NCPA - National Center for Policy Analysis

Payoff for Efficient Cars Takes Years

April 13, 2012

Facing rising gas prices, American auto consumers are increasingly flocking to hybrids and plug-in cars as a means to escape the financial pain.  However, studies incorporating mileage performance and costs associated with different models suggest that many of these options do not yield sufficient savings to justify the upfront price premium, says the New York Times.

Consumer patterns in car use and reasonable expectations of future gas prices suggest strongly that many of these models would have to be driven for many years before purchasers would break even.

  • The average consumer drives a new vehicle for six years.
  • Yet if gas cost $4 a gallon, TrueCar data estimates that the payback period for a hybrid Ford Fusion over the conventional Fusion would be eight and a half years.
  • Similarly, a buyer who chose the plug-in Nissan Leaf instead of a conventional Nissan Versa would need to drive it for almost nine years at today's gas prices in order to eclipse the $10,000 difference in price.
  • For many models, gas would have to approach $8 a gallon before they could be expected to pay off in the six-year average window.

The reality of these disappointing statistics likely explains many of the mixed results that the new fleet of vehicles has seen in the market.

  • Though hybrid sales have surged more than 60 percent this year, they still account for less than 3 percent of the total market.
  • Plug-in cars represent a minuscule fraction of sales, and General Motors even halted production of the Chevrolet Volt in response to less demand than it expected.
  • The Lundberg Survey, which tracks fuel prices, said in March that gas prices would need to reach $12.50 a gallon and $8.53 a gallon for the plug-in Volt and Leaf, respectively, to make sense purely on financial terms.

Still, market analysts are quick to point out two important caveats.  First, the starkness of the figures involved is not a perfect science -- gas prices may vary substantially in the near future or consumer driving habits may exceed assumed levels.

Second, demand for plug-ins and hybrids is not determined entirely by financial sense, as some consumers accept the price premium in the name of benefitting the environment.

Source: Nick Bunkley, "Payoff for Efficient Cars Takes Years," New York Times, April 4, 2012.

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