This post considers the economics of either spending more for an extremely fuel efficient hybrid car like the Prius or a bit less for a less standard car like the Civic, Corolla or Camry.
This post is a limited comparison of four cars – the Prius,
Camry, Corolla, and Civic. We consider
two variables MSRP and lifetime fuel costs.
Question:
How do the net present value of total purchase costs and
total fuel costs for these four cars vary?
Basic Information and
Assumptions:
Key information on the four cars and mileage driven are
presented in the Table below.
Four Car Comparison
Lifetime Purchase
and Fuel Costs


MSRP

MPG City

MPG HWAY

City Miles

HWAY Miles


Prius

$24,200

51

48

10000

5000

Camry

$22,235

25

35

10000

5000

Corolla

$16,800

30

42

10000

5000

Civic

$18,190

31

41

10000

5000

Key assumptions in
the analysis:
Car is bought with cash at price equal to MSRP.
The car is purchased and driven for 12 years. At the end of 12 years all four cars have a
value of $0.
The cost of capital is assumed to be 5%.
The price of gas is assumed to be $3.50 or $4.00.
Analysis:
We start by calculating annual fuel consumed by the four
cars. The procedure to calculate fuel
consumption was explained in a previous post.
Basically, note that Miles/(Miles/Gallon) = Gallons. Then gallons x $/gallon = dollars.
Annual Fuel Consumption
for Four Cars


$ value of Fuel
Consumed at $3.50

$ Value of fuel
Consumed at $4.00


Prius

$1,051

$1,201

Camry

$1,900

$2,171

Corolla

$1,583

$1,810

Civic

$1,556

$1,778

Gas is put on a credit card and paid for at the end of each
month. The net present value of lifetime
costs is the MSRP discounted at time 0 plus the discounted value of the gas
purchases.
Methodological Note: The net present value of the fuel costs over
the twelveyear life of the care is calculated from the PV function in Excel
where PV is a function of RATE, NPER, PAYM, FV, and TYPE
RATE=0.05/12,
NPER =144
PAYM= annual energy bill divided by 12
FV=0
Type=0 (end of month payments)
The present value of the cost of the car is the MSRP.
Results:
Present value calculations of purchase and fuel costs for
the four cars are listed below. The
Civic and the Corolla are less expensive than the Prius. The Camry is more expensive but of course
the Camry is more car.
Purchase and Fuel Cost
Comparisons for Four Cars


PV of Gas Costs at $3.50
gas

PV of Gas Costs at $4.00

PV of Cost of Car

NPV Total Gas at $3.5

PV Total Gas at $4.0


Prius

($9,468.31)

($10,820.93)

($24,200)

($33,668)

($35,021)

Camry

($17,119.15)

($19,564.74)

($22,235)

($39,354)

($41,800)

Corolla

($14,265.95)

($16,303.95)

($16,800)

($31,066)

($33,104)

Civic

($14,018.43)

($16,021.06)

($18,190)

($32,208)

($34,211)

Concluding thoughts: The scenario presented in this post should be
fairly favorable to the Prius – a long car life, a not totally outrageous cost
of capital and fairly high miles driven and city miles driven per year. Also, I do not correct for issues related to
difference between EPA mileage testing and real onroad mileage results.
Despite these favorable assumptions the nonhybrid Corolla
and Civic appear to be more economical than the Prius.
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