We've all heard the buzz term "hybrid vehicle" or "hybrid car" - and many of us are wondering if it's something we should get on board with or not.

By doing some research, analyzing your driving habits and putting pen to paper (or keystrokes to spreadsheet), you can make an informed decision.   

Read below to see how our results stack up!   

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Car Buying: Hybrid vs. Conventional.  

Will Fuel Savings Cover the Higher Price?

Many vehicle models have a hybrid version along with the conventionally powered model.Because of the new federal fuel economy standards requiring a manufacturer's average fuel economy (CAFE) to reach 54.5 mpg by 2025, car makers will be building more hybrids to comply. 

The question I will try to answer here is "will the better fuel economy of a hybrid over time offset the higher initial cost?"  I used 3 Toyota models; Lexus RX350 and RX450h, Toyota Camry L and Camry Hybrid and Highlander 4WD and 4WD hybrid.Toyota is an established builder of hybrids, having introduced the Prius in 2001.

Tax Credits:  There is no longer a federal tax credit for hybrids unless they are a plug in hybrid.  Colorado has a tax credit that lasts through 2016 based on the difference in price between a hybrid and the comparable conventional model. The credit is 45% of the price difference for 2012, 25% for 2013-14 and 15% for 2015-16. (click her for more information on the Colorado Tax Credit). 

Assumptions:

• I used suggested retail prices (MSRP) for the base model of each version, assuming any discounts from MSRP would be equivalent among the different models.
   
• 15,000 miles driven per year and a price of $3.25/gallon of gas was used. The Lexus RX450h requires premium fuel so the fuel cost was figured at $3.45/gal.
   
•  I did not take into account matching vehicle options exactly as Colorado does for the tax credit so therefore the tax credit estimates are approximate.
   
• The price difference does not include finance charges.
   
• (Price difference minus tax credit) divided by gas savings per year=payback period in years.   

Results:

 Conclusions:

1. If you do almost all highway driving, the difference in mpg between a hybrid and conventional is not enough to create a reasonable payback period.  For instance with the 2012 tax credit used the payback period for the Lexus RX450h is 34 years, the Camry is 15 years and the Highlander is 8 ½ years.
    
2. Since the Colorado tax credits decrease after 2012, the payback period for 2013-14 will be about 40% longer and for 2015-16 about 60% longer.
    
3. If you drive less than 15,000 miles a year the payback will be longer and if you drive more, as long as it isn't highway driving, the payback period will be shorter.  The same is true for the price of gas. A higher gas price equates to shorter payback and vice versa.