Wednesday, September 28, 2005

Hybrids: Worse Than Hitler?

An opinion piece by Peter Valdes-Dapena at CNN/Money bears a stark, terrifying headline:

Hybrids: Don't buy the hype...hybrids save gas but they won't save you money.
Very stern stuff, eh? Unfortunately, a casual scan of the article shows that it's not true.

After an almost subliminal sneer at the notion of buying a car to make a "social statement," Vades-Depena gets down to the cold hard economic facts:
Some simple calculations by our partners at revealed the following: A hybrid Honda Accord costs about $3,800 more than the comparable non-hybrid version, including purchase, maintenance and insurance costs. Over five years, assuming 15,000 miles of driving per year, you'll make up that cost in gasoline money if the price of gas goes up immediately to $9.20 a gallon and averages that for the whole period.
The Ford Escape fares a bit better under similar conditions, at a break-even cost of $5.60 per gallon of gas.

However, the Prius actually does seem to save money, as well as gas:
Compared to a Toyota Camry, a car with similar interior space which costs about $100 more over five years, the Prius driver could actually save a small amount of money.
Well, a small amount is surely better than none. Look after the pennies, they say, and the dollars will look after themselves.

The opening salvo against hybrids begins to seem a trifle impetuous, when you consider that buying the most popular model might well save you about a hundred dollars per year, and save gasoline. This is probably why Edmunds' press release detailing their findings was more temperately titled "Most Hybrid Vehicles Not as Cost-Effective as They Seem."

There are other interesting problems with the CNN/Money article. Edmunds bases its figures on an average yearly mileage of 15,000 miles, over a period of five years. (That works out to roughly 41 miles per day...on the low side for many commuters, I fear.) However, the Edmunds study was written in June of this year, and accordingly assumes a gas price of $2.28 per gallon; that's about a dollar less than many of us are paying now. Edmunds also assumed a laughable three-percent annual increase in fuel prices over the first five years of ownership. For some reason, Valdes-Dapena doesn't mention that he's using outdated, pre-Katrina information, nor does he provide a link to Edmunds' findings.

He also leaves out a fairly important detail stressed by Edmunds:
Currently, hybrids make up less than one percent of market share. Accordingly, the manufacturers have not yet been able to achieve economies of scale and are passing the higher costs along to their buyers. Since current customer demand greatly exceeds supply, the vehicles are easily able to carry the premium transaction price.
So aside from the higher production cost translating into a higher sale price, we're basically talking here about market skimming, a common practice in which new products are targeted at affluent early adopters, who give the vehicle a sense of desirability that then drives demand in less affluent markets. In this strategy, supply is generally supposed to fall short of demand.

This has been SOP for the automotive industry for a long, long time, and anyone who writes about cars for a living knows it. But for some reason, hybrid cars often trigger an aggrieved deconstruction of marketing orthodoxies that usually get a free pass. Indeed, I've consistently noticed that hybrid vehicles are more likely to be portrayed in the media as "hyped" and "overpriced" than conventional vehicles with worse gas mileage and higher sticker prices. And in the case of the Prius, I've noticed a persistent refusal to acknowledge that it has other unique features and design elements that would arguably justify a premium price even if it weren't a hybrid.

Had Valdes-Dapena written this piece when the Edmunds study was originally released, it would've been merely ill-tempered and short-sighted. But trying to pass it off as "actionable intelligence" a few disastrous months after the fact looks an awful lot like dishonesty.


Eli said...

Wow, you'd almost think some of these so-called journalists are on the take.

Good thing we know that never happens...

Anonymous said...

I agree that Peter Valdes-Dapena's article is not completely reliable. but I do agree with him about Highbreds. They don't save you money, period! The writer of this post very conveniently left out his name and contact information. He also left out the most expensive part of owning a Highbred, that is after four to five years the batteries must be replaced at a cost of $3500.00 I can see how a person like the writer of this blog can say differently, if you cook the books as he obiously has by leaving out crucial cost killing expenses. Unlike him I will give my e-mail address:

Anonymous said...

From his article May 22 about gas-saving myths:
"But you should never over-inflate your tires. They'll get you slightly better fuel economy because there will be less tread touching the road, reducing friction. But that means less grip for braking and turning."

He obviously failed his high school physics class... friction is independent of contact surface area!