Friday, October 8, 2010

Should You Buy a Hybrid?

The Prius on the left, gets 48/50 mpg and costs $22,000.  The Aveo on the right gets 27/35 MPG and costs $12,000.  Owning a Prius says you care about the environment.  Owning an Aveo says you are poor.

When I was at GM, the philosophy about small cars was "small car, small profit."  And to some extent, this was true.  Critics, including John Delorean, decried this attitude at the "big three" during the 50's and 60's, arguing that there would be a market for an upscale, quality small car.

And there was, too. The Japanese and Germans exploited the demand for quality small cars in the US - a demand that was not being met by Pintos, Vegas, Gremlins, and Chevettes.  But for the most part, small cars, even today, are viewed as "economy cars" and consumers expect to pay less when they get less, even if a large car is little more than an empty steel box.

Hybrid drive trains are an interesting innovation, and as an Automotive Engineer, I find it interesting technology.  It is the first major shift in drive train design since the Model T, frankly.  Despite what the naysayers claim, this type of technology - or something similar - will be here to stay, as the demand for higher mileage cars increases.

What is a hybrid car?  Perhaps an explanation of terms in order.  There are three types that are available on the market now - or will be shortly - Parallel Hybrids, Series Hybrids, and Plug-In Hybrids.
Parallel Hybrids are on the market today and encompass the Toyota Prius and pretty much every other hybrid you can buy at the time of this writing.  A smaller gasoline engine drives the wheels, with an electric motor connected to the drive train as well.  When starting out, or at low speeds, the car may run on electric power alone, with the gasoline engine kicking in when additional power is needed.  Regenerative braking is used to recapture some of the energy in city traffic, and this energy recharges the battery.

Series Hybrids are not on the market yet, but the Chevy Volt promises to be the first of these.  Like a Diesel/Electric Locomotive, an electric motor drives the wheels of the vehicle, and a gasoline engine will start up and recharge the batteries once they are depleted to a certain level.  The gasoline engine is NOT connected to the drive wheels in a true series hybrid (which the Volt may not be).  The series hybrid promises to be an interesting development and is more of an electric car with a recharging generator built in.  Since the gas engine runs at one constant speed, it can be tuned for maximum efficiency at that speed.  BMWs new 1-series electric uses a similar principle, with the "range extender" option.

Plug-In Hybrids can be Parallel or Series, and will hit the market shortly in both forms.  The Prius is slated to come out with a plug-in option.  Many hobbyists have already converted some of their cars to this mode.  The Chevy Volt will be a plug-in hybrid, and again, is more like an electric car than a hybrid in that regard.  The advantage of the plug-in hybrid, is that if battery capacity is increased, you can drive up to 30 miles or more, without having to start the gasoline engine.  For many people who commute short distances, this could mean buying gas once a year or only when going on long trips.  Gas consumption could theoretically drop to zero.  Oil changes might be once in the life of the car.  It will be interesting!
We live at an odd crossroads today.  You can go to a car dealer and buy an 8 MPG SUV with a 400+ HP engine, and on the same lot, find a car that is a hyper-miler.

Do you need or want a hybrid car?  The answer is complex.  But for the most part, at this time, you can get very similar economy with a traditional car drive train, and the cost/benefit analysis really never pans out for the hybrid.  Down the road, hybrids and plug-in hybrids may dominate the market and you may not have a choice.  If gas prices rise to $10 a gallon, owning such a car might be compelling.  But at the present time, they are more of a status symbol than a practical choice.

You see, people don't buy hybrids for the gas mileage - despite what they may claim.  A hybrid is a political statement and also a status symbol for the owner.  It says "I care about the planet, while you are a neanderthal polluter!  I am BETTER and SMARTER than you!"

And while a Prius owner might deny that, but it is the essential truth, as there really it little in the way of "saving the environment" when you buy a Prius.  It is more about making a statement.

Consider the two cars shown above. The Aveo on the right is made by Suzuki and sold by Chevrolet.  It gets a reasonable 27/35 MPG, while the Prius gets close to 50. That's a big savings in fuel, right?

Well, not exactly.  As we have discussed here before, and as many economists have noted, Miles PER Gallon is a fraction or ratio, with a numerator and a denominator.  Yea, I know, math and all - that stuff you don't need to know "in real life" and the stuff that many people really suck at - basic math.

So every increase in miles-per-gallon is less of a savings than the previous.  There is a huge jump in going from a 10 MPG Hummer to a 20 MPG Santa Fe.  But the savings in going to 30 MPG from 20 MPG is less, in terms of gallons consumed per mile.  And with 40, even less so.  Consider the savings in the table below, for an average American driving 15,000 miles a year.

MPG           Gallons/Yr.      Cost@$3/Gal    Savings
10 MPG    1500 Gallons         $4500
20 MPG    750 Gallons           $2250             $2250
30 MPG    500 Gallons           $1500              $ 750
40 MPG    375 Gallons           $1125              $ 375
50 MPG    300 Gallons           $ 900               $ 225

As you can see from the table above, the savings between 40 and 50 MPG are pretty paltry.  The higher you go, the less money you save - while the cost of the technology to get such mileage increases exponentially.

Consider the typical American, who drives 15,000 miles a year.  For the Prius, at 50 MPG, that is 300 gallons of gas a year, which at $3 a gallon is $900 a year in gas costs.  For the Aveo, at 30 MPG, that is 500 gallons a year, which at $3 a gallon is $1500 a year in gas costs.  This may seem like a big savings at first ($600 a year), but over the life of the car (15 years), this works out to about $9000 in increased fuel consumption for the Aveo.  In other words, there is no "payback" in driving the Prius over the Aveo - after 15 years, you are still $1000 behind in gas costs, if you figure the difference in prices between the two cars as being at least ten grand, if not more.

(And consider that you are likely to get a "bargain price" on the Aveo, and pay over list for a Prius, and the savings are even harder to quantify).

But there are other considerations in this "save the planet" scenario.  The Prius uses a Lithium-Ion battery which is made of rare earth elements which are mined in Bolivia and other 3rd world countries.  The environmental impact of this mining has its associated costs on the environment.  In addition, disposing of lithium-ion batteries - safely - at the end of the design life is a problem that is not talked about very much.  The combined impact of both of these issues is arguably greater than the few barrels of oil a year extra that the Aveo consumes.

This is not to say I am against hybrids.  By providing a status "hook" that people can hang their hats on, the Prius and its ilk allow people to buy smaller cars, while still maintaining status.  Buying an Aveo says "I am poor" and most people don't want to project that image.

Oddly enough, in Europe, where gas prices are nearly double that in the US, hybrids are fairly rare.  Our European cousins tend to favor diesel cars, which are cheaper to buy and get "about" the same mileage as a Prius.  When I was in Spain, the only hybrids I saw were taxicabs - which rack up high city mileage and thus make clear economic sense.  For the consumer who drives only a few miles a day, a thrifty and cheap diesel car makes more sense.

Of course, there are other "hooks" used to sell status in small cars.  BMW has used the panache of its Mini line (and retro styling) to sell a high-end small car.  VW had tried a similar tack with its new Beetle, but that has been discontinued.  They do, however, sell "high end" versions of its VW line as Audis.  But it is hard for many people to justify dropping 22 grand on a small car, when for the same price, you can buy a used Avalon with a trunk large enough for four sets of golf clubs.

And that's the rub.  Provided your car gets "reasonable" gas mileage (30 or so) there is not a lot of savings in going to a "hyper miler" car, and the payback might not occur over the life of the car.

Does this mean you shouldn't buy a hybrid?  No, I never said that.  Dropping demand for fuel helps everyone in the economy, as when demand drops, so do prices.  So when you drive a hybrid, everyone benefits.

But you can also get similar mileage from conventional drive trains as well.  And the cost of driving and owning a conventional car may actually work out to less than the hybrid, even with fuel factored in.

The choice is up to you.  At the present time, these might not make financial sense.  But all it would take is one gas crises to drive the economic analysis the other way.  Assuming $5 a gallon gas, for example, would show a $1000 a year in savings, and a payback in as little as 10 years.  Still a long time, but better than 15 years with no payback!

And frankly, I think that the hybrid technology might be here to stay - perhaps not in the form it is now, but in a plug-in mode, where real savings in fuel as well as engine wear would be realized.

My personal choice?  I think I'll wait a few years to see where the market is going with this before investing in what is still a relatively new technology.  And besides, my car isn't nearly worn out yet (11 years old and 28,000 miles on the clock!) (15 years old and 50,000 miles on the clock!).  I simply don't drive that much anymore!

(UPDATED December 2014)