The Market Says That Hybrids Are Worth More than their Extra Cost

Market Based (Hedonic) Hybrid Value Analysis

Walter McManus on Sustainable Mobility

May 04, 2006: The Market Says That Hybrids Are Worth More than their Extra Cost

Well, all except my Accord Hybrid. A few weeks ago, I wrote about the unfavorable estimates of hybrids' pay-back by Consumer Reports, and presented estimates of my own that were also unfavorable but less so. It turns out that both CR and I may have been wrong, big time.

The table repeats my March estimates and those from Consumer Reports. The first panel of the table, "McManus Hedonic," shows my new market-based estimates. At $4.00 per gallon of gasoline, the same price I used for my first estimates, all but the Accord are showing advantages over the all gasoline comparison vehicle.

The CR and the McManus P. Val. estimates are based on calculation of the present value of the fuel cost savings, with different assumptions about the discount rate, and the path of fuel prices over time. McManus P. Val. was simpler, but it calculated the advantage over 14 years, and a lot can change in that time. CR calculated the costs over 5 years, but that meant they had to predict resale value at the end, which is very risky.

The CR and McManus P. Val. are assumption-based, and the results are sensitive to small changes in assumptions.

The McManus Hedonic is completely different. It is based not on assumptions about discount rates, period of ownership, or any of the other things that the other methods must assume. It is based on observing the real-world operation of the vehicle market. It is market-based.