Hybrid Sense: The Effects of Rising Fuel Prices & Tax Credits

“Our study revealed that high gas prices and generous tax credits now offset the high sales prices of some hybrids, assuming owners keep their hybrids for a few years,” said Alex Rosten, Manager of Pricing and Market Analysis for Edmunds.com, in a statement introducing the findings of the latest installment of Edmunds.com Fuel Economy Guide.


Advertisement


Thousands of executives with financial reporting responsibilities use the Comperio on-line library to access the type of information and interpretive guidance PricewaterhouseCoopers' own professional audit staff use around the world. Key content areas include guidance from the FASB, EITF, PCAOB, SEC, and others as well as PwC's interpretive guidance. Get more information and sign up for a complimentary 30-day trial.


The Fuel Economy Guide reveals that today’s hybrids can make good financial sense based on a comparison of sales prices and annual gas expenses for both hybrid vehicles and their non-hybrid counterparts. According to the Edmunds.com study and assuming the vehicle is driven 15,000 per year, the higher purchase price of the Ford Escape Hybrid SUV and Toyota Prius is completely recovered after three years of ownerships, while buyers of Honda Civic Hybrid, Saturn VUE Green Line and Toyota Camry Hybrid vehicles will reach the break-even point within six years. Owners of the Honda Accord Hybrid will need to keep the vehicle for more than 11 years to break even, assuming annual driving of 15,000 miles. The hybrid taking the longest to recoup the higher purchase price when driven 15,000 miles annually, is the Toyota Highlander Hybrid SUV, at 15.5 years. For commuters who drive an average of 25,000 miles annually, the break-even point drops under ten years for all hybrid vehicles and to just over a year for the Toyota Prius.

“If you’re in the market for a hybrid, right now is the best time to buy,” said Joanne Helperin, Senior Editor of Edmunds.com’s Fuel Economy Guide. “It will take buyers much longer to break-even if their tax credit is halved.”

Earlier this month, the Internal Revenue Service (IRS) announced that purchasers of qualified vehicles from American Honda Motor Corp., Ford Motor Company and General Motors Corp. may continue to claim the Alternative Motor Vehicle Credit. Taxpayers may claim the full credit up to the end of the first calendar quarter after the manufacturer records the sale of the 60,000th qualified vehicle. The IRS reports that during the quarter ending June 30, 2006:

  • Honda sold 9,424 qualifying vehicles, bringing the total sales figure to 18,496.
  • Ford sold 5,663 qualifying vehicles, bringing the total sales figure for qualifying Ford vehicles (including the Mercury Mariner) to 11,885
  • GM sold 1,388 qualifying vehicles (no total sales figure given)

The IRS reminds taxpayers that the credit is only available to the original purchaser of a new, qualifying vehicle. If a qualifying vehicle is leased to a consumer, the leasing company may claim the credit. For a complete listing of vehicles certified by the IRS and the amount of credit available, please visit the IRS web site at: www.irs.gov/newsroom/article/0,,id=157632,00.html

When determining whether purchasing and owning a hybrid vehicle makes sense however, it is important to examine the total cost of ownership of these vehicles. Hybrid vehicles cost between $1,218 and $6,896 more than their non-hybrid counterparts. These price premiums were used in calculating the break-even points listed above. In addition to the federal tax credit, several states also offer tax deductions, according to Edmunds.com.

Not all of the costs of ownership are revealed in vehicles prices. Insurance is one major expense that is often overlooked in initial calculations of total cost of ownership. Fortunately for purchasers of hybrid vehicles, Edmunds.com reports that insurance companies are beginning to offer discounts to hybrid drivers, based on preliminary research indicating drivers of hybrids are less likely to be involved in accidents than drivers of their non-hybrid driving counterparts.

When it comes to maintenance costs, initial fears of expensive repairs associated with hybrid-specific parts have not generally materialized. In fact, all hybrid-specific components on Ford, Honda and Toyota hybrid vehicle currently on the market are covered by warranty for 8 years/ 100,000 miles or 10 years/150,000 miles, depending on the state. Further, most of the hybrid-specific components do not require any additional regular maintenance. The gasoline engine in hybrid vehicles requires the same maintenance as it would in a non-hybrid vehicle and at a comparable cost.

“Our Insight has been on the road since 1999,” Robert Bienfield, senior manager of product planning at American Honda, told Edminds.com. “We’ve done a lot of testing as well as monitoring our customers’ highest –mileage vehicles, and so far haven’t seen any adverse results.”

Along with the models currently on the road and certified by the IRS, 10 additional models of hybrid vehicles are expected to be introduced by the 2008 model year, including two full-sized pickups, one from Chevrolet and one from GM.

You may like these other stories...

Renaissance avoided more than $6 billion tax, report saysThe Senate Permanent Subcommittee on Investigations said on Monday that a Renaissance Technologies LLC hedge fund’s investors probably avoided more than $6...
A new Gallup survey found that 58 percent of smokers in the United States see increased state and federal taxes on cigarettes as an act of unjust discrimination, while 39 percent believe the tax hikes are justified.The...
Liberal groups object to bill barring taxes on Internet accessThe Internet Tax Freedom Act hasn’t been a controversial bill. In fact, it’s so popular that senators are seeking to pair it up with a far more...

Upcoming CPE Webinars

Jul 24
In this presentation Excel expert David Ringstrom, CPA revisits the Excel feature you should be using, but probably aren't. The Table feature offers the ability to both boost the integrity of your spreadsheets, but reduce maintenance as well.
Jul 31
In this session Excel expert David Ringstrom helps beginners get up to speed in Microsoft Excel. However, even experienced Excel users will learn some new tricks, particularly when David discusses under-utilized aspects of Excel.
Aug 5
This webcast will focus on accounting and disclosure policies for various types of consolidations and business combinations.