The Economic Reality of Hybrid Vehicles Essay Example

This standard would determine the minimum level of fuel efficiency required and regulate the extra cost that carmakers can add. Currently, some hybrid cars only offer limited benefits compared to traditional gasoline-powered cars but come with a significant price increase. The global population is currently facing abnormally high oil prices.

The rising cost of oil has led people to take extreme measures in order to lower prices, causing a global impact as countries worldwide search for solutions. One consequence of these high prices is the increase in travel expenses, whether it's by flying or driving one's own car. The provided chart shows the trend of oil prices since 1990 and highlights important events that have contributed to their rise. It is worth noting that starting from January 2007, there has been an astonishing 162% increase in oil prices. Given the expensive fuel costs, hybrid cars have become a more affordable option due to their superior gas mileage. However, a recent study conducted by NAD Aguides reveals that only specific hybrid vehicles are economically viable for certain consumers.

A study conducted by a company analyzed gas prices in ten major metropolitan areas to determine the mileage required to recoup the extra cost of buying a hybrid car compared to a gasoline-only car. The results showed that drivers in Los Angeles, where gas prices were highest, would break even approximately 18% faster than those in Houston, where gas prices were lowest. This conclusion assumed that both drivers would travel the same distance. The study found that only a few hybrid car models are financially beneficial for consumers who buy new cars every five years or less and drive an

average number of miles each year, even with high gas prices. Even in expensive gas cities like Los Angeles, only five specific hybrid models - Toyota Camry Hybrid, Chevrolet Malibu Hybrid, Nissan Altima Hybrid, Toyota Prius, and Honda Civic Hybrid - would allow consumers to recover their additional investment before selling the car if they drove an average of 15,000 miles annually. The following chart presents these top five hybrids with the best return on investment and displays the mileage needed to break even in ten major metropolitan areas based on current gas prices.

Issue

Despite gasoline costing over $4 per gallon, there are various challenges associated with purchasing hybrid vehicles. One primary concern is the higher price tag of hybrids compared to their gasoline-powered counterparts.

The demand for hybrid vehicles has surged, causing prices to rise. In certain areas, people are willingly paying above the manufacturer's suggested retail price (MSRP) and enduring wait times of over two years to acquire these vehicles. The considerable extra cost of hybrids outweighs any potential savings compared to buying gasoline-powered cars. If individuals were aware of the extended time required to recover the additional premium paid, the current demand for hybrids would decrease, leading to lower prices.

Issue 2: High Prices The absence of laws and regulations governing hybrid vehicles' technology, pricing, and required mileage per gallon is another problem. Currently, there are hybrid cars in the market that only slightly improve mileage compared to traditional gasoline-powered cars. However, they come with a significantly higher price due to their so-called hybrid technology. The table presents data on the time it would take for a buyer to offset the additional cost of a

hybrid vehicle through fuel savings. It also displays the miles per gallon and yearly gas savings. These figures clearly highlight the need for regulations controlling both the offered mileage per gallon and manufacturer charges for hybrid vehicles.

Let’s examine a few vehicles: Beginning with the least favorable option, we have the Lexus LS600H. Despite costing approximately $19,000 more than other vehicles, it only provides an average of 20 to 22 miles per gallon. It would take nearly 100 years to recover the additional expenses. Following closely is the Saturn Aura, which only offers an annual gas savings of $171. On the other hand, the Toyota Prius appears to be the top choice, although its popularity has led to some regions having a two-year waiting list.

Dealers in areas where it’s available are charging a markup of over $5,000 on hybrid vehicles compared to the manufacturer's suggested retail price (MSRP).

Solution:

1. Educate customers about the ownership costs of hybrid vehicles.
2. Government incentives such as tax breaks should be offered to encourage the purchase of hybrid vehicles.
3. Establish standards for hybrid vehicle development to promote mass production and lower prices below those of current gas-powered vehicles.
4. Mandate that auto makers sell hybrid vehicles at only a slight premium, approximately 10%, to customers.

Reference

1. Website: Bespoke Investing Group - http://bespokeinvest.typepad.com/bespoke/