There are lots of attractive features of hybrid and alternative-fuel cars, but one of the biggest selling points has traditionally been the potential for saving money: By investing in advanced fuel technology rather than frequently paying for gasoline, you’ll eventually spend less than you would by buying a traditional vehicle with a lower sticker price.
That pitch doesn’t really cut it right now. Gas prices have hit multi-year lows across the country, with the national average at $2.926 as of Nov. 11, according to the AAA Daily Fuel Gauge Report. The 46-day slide in fuel prices is the longest consecutive decline since 2008, AAA’s website said, so no matter what vehicles Americans are driving, they’re seeing savings at the pump.
In a way, hybrids, alternative-fuel and electric vehicles become more expensive as gas prices drop, because the “break-even” period — the time it takes to amass enough fuel savings to make up the premium paid for advanced technology — becomes longer. This trend may make a consumer pause and wonder if buying a hybrid is an economical decision.
It is and it isn’t. Really, it depends on your values and how you look at car shopping.
More Options Mean Better Prices
When hybrid technology first became available, it was very much a rich man’s car. The cutting edge technology put them in high demand, resulting in wait lists and high prices — quite simply, it was a great example of supply and demand at work.
The technology remains expensive, because it continues to improve, but there are many more options available to consumers looking for hybrid, electric or alternative-fuel vehicles than there were 10 years ago.
“The price has come down in the sense that there’s more to choose from,” said Ron Montoya, consumer advice editor for Edmunds.com. “Since these cars aren’t as in high demand, you can get some better deals and negotiate better than sticker price.”
In response to the low demand, manufacturers may cut prices or provide incentives to prospective buyers. (For example, in October, Ford cut the price of the Focus Electric by $6,000 to $29,995, about a year after a $4,000 price cut, USA Today reported.) Tax incentives that used to apply to hybrid vehicles have expired, but there is a tax credit electric-car owners may be able to take advantage of.
Hybrid and electric vehicles are also more customizable than they were a few years ago. Add that to the current market conditions, and consumers have some room to negotiate these car prices.
Still, if you’re shopping from purely a financial standpoint, traditional gasoline vehicles are probably your best bet. Another strategy is to look at used hybrids, Montoya said.
It’s Still a Choice of Value
For people who want to ditch traditional fuel systems for reasons beyond money (such as reducing carbon footprint), hybrids are more financially palatable these days. You may not realize the benefit of fuel savings for six or seven years — that’s the rough break-even point right now — but you can enjoy fewer trips to the gas station and the feeling of reducing your negative impact on the environment. Most important, you should choose a car for which you can afford the monthly payments without straining other aspects of your finances. You won’t enjoy helping the environment if you fall behind on the car loan, hurt your credit or end up losing the car to repossession.
Meanwhile, traditional vehicles are getting more fuel efficient, making the hybrid/electric premium less attractive. Eventually, people will come to expect better fuel efficiency.
Brad Smith, Experian’s director of automotive market statistics, likened it to power locks and windows in the ’80s. Smartphone-vehicle integration is heading in the same direction, he said.
“Everybody started to want it, but nobody wanted to pay for it,” Smith said, referencing the power locks example. In time, manufacturers couldn’t sell the cars unless they were standard features.
In that way, the drive toward more fuel efficient vehicles plays in the consumer’s favor. Hybrids and alternative-fuel vehicles still come at a premium but are more affordable than they previously have been, making it easier for people to try these technologies, if they want.
If you’re looking to finance a car — hybrid or otherwise — it’s helpful to know where you stand credit-wise before you start shopping (for a car as well as a loan). The better your credit, the better your rates, so you may want to take time to work on your credit and raise your scores ahead of time. You can pull your credit reports for free once a year to look for errors in need of correction, or issues that you need to work on; you can also see two of your credit scores for free every month on Credit.com.
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