Hybrid Cars: Cost vs. Benefit

 

 

Several months ago we ran an article on the tax benefits available with the purchase of hybrid automobiles, which run on gasoline and electric battery power.

 

                While there may be certain tax benefits available, the total economic benefit may not be enough to offset the cost difference between a hybrid vehicle and its non-hybrid counterpart.

 

                According to CNN, a hybrid Honda Accord costs about $3,800 more than an ordinary gasoline powered Accord.  Similarly, the hybrid Ford Escape costs several thousand dollars more to purchase than its non-hybrid counterpart.

 

                In order to make up the difference in cost on the Honda Accord, gasoline prices would have to stay above $9.00 per gallon for 5 years, assuming the car is driven 15,000 miles per year.  Given that unlikely scenario, the cost difference for hybrid vehicles cannot be justified based upon economics alone.

 

                The picture may change based upon new tax legislation in the pipeline, however.  For hybrid vehicles purchased after January 1, 2006 a tax credit of up to $3,400 per vehicle will be available.  Since a tax credit, unlike a tax deduction, is a dollar-for-dollar reduction in your taxes, this new legislation could balance the economic scale in favor of the hybrid.  Stayed tuned.

 

— Kevin Palmer