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Does it make good financial sense to buy a hybrid?

Prius plug-inWhether you’re buying a hybrid to reduce your carbon footprint or to save money on gas, it is an interesting question as the price of gas continues to rise. The price of hybrids and the newer electric and plug-in vehicles, getting 95 mpge (electric) do cost more than their non-hybrid counterparts. Even with the government rebates, it is not a quick break-even.

Toyota has long been a pioneer in producing hybrid cars, with the Toyota Prius ranking #1 by CNN Money and KBB (Kelly Blue Book) for the most cost-effective of the hybrids. However, it does take about four years, depending on how many miles you drive, to recoup the premium you paid for the Prius (with 50-53 mpg, depending on the model). The Toyota Camry hybrid (43 mpg) ranks #3 with about 4.8 years to recoup the premium price. But the more mileage you put on the car, the shorter the time to recoup your investment in a hybrid. Based on 175 gallons, your annual fuel savings is about $600. For longer commutes or people driving for business, the savings is much greater.

A couple of weeks ago, Toyota announced that it plans to introduce 15 new or redesigned hybrid vehicles, including the Prius, between now and the end of 2015. These new hybrid powertrains will deliver significantly improved fuel economy in a more compact package that is lighter in weight and lower in cost.

Toyota Avalon’s hybrid tied for first place with the BMW 5 series—ahead of Lexus, Porsche and the BMW 3 series in the “Top KBB Expert Rated Hybrids.” Toyota is so focused on being energy efficient and state-of-the art, they began producing plug-in and electric cars—ahead of their time—but they will cost more than the traditional hybrids.

The cost-effective Toyota Yaris Hybrid R is coming soon and will be among the lowest price of the hybrids. The RAV4 and the Highlander are also available as hybrids.

As hybrids are becoming more common, the pricing has started to come down closer to their non-hybrid gas-powered vehicles. (Like many technology products, the higher the sales, the more the prices start coming down.) At the same time, the EPA mileage ratings on standard vehicles has typically increased with smaller vehicles and smaller engines than the old “gas guzzlers.”

For Volvo lovers, they just came out with a P1800 plug-in hybrid coupe last month, with more to come.

From a pure financial standpoint, you need to compare the fuel cost savings you will realize from driving a hybrid against the higher purchase price to determine how long it will take to “break-even.”

What many people often don’t realize is that you will be paying close to sticker price for a hybrid. These vehicles are more complex to make and are commanding a premium in the market, so there’s less room to negotiate. At the same time, you may be able to purchase a gas-powered car at close to invoice. This can increase the purchase price difference by thousands of dollars.

While it is wonderful that people want to buy cars that use less fuel and are better for the environment, it takes about 4-5 years or more for the average driver racking up 12-15 thousand miles a year to make up to recoup the difference in purchase price between a hybrid and a gas-powered vehicle. After that, you will realize the savings. If you drive more than 20,000 miles a year, the savings will come sooner.

The best way to decide whether or not a hybrid is right for you is to drive one and speak to a salesperson about your annual mileage. At Jaffarian Toyota Scion, you can choose from a wide range of Toyota hybrids, including the market-leading Prius. Then take a comparable gas-powered car out for similar test. We can help you work the numbers and help you choose the best option for your budget and your needs.

To date, Toyota has sold more than 5 million hybrids worldwide. The environmental effect has been an estimated 34 million ton reduction in C02 — the equivalent of taking 4.8 million vehicles off the road for an entire year. Now that’s significant!

Ask Gary Jaffarian

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