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Two year payback on hybrids?

Discussion in 'Prius, Hybrid, EV and Alt-Fuel News' started by bwilson4web, Nov 22, 2012.

  1. fuzzy1

    fuzzy1 Senior Member

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    In my WA neighborhood, I see more than five G3 Prii parked on the street on a 30 minute evening walk. That doesn't count any garaged ones hidden on the same route.
     
  2. JMD

    JMD 2012 Prius 4 Solar Roof

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    Why I
    Why I purchased a Prius. I wanted to present myself the gift of disillusion but to my surprise I was disappointed again as the Prius may have exceeded my expectations and managed to break down the will of the upper middle class as I gat more for less.
     
  3. Corwyn

    Corwyn Energy Curmudgeon

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    What are you figuring for the price of new planet?
     
  4. SageBrush

    SageBrush Senior Member

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    :)

    I was probably unclear:
    Product A costs X over it's lifetime
    Product B costs X over it's lifetime, but pollutes more than A.

    It should be a no-brainer to pick product 'A', but somehow Americans have decided that they will only pick 'A' if it saves them money over 'B'
     
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  5. JMD

    JMD 2012 Prius 4 Solar Roof

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    They found one with a similar distance to the Sun as Earth, however it will take 3 generations of space travel to get there and no guarantee it can support life. So if you go your great grand children will see the planet. :-(
     
  6. JMD

    JMD 2012 Prius 4 Solar Roof

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    I think the Automotive magazines put that in there head. Funny how they do not talk about pollution or global warming or clean energy.there are 3 types now.
    1) they understand and purchase a EV
    2) they think pollution and gas gusslers is there right
    3) those who do not understand the EV or are miss understanding.
     
  7. JimboPalmer

    JimboPalmer Tsar of all the Rushers

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    4) they wish they could get by with an EV, but choose a hybrid as it meets their daily distance needs.
     
  8. austingreen

    austingreen Senior Member

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    Somehow reasoning has become off track.

    To the writers there is a meme that hybrids perform worse and are no as fun to drive. A hybrid should therefore have a lower TCO.

    CR and other magazines have commented the honda fit is a better economy car than a prius.

    Then more recently a prius c was compared.

    Its not that the payoff should be 2 years, but that there should be something improved.
     
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  9. JMD

    JMD 2012 Prius 4 Solar Roof

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    My last car I purchased a BMW and it was a money pit. So when I compared the Prius I compared it to my Bimmer. Prius was more room, better mileage, lower payment, lower gas prices, lower insurance, and less of a Robert liability, and more car data, and overall mor reliable car. If I could improve the planet sign me up.
     
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  10. JimboPalmer

    JimboPalmer Tsar of all the Rushers

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    I will bite, what is a Robert liability?
     
  11. Fred_H

    Fred_H Misoversimplifier

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    If I may misuse Aleckin's example to illustrate a point:
    Yes, after 7.4 years Aleckin would have the same amount of cash sitting in the bank with either car. However, with the Prius he would have a more valuable car sitting in the driveway in addition to that. That "payback" calculation only takes cash in hand into account, and completely ignores the value of other material assets.

    So that is not the real break-even point, because if at that point he sold the car, part of the "hybrid premium" would then be recouped, and he would then have more cash in hand after driving a Prius.

    The method by which the payback time to break even fallacy is made, is that while the value of the gasoline is measured from the beginning of the time period to the end of the time period, the value of the hybrid premium is only measured at the beginning of the time period and not at the end of the time period. This is as if the Prius would depreciate by $3,500 more than the other car the very instant it is bought. Obviously this makes no sense.

    If one calculates the fuel cost savings per year, then one should also calculate the hybrid premium cost per year. Assuming very pessimistically a Prius lifetime of only 12 years, then the cost of the $3500 hybrid premium is $291.67 per year. Subtracting that from Aleckin's $472.50 fuel savings per year gives $180.83 net savings per year, every year from the very first, compared to the non hybrid.

    That $180.83 per year is the return on the $3,500 hybrid premium investment over and above the initial investment being recuped. That's 5.2% of the initial investment per year, or roughly the equivalent of a 4% annually compounded interest rate for 12 years. And that's probably worst case. For me, that's better than money in the bank.

    Here's another example with a slightly different way of calculating to illustrate the same principle: If after six years (half of the life of the car) Aleckin sells his car for half of what he bought it for, then he would save $2,835 on fuel with the prius, but he would lose 1,750 more on depreciation of the higer priced Prius compared to the other car (the difference between half of the new price of each car). That puts him $1,085 ahead with the Prius after only six years, even though conventional wisdom says that his break even point is only after 7.4 years.

    As the math turns out, assuming constant rate of use of the car, and all else being equal (which it isn't, but the issue here is the basic principle), as long as the hybrid premium is less than the fuel savings for the lifetime of the car, then no matter what point is chosen, the savings in fuel costs will always be more than the increase in depreciation costs due to the hybrid premium.

    If there must be a break even point, then one could say that would be the day that the car was bought. After that, with every mile the fuel savings are outweighing the hybrid premium, and adding up in favor of the Prius.
     
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  12. SageBrush

    SageBrush Senior Member

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    ^^ Pretty analysis, but it assumes linear depreciation.
     
  13. Fred_H

    Fred_H Misoversimplifier

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    Yes, but it doesn't necessarily have to. It also works fairly well just asssuming same depreciation rate curve for both cars. But I like linear because it is simpler and more logical.

    The main thing is the basic priciple.
     
  14. bwilson4web

    bwilson4web BMW i3 and Model 3

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    So our copy of Consumer Reports (Jan. 2013) arrived and I had a chance to read the article,"Would you buy your car again?" (pp. 48-49) and was struck by this:
    This is the same article that lists:
    • Prius c - second highest ranked small car
      • Honda Fit - seventh highest small car
    • Prius hatchback - second highest family car
    • Prius v - top of the wagons and minivans
    Now this got me wondering, why does the "Honda Fit" remain a Consumer Reports favorite?

    So I made a spreadsheet model using data from Fuel Economy for:
    1. Lowest purchase price
    2. Highest purchase price
    3. 10% annual depreciation - SWAG
    4. User reported average MPG
    5. 10 year ownership - average fleet age 11 years
    I then ran the model for two types of owners:
    • Home-body
      • 12,000 miles/year
      • $3/gal gas
    • Road-warrior
      • 20,000 miles/year
      • $4.50/gal gas
    HOME-BODY

    Living near the Gulf Coast within an easy drive of a refinery, this retired person doesn't drive much and gets gas for a very low price:
    [​IMG]
    Notice that Honda Fit and 'Prius c' have nearly identical costs per year. The 'Prius c' is smaller than the Fit but on a cumulative, annual cost, they are all but identical. But the lowest cost Prius hatchback has the same costs as the top of the line Fit and 'Prius c'. This was not expected.

    ROAD-WARRIOR

    Living on the West Coast, this field service technician or salesman spends a lot of time and miles, 20,000 miles per year. But West Coast gas prices are often fairly high:
    [​IMG]

    In this case, the top of the line Honda Fit and Prius hatchback are running nearly identical annual costs. But the lower scale Prius hatch back is more affordable than the lower cost Fit. Notice how the lowest scale Prius hatchback and the loaded 'Prius c' have nearly identical cumulative costs.

    My first surprise was the least expensive Prius hatchback had nearly identical annual costs as the top of the line 'Prius c.' Regardless of mileage or fuel costs, this relationship holds true.

    As expected, the road warriors start to see parity between the Prius hatchback and Honda Fit in the top of the line models. But in the economy versions, the Prius hatchback becomes more affordable.

    Why does Consumer Reports love the "Honda Fit"?

    So now we can understand why Consumer Reports loves the "Honda Fit" even if their readers don't. Consumer Reports are writing for "HOME-BODIES" with rose-colored glasses views of future gasoline prices. Such people do exists but our family is not one of them. The realists who responded to their survey are ROAD-WARRIORS with a realistic expectation of future gas prices.

    Bob Wilson
     
  15. austingreen

    austingreen Senior Member

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    Straight line is a poor assumption since depreciation is front loaded.

    I would expect a 10 year old gen I prius to have depreciated a larger percent than a 10 year old civic because of allowances for battery replacement. Since lithium is expected in the future, nimh battery replacements may stay expensive.

    Luckily there is less of a hybrid premium built into the gen III prius then the gen I, still its hard to get a handle on how much more it will depreciate than say a fit or a mazda 3. YMMV. The question is whether you appriate using less gas or the toyota benefits versus the fun to drive of a fit or mazda 3.



    • I wouldn't put much stock in that list, but it is interesting that CR seems to hate the prius c, but their readers seem to like it. I see bias on the part of reporters there.

    I think many would rather drive that low end fit than prius c, especially in 2014 when they start making them in north america.

    My brother is a road warrior but lives in IL. He as a camry hybrid as his compromise car. The more comfortable seat and locking trunk were what sold him. TCO is much lower than the infinity G35 he used to have, but he gave us a lot of luxury and performance;)
     
  16. JimboPalmer

    JimboPalmer Tsar of all the Rushers

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    Would I get the same curves as the second example with $3 a gallon gas* and 30,000 miles anually?

    * Not that I will have $3 gas in 10 years
     
  17. bwilson4web

    bwilson4web BMW i3 and Model 3

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    The zip file contains my excel models. I didn't really design and document them for others but the general layout:
    • constants are in the far left corner
    • annual rows
      • set of depreciated values using (100% - <rate>) * previous value
      • set of depreciation costs using (original_cost - depreciated_cost)
      • set of annual fuel costs using ( (miles/MPG) * cost_per_gallon)
      • set of summed depreciation costs and fuel costs
    If you have a specific question, please reference the row and column and spreadsheet and I'll try to answer.

    GOOD LUCK!
    Bob Wilson
     

    Attached Files:

  18. JimboPalmer

    JimboPalmer Tsar of all the Rushers

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    I am on my wife's laptop, not my desktop; I used it as spare parts monday for a client. I do not seem to be able to read the ZIP file, is it good for others?

    I do NOT want to blame her laptop if possible!
     
  19. bwilson4web

    bwilson4web BMW i3 and Model 3

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    My apologies! I did not test the first file and I found it broken too. So I created a second one, tested it, and it appears to download and decompress correctly. Please try it now.

    I am using "*.xlsx" workbooks but have no problem converting them to "*.xls", the earlier format.

    Bob Wilson
     
  20. JimboPalmer

    JimboPalmer Tsar of all the Rushers

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