Hammer Time: Hybrid Vs. Beater
Most folks believe that hybrids are frugal. If only it were so. Hybrids carry a price premium worth their weight in cadmium. Despite over a million sold, it’s damn hard to find a good deal on one. In five years of searching I’ve only found three solitary steals. Conventional gassers though can be as cheap to buy as a wore out mop. Name your brand (within reason). Name your size. If you’re patient enough, you can almost name your price. Gas beaters are truly cheap to buy. But to own . . .
Let’s use a beater par excellence Volvo 940 as an example. A very well kept Volvo 940 with low miles will fetch about $2000 to $2500 retail. A 1st generation Honda Civic Hybrid will typically go for about $6500 if it’s a 2003 with moderate miles or a 2005 highway driver. Let’s assume a $4,000 difference between the two. By the way these are simple estimates and I’m forecasting an eight year period of ownership.
Depreciation expense for the eight year period will favor the Volvo by about $400 a year ($650 vs. $250). The Honda sells at $2500 (to an aspiring yuppie). The Volvo sells at $500 (to an aspiring hippie). Opportunity cost? That’s another $200+ if you’re realizing a 5% return on the $4000 difference in purchase price. A bond fund invested in moderate risk corporate bonds should yield that as a post-tax return over the long run.
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I'd put my 15 year old Caprice up against a new(ish) Prius anyday of the week. I pay a little more for gas (24 MPG HWY), but less for insurance, and on the rare occasions something does break, parts are cheap and plentiful. It rides better, is larger, is safer, is roomier, more comfortable, and when I get done with it at 150K miles will be worth the same $2k I paid for it when it had 66K miles. Carbon footprints be damned.
How can you depreciate a $2,500 beater by $650/year over eight years, when the depreciation is $2,000." I assumed depreciation of $2000 for the Volvo (based on $2500 purchase price) The other calculation was in error. It should be $500 * 8 which equals $4000 in depreciation. But then again, the Civic may be worth closer to $1500 by that time if either the battery or tranny are about to go. Either way, a beater is far cheaper to own than a hybrid in the long run due to all the factors I mentioned.