Changing Financial Rewards for Hybrid Vehicles
In the wake of Hurricane Katrina we all had our eyes open to various economic disparities in this country, but what affected the majority of people was the heavy increase in the price of gasoline. In the Boston area, the cost of gasoline the day after the levees in New Orleans broke went up over 55 cents per gallon. It was stunning to both our minds and our budgets.
In order to afford the increase in prices, we had to adjust our budgets and make do with slightly less where we could afford to. Some people looked into alternate means of transportation. Hybrid automobiles were brought into the spotlight once again as a way to make fuel, which shows no sign of decreasing below two dollars a gallon, go further.
The price of gas has gone down since the over three dollars a gallon prices in Katrina’s aftermath, but the focus on fuel economy has not been forgotten. Hybrid vehicles remain popular with Toyota’s Prius selling with waiting lists and Honda releasing their new Civic hybrid model this year. Toyota indicates plans to release a hybrid Camry as well within the next year. Ford has also joined in with the hybrid phenomenon, releasing a hybrid SUV.
One of the nice advantages to hybrids, beyond the fuel savings, is the one time tax deduction you receive the year you purchase the vehicle. If you purchased a hybrid vehicle in 2005, you’d be able to save up to $2000 on your taxes come April. Unfortunately, the hybrid tax deduction is about to come to an end. This deduction ends on December 31st and is replaced with a tax credit.
The tax credit is scheduled to last until the year 2010, but this is a bit of a deception. In actuality, the way the credit is set up will limit the number of vehicles eligible to 60,000 per manufacturer per year. Once the manufacturer hits that 60,000th vehicle, the tax credit is phased out over a period of fifteen months for the vehicles that manufacturer produces. With Toyota expected to sell 100,000 Prius vehicles this year alone, this credit will end in 2007. Vehicles also must meet certain emissions guidelines. Although hybrids have no trouble making this prerequisite, other popular fuel saving vehicles, such as diesel cars, do not. Finally, perhaps the most tangible disadvantage is the actual amount of credit received on taxes is much less than the previous tax deduction. The exact amount differs for each vehicle. The dealer should be able to tell you exactly what the deduction is, but the American Council for an Energy-Efficient Economy (ACEEE) keeps a table of various deductions on their website.
Does this mean you should run out and buy a hybrid before December 31st? Probably not. While unfortunately the government will no longer be rewarding those who attempt to save fuel, there are other considerations when looking to purchase a new car, including whether or not a hybrid is right for you.
Although specifications on hybrid vehicles indicate mileage of 50 miles per gallon or more, this is the highest you’ll likely see. Chances are, the actual miles per gallon will be more than with a standard vehicle, but less than what the manufacturers indicate. Hybrids are most efficient in city traffic. Both the Prius and the 2006 Civic run on full electric power up to 30 miles per hour. After you hit that magic speed, you will be back on gasoline power. This means a hybrid is best suited for city driving, not highway driving.
Hybrids also cost more off the line than a standard vehicle. If you are not going to save significantly by purchasing one, it might not be worth it for you, even with the current tax breaks. Remember, the hybrid tax break will be given to you just once, you’ll have to maintain your hybrid throughout its life, and all those extra parts can equal expensive maintenance costs in the future. This is also something to consider when purchasing your new vehicle.
Most important, were you in the market for a new car in the first place? If not, there is probably no reason for you to ditch your perfectly good car for a new one quite yet. Buy when you’re ready and it makes financial sense, not because you will save on gas. The new car is going to cost you more than gas over the next few years if you are not ready to buy!
If you are ready for a hybrid and this type of vehicle meets your needs, whether or not you receive a tax break on your purchase should not be driving you purchase. Buy the car when you are ready and not before. The media and government incentives should not have an effect on this purchase.
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November 15th, 2005 at 10:49 am
This was a great article, Elana!
I have a couple of things to add that are tangently related, not really about hybrids, just shopping for cars and savings in general.
The EPA has a Green Vehicle Guide at http://www.epa.gov/greenvehicles/ that is useful in comparing fuel economy and vehicle emissions. The EPA fuel economy is usually a little high, like the stickers on the vehicles that say 30MPG, but they should give you an idea how the vehicles under consideration compare to one another.
Another great resource I found for trying to look at the long-term impact of my March 05 car purhcase was the State Farm Insurance Index. http://www.statefarm.com/media/release/vehrat05.pdf and it gives you an idea of how your prospective vehicle compares to others with: Liability (bodily injury and property damage premiums), Damage and Theft Index (collision and comprehensive premiums) and Vehicle Safety Discount (if any). Yo don’t need to use State Farm to benefit from lists like this.
Edmunds.com and KBB.com (Kelly Blue Book) were also very useful in my search. KBB lists invoice and sticker prices as well as being the definitive guide to determining the value of a used vehicle. Edmunds has an interesting True Cost to Own estimate for the vehicle.
Another great site is http://www.nhtsa.dot.gov/cars/testing/ncap/ and it is the National Highway Transportation Safety Administration website. They have wonderful information like crash test information, defects and recalls, etc. Crash tests will affect your insurance. Defects and recalls will give you an idea about any known problems with your vehicle already, a good heads up to the buyer.
Sheesh! You’d think I was writing an article here, huh?
November 15th, 2005 at 10:53 am
You have to remember what industry I work in.
I could have gone on at length and for pages and pages about car purchasing, but I felt limiting the article to the hybrid and the tax deduction/credit was already going to be a lengthy article. Perhaps a future article on purchasing a car is in order to help with the slack.