Rising Fuel Prices: Can Hybrids and Diesels Help You?

It’s difficult to go anywhere without running into someone who is upset with the recent surge in gasoline prices. “Used to be, gasoline cost less than a buck,” said one old-timer as I filled my Chevrolet Tahoe with $45 worth of regular unleaded. “Them folks ‘ought go to jail for chargin’ what they do,” he said as he topped off his truck’s gas tank.


A few minutes later, I was in the grocery store, and could overhear people talking about gas prices while in the check-out line. “I hear we’ll be paying more than $3.00 a gallon next year,” said the lady to her friend as they browsed the tabloid headlines. And I have to admit it, I started to do some math, just to see how much a fill-up might cost me next year – and I didn’t like the result.

We all know that we’re addicted (or possibly held hostage) to petroleum based products – we’ve built our lives around fossil fuel powered “necessities,” from cars and appliances to furnaces and airplanes. Unless you’re Amish, there’s little doubt you use at least one fuel burning machine every day of your life.

Automotive manufacturers are feeling the heat from rising fuel costs and have begun to attempt to counter the rising fuel prices with massive incentives. One of our local dealerships is advertising Chevrolet Suburbans and Tahoes for as much as $14,000 off MSRP. Despite their best PR efforts otherwise, the manufacturers realize that Americans may, for the first time, begin to let fuel price play a role in the purchase of an automobile – something that could put a dent in SUV sales. According to experts, every month that GM offers a $1000 incentive on a truck, it cuts $230 million from its bottom line (Business Week, May 31, 2004).

It’s obvious that manufacturers can’t afford to continue to offer rebates and incentives to curtail the consumer’s gas price pains, so what are the alternatives? Well, if fuel prices continue to rise, it’s possible that we’ll be seeing more hybrids and more diesel powered vehicles come to market faster and in higher volume.

Hybrids: Short term solution?

Just a few short years ago, hybrid technology (the combination of a gasoline motor and another form of motivation) seemed like a distant idea, destined to be shunned like the GM EV1 electric car. But thanks to successful hybrids like the Toyota Prius, Americans are warming up (quickly) to the idea of a gasoline/electric hybrid. And with EPA projected fuel economy numbers that reach beyond 50 miles per gallon, hybrids do deserve a serious look.

Honda and Toyota seem to be leading the way with hybrid cars, but the “big three” aren’t far behind – Ford has already unveiled a hybrid powered Escape SUV that can obtain nearly 600 miles on a single tank of gas, while averaging better than 34 mpg.

Conventional hybrid technology combines a gas powered engine with an electric motor. When necessary, the gas engine automatically starts itself and propels the vehicle forward. While the vehicle is “idling,” or cruising under a light load, the electric motor supplies power. The electric motor draws its power from rechargeable batteries that are charged by slowing the vehicle (the brakes generate electricity), or by using the gas engine to operate a charger that refuels the batteries.

The additional benefits of a hybrid vehicle are many. They typically generate very low emissions, offer improved versatility over previous electric cars, require minimal additional maintenance, offer lower levels of road noise, and have plenty of room for passengers and cargo. And, there’s also that fuel economy thing…

But let’s talk price for a minute. Outfit a Toyota Prius with a nice options package, and you’ll spend a little over $25k. That may be a little steep for some thrifty buyers, but it doesn’t seem to have an impact on sales – according to a recent Wall Street Journal article, many Toyota dealers have a waiting list for a Prius, and are charging $5,000 – $6,000 over MSRP. Honda, on the other hand, makes its Civic Hybrid available with no options (other than color choice), and sets the price at just over $20k. For you SUV lovers, the Escape Hybrid (with 4WD) should come in at just under $30k.

Part of the reason for the increased price of a hybrid vehicle is that a hybrid requires additional batteries, charging systems and electrical components. Not immediately obvious is the additional cost of a common thread in most hybrids – a Constant Variable Transmission (CVT). A CVT can add nearly $1000 to the bottom line of a vehicle, and a large number of consumers are (unjustifiedly) pessimistic about CVT technology.

In the early days, CVTs were known to be somewhat fraile, prone to breakage and “too weird” for most people. But, thanks to recent improvements in transmission technology, today’s CVTs can handle more power, require less repair and operate seamlessly. In fact, most traditionally powered vehicles (i.e, gas motor only) will recognize increased fuel economy with a CVT versus a traditional manual or automatic transmission. The reason being due to the CVT’s ability to keep the engine operating at its most fuel efficient RPM – something a traditional transmission has a harder time of doing.


But let’s get down to brass tacks. Is it really less expensive to own and operate a hybrid vehicle? We’ll let you be the judge. Consider these two vehicles:

Vehicle 1: 2004 Honda Civic HX, 1.7L 4-cyl gasoline motor, CVT, some options. MSRP: $15,200. Average fuel economy (EPA estimates): 36/44

Vehicle 2: 2004 Honda Civic Hybrid, 1.3L, 4-cyl, CVT, some options. MSRP: $21,140. Average fuel economy (EPA estimate): 46/51

Assuming the same, 60-month loan at 6.0% interest, without any down payments, the Civic HX would cost $293 per month. The Hybrid would cost $409 per month.

Assuming that each vehicle is driven 15,000 miles per year, with fuel costs averaging $2.02 per gallon and all other factors being equal, the cost to operate the Civic HX (averaging 40 mpg) would be $757.50. Under the same conditions, the Insight (averaging 48 mpg) would be $631.25. That’s a savings of $126.25 per year. Over 5 years, the total fuel cost savings would be just $631.25. Hardly enough to warrant the $5,940 increase in sticker price.

But then there’s the whole environmental responsibility aspect to consider. Sure, it might cost a little more to own a hybrid, but if more people bought and operated hybrids, fuel demands would drop, emissions would lower (in theory), and we might just be able to eek out a few more years of fuel reserves.

And as basic economics theory shows us, more demand for hybrids would result in higher production and lower cost, so cost of ownership could very well shift in favor of the hybrid. Of course, this all remains to be seen, but we have a feeling hybrids are here to stay.

While talking with a salesperson from a local dealership who wished to remain anonymous, we discovered that rising fuel prices are putting a dent in large vehicle sales. “I’ve had customers requesting fuel economy information for vehicles they’re considering to purchase, and that’s something I’ve never encountered before,” said the salesperson. “It’s definitely put a hurt on our truck and SUV sales.”

Diesel: A viable alternative?

Mercedes-Benz has long built reliable, fuel efficient, diesel powered vehicles, but most Americans can’t ignore the images of sooty black plumes of smoke coming from large tail pipes, when the word “diesel” is muttered. But don’t dismiss diesel – it’s actually a very viable alternative.

Mercedes-Benz has recently shown us its E320 diesel sedan, and we have to admit, we love the thing. It’s 100% Mercedes-Benz, and it’s bursting at the seems with quality. It’s also powerful, quiet, and nary a waft of black smoke doth it emit from its tailpipe. How’s that possible? It basically boils down to fuel quality. In Europe, diesel fuel is high quality stuff. In America, we get “garbage,” with high sulfur content. The sulfur is largely responsible for the smoke, the smell and the health concerns (some studies suggest that diesel exhaust can cause cancer, amongst other health issues).

Lawmakers are hard at work trying to set standards for American diesel fuel to those of our foreign counterparts. But will that be enough to coax Americans into considering a diesel powered vehicle for their next purchase? Only time will tell. At the moment, hybrid technology is all the rage, and we expect to see more and more hybrid technology in the next few years.

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