.
Are they still running at a loss, anyone know?

CharlieLink

Very rarely does any business operate anything at a loss. It may look like this, but I can explain the economics if anyone really cares.

anteater

Ok explain them please

I would be interested in knowing the details from someone who knows what they are talking about

CharlieLink

All business runs on only two costs: Fixed cost and Variable cost. Fixed is very high and buys you infrastructure. Contrary to popular accounting practices, variable costs is almost always just raw material cost (if you can buy it piecewise for a fixed unit price). For a detailed explanation, you can read my notes, pages 6 - 15 of this lecture: Notes2005-1107.
In the sample case, I have a factory that cost me One Million Dollars per year including my workforce. I pay them to work in the factory, not to produce profits. My raw material cost is $4.25 per part. The factory capacity (in this example) is 329,412 units. Assuming that our primary (domestic) market is 250,000 parts that we can sell for $ 8.50 (more would drive down the selling price). For this, I can make $65,000 profit from my $1,000,000 investment (a reasonable profit - equal to the big oil companies' margins).
But I still have 79,412 unit capacity left over (which I have already covered by the domestic/primary profit). Selling this excess capacity for anything over material cost is pure profit! Since my matl cost is $4.25, even if I sell the excess parts to the Elbonians for the dirt cheap price of $6.50 (2.00 less than domestic), I am still making $2.25 per part profit. In my example, I only dumped 60,000 parts on them (of 79,000 excess), but made an additional $135,000 pure profit with no investment. That's more than double the profit I made selling the same parts to you for $8.50 !

People will scream because they claim selling at a loss, gov't subsidies, etc. It's just not so. It's the MBA analysts who have misled most people and businesses into stupidity. Incidently, I have been teaching economics since 1986.

imported_Tricky

Thats all very technical charlie.. over my head almost completely haha

I do see what you're saying though I think... but whats this got to do with the hybrid??