Price difference between a standard and hybrid vehicle

The manufacturer's suggested retail price for a vehicle is the basic criterion for comparison shopping. When considering the purchase of a crossover-style car for example take a base model with a MSRP of $38,375, and compare it to the same model with a hybrid engine offered by the same manufacturer at a base MSRP of $43,935. The hybrid model costs $5560 more.

Consumers who purchased a hybrid vehicle between Dec. 31, 2005 and Mar. 31, 2010 were eligible for up to $3,400 in federal tax credits. The amount of the credit depended on how many hybrids the automaker of a given vehicle sold. Once a manufacturer's hybrid sales topped 60,000, the government reduced the tax credit available to subsequent purchasers by 50 percent, and then later by an additional 25 percent, until the incentive disappeared altogether.

When you purchase a hybrid you would expect to save gasoline since the vehicle operates partially on electricity. For example the standard, two-wheel-drive 2011 model's combined highway and city estimated fuel usage is 21 miles per gallon. The same model with a hybrid engine has an estimated combined gas mileage of 30 miles per gallon. If you plan to keep the hybrid for several years, your gas savings would likely compensate for the higher sticker price, particularly with that year's rapid increase in gasoline prices.

To determine the actual fuel savings over a typical year of driving, compare the operating cost of a hybrid versus a standard model. A U.S. Department of Transportation summary, dated February 2003, reports the average American driver between the ages of 34 and 55 drives 15,291 miles annually. If the car drives 21 miles to the gallon for the standard model, and you will find that you would buy about 728 gallons of gasoline a year. In contrast, if you drive 30 miles to the gallon for the hybrid, you would determine that the annual gas purchase would be of about 510 gallons. You would save 218 gallons of gas a year with the hybrid. At $3.50 per gallon you would have a dollar savings of $763. By selecting the hybrid over the standard model, you would make up for the $5,560 difference in sticker price in seven to eight years. Subtract the maximum tax incentive and you could recoup the $2,160 difference in less than three years. Therefore in this example, you would save money either by paying full price and driving your hybrid for more than eight years, or by driving it for more than three years with a tax credit.