How long must you hang on to that hybrid?

by Center for Personal Finance editors

DETROIT (9/12/06)--With gas prices averaging $2.72 nationwide as of last Friday, fuel-efficiency is still high on the list of financial concerns for most Americans. But if you plan to buy a hybrid vehicle to take advantage of its efficiency and the temporary tax credits, make sure you shop around. The key to whether the higher purchase price makes sense depends on how long you keep it (Detnews.com Aug. 29).

A new study released by Edmunds.com ranks the break-even point based on the cost premium over non-hybrids (you'll pay more for a hybrid), projected gas savings, and number of miles driven per year. Depending on how long you drive the hybrid, you may not recoup the extra purchase cost at the gas pump for a decade or more.

Drive a Ford Escape Hybrid or Toyota Prius and it's likely you'll recoup the higher purchase price within three years of ownership, assuming you drive 15,000 miles a year and the cost of one gallon of gas is $3. Estimates take into account the federal tax credit available.

At the other extreme, you'd have to keep a 2006 Toyota Highlander Hybrid Limited four-door SUV a whopping 12.6 years to break even, given the same assumptions. Similarly, it would take 11.3 years to recoup the higher purchase price of a 2006 Honda Accord Hybrid four-door sedan; at 25,000 miles, it would take 6.8 years.

Anyone still in the market for a hybrid should act now. Full tax credits are only available until shortly after a manufacturer has sold 60,000 hybrids, and once the threshold is reached, the credit is cut in half. The threshold for Toyota and Lexus buyers already has been reached, so if you buy one after Sept. 30, 2006, you qualify for half the tax credit. For those models, the credit drops to 25% in April 2007 and then to 0% in Oct. 2007.

For more information, read "Energy Bill Helps Home Improvers and Hybrid Car Buyers" in the Home & Family Finance Resource Center money savvy section.