Breaking Even is Hard to Do:
The higher cost of hybrid vehicles

1 Jun 2008 in Regulatory Economics

New York Times reporter Bill Vlasic says "[c]onsumers have been slow to embrace" General Motors' new Yukon/Tahoe Hybrid despite the near 50% improvement in city driving fuel efficiency. It's easy to see why.

Vlasic writes:

G.M. has sold about 1,100 of its Chevrolet Tahoe and GMC Yukon hybrids since their introduction in January, according to company sales briefings. That pace is well behind its goal of 12,000 sales a year, and a fraction of the more than 100,000 hybrids sold so far in the United States this year.

“To this point, the G.M. hybrids aren’t getting any traction at all,” said Mike Omotoso, a senior manager with the research firm J. D. Power & Associates.

Vlasic reports that the difference in price is about $4,000. We used Edmunds to compare the 4WD hybrid with an AWD Denali model -- both without any accessories added -- and found a difference of $5,915. Then we plugged in the numbers to figure out how many miles you would have to drive to save enough on $4/gallon gasoline to break even on the purchase price. We assumed the vehicle was 100% financed at 6% interest for five years, and that there is no difference in cost for insurance and maintenance.

The hybrid's gas mileage is only better in the city, so if all miles driven are assumed to be city miles the consumer breaks even if he drives 1,334 miles per month (~16,000 per year). This break-even figure rises as the proportion of miles that are highway miles rises.If miles are evenly split between city and highway, then the consumer breaks even with the hybrid if he drives 2,668 miles per month (~32,000 per year).

BREAKING EVEN IS HARD TO DO:
YUKON DENALI VS. YUKON HYBRID

	Yukon AWD Denali	Yukon 4WD Hybrid
Principal	$46,540	$52,455
Interest Rate	6%	6%
Months	60	60
Monthly Payment	$899.75	$1,014.10
Breakeven Gas Savings/Month		$114.35
MPG	14 city/20 hwy	20 city/20 hwy
Savings/Mile @ $4/gal All City Driving		$0.086
Savings/Mile @ $4/gal All Hwy Driving		$0.000
Min Miles/Month to Break Even on Hybrid		1,334