Posted by Kevin

I’m currently working on a site that will focus on building long term wealth by investing early and practicing fiscal responsibility. This article is an example of what might appear on that site.

How many of you have considered or are considering purchasing a hybrid vehicle in response to rising gas prices? I would bet that many of you have at least thought about it.

There is an article on page C1 of the Chattanooga Time Free Press this morning entitled Full-size Hybrid SUVs Rolling In. It highlights the GMC Yukon Hybrid, Cadillac Escalade Hybrid and the Chevrolet Tahoe hybrid among others. You might be surprised, but buying a hybrid vehicle may actually cost you more money than your current “gas guzzler! Let’s take a look:

2008 GMC Yukon (2WD) vs. 2008 GMC Yukon Hybrid (2WD)
MSRP, City MPG , Hwy MPG
$50,945, 20mpg, 21mpg
$36,245, 14mpg, 19mpg

Strictly Financial
First of all, it’s important to note several key observations. The up front cost for the Hybrid is a whopping $14,700. Secondly, there is a clear advantage in the city gas mileage, but only a 2 mpg advantage on the highway for the Hybrid over the regular Yukon.

Most people do not purchase vehicles with cash. Let’s assume your credit is good enough to qualify for the 2.9% APR financing over 48 months. For calculations sake, let’s assume a modest trade-in value of $8,000 and an additional $2,000 down payment. Also, we will include a 7.5% sales tax. The total amount financed would be $44,766 for the Hybrid, and $28,963 for the traditional Yukon. Including interest, the total amount paid (including trade-in and down payment) at the time of the loan pay-off would be $47,466.24 for the Hybrid and $30,709.92 for the traditional Yukon.

The immediate glaring eye-opener would be the monthly payment difference. The Hybrid Yukon would cost you $988.88 per month for 48 months. The traditional Yukon would cost you $639.79 per month over a four year period. That’s a difference of $349.09 per month.

Gas Mileage
I drive over 20,000 miles per year, but let’s assume you drive a modest 15,000 miles in a 12 year period. Another assumption that will have to be made is that gas prices will not rise more than 10% per year. This is probably not going to happen (at the current rate it will be more), but for ease of calculation we’ll go with 10%. We’ll use a year one cost per gallon of $3.65, year two will be $4.02, year three will be $4.42, and year four will be $4.86 per gallon.

We’re also going to assume two-thirds of those miles will be “city” miles and the remaining 5,000 will be on the highway.

For the Hybrid, you would burn 738 gallons of fuel. For the traditional Yukon, you would burn 977 gallons of fuel. That’s a difference of 239 gallons over the period of a year, which translates to a fuel savings of $872.35 in year one, $960.78 in year two, $1,056.38 in year three and $1,161.54 in the fourth year. Total fuel savings over the four year period would be $4,051.05.

How the Savings Shakes Out
From that fuel savings, let’s subtract the difference in monthly payments ($16,756.32 over four years) for the two vehicles. Instantly, we swing from a $4,000 savings to a $12,000 loss. $4,051.05 compared to -$12,705.27 to be exact.

I’ll let you decide how long you’d drive that Hybrid, but it would take at least five more years to save the the money in fuel efficiency that you lost with the initial purchase of the Hybrid technology - probably MORE! Most of us probably won’t keep a vehicle more than 10 years. I could take a trip back to my Engineering days and provide an equation that would calculate how long you’d have to drive it to ultimately save money, but I’ll spare me and you the trouble.

The Final Word
In this example, I took a strictly financial approach to the decision making process of buying one of the new Hybrid Yukons instead of the traditional “gas guzzling” Yukons. You may not care about the money, and only wish to help the environment. If that’s the case, go ahead and make the jump to the Hybrid and save almost 1,000 gallons of gasoline over a four year period. But for most of us, money is still the presiding factor in our decision, and in this case it’s just not worth the extra $15,803 it would cost to purchase one of these “environmental friendly” machines.

I would love to hear your thoughts on hybrid vehicles, especially from those of you that might own one. Leave a comment and tell us about it!