Do The Math: Are You Saving Money Choosing Diesel or Hybrid in a Premium Car?

Wow you just bought that new Luxury Premium Hybrid or even a SUV

Wow you just bought that new Luxury/Premium Hybrid Sedan or even a SUV. Full of pride, you know that you are driving one of the finest examples of technology and engineering, while making an investment for the future of all mankind. You reassure yourself in the process that you are saving countless barrels of oil to OPEC, while smartly lessening the impact on your wallet…or so you think.

We can all rant and rave how much more economical that new pride and joys is. After all, you are taking all of that money to the bank and investing it right? Maybe? Not really.

With all of the studies out indicating a Hybrid owner probably won’t ever break even during original owner tenure with the vehicle. I decided to take a look a two different alternative forms of transportation and run a quick feasibility check to see how that advantage still fared, and even how a diesel did when scrutinized.

Having owned a small diesel when I was just a mere lad, I can attest to the fact that spending $10 and having it last two weeks was a great benefit to the wallet. However times have changed, as we all know, so it was time to make a review and these results actually surprised me a bit.

First of all, a few assumptions to consideration for this exercise:

1. Only sister counterparts, similarly equipped Luxury/Premium vehicles will be used to be fair to all involved.

2. The trade out period for the vehicle is 5 years with an annual accrual rate of 15,000 miles, (7500 city, 7500 highway)

3. The price spread between the new low-sulpher diesel is constant with that of gasoline over the term of this exercise, and for simplicity, the fuel will remain constant (who knows what gas will run today much less tomorrow).

We will assume, for argument sake, that premium gasoline is $2.17 a gallon and Diesel is $2.47 a gallon. A quick glance at prices across the nation shows that these averages pretty much hold up in my area for right now.

Luxury/Premium Cars

Lexus GS430 vs. GS450h.

		City MPG	HWY MPG	City Gallons	Highway Gallons	Total	Total Fuel
GS430	$52,375.00	18	25	417	300	717	$1,555.17
GS450h	$54,900.00	25	28	300	268	568	$1,232.25

As we can see the GS450h is a $2525.00 premium over the GS430 initially. Since Lexus recommends premium only fuel in this vehicle the price advantage between that of premium and diesel is about 30 cent per gallon. Running the math shows over each year of use the Hybrid owner will save $322.92 in fuel costs. Dividing the premium acquisition cost by the savings yields us with a break even point of 7.82 years in the ownership experience. Or almost 3 year after the original owner has traded out of the vehicle.

Mercedes Benz E350 vs. E320 BlueTec

		City MPG	HWY MPG	City Gallons	Highway Gallons	Total	Total Fuel
E350	$51,325.00	19	26	395	288	683	$1,482.54
E320 BlueTec	$52,325.00	26	35	288	214	503	$1,241.79

The E320 BlueTec comes to the plate only having to overcome a $1000.00 price disadvantage. Seemingly a minute obstacle, until you factor in the additional cost of diesel fuel. The math quickly shows that the additional fuels saving of the diesel is almost offset by the additional cost of the fuel required. In this case we save $240.75 each year, making our break even point at 4.15 years. Or in simple terms this vehicle will break even about 8 month before we trade it in. Just under the wire.

Luxury SUVs

Lexus RX350 vs. RX400h

		City MPG	HWY MPG	City Gallons	Highway Gallons	Total	Total Fuel
RX350	$37,400.00	20	25	375	300	675	$1,464.75
RX400h	$41,180.00	32	27	234	278	512	$1,111.37

This time the price difference between models is a steep $3780.00. We save $353.38 annually in fuel costs, but this time our break even point is a staggering 10.70 years of ownership. It may be safe to assume that this vehicle may be in its third owner by now before the breakeven point is reached.

Mercedes Benz ML350 vs. ML320 BlueTec

		City MPG	HWY MPG	City Gallons	Highway Gallons	Total	Total Fuel
ML350	$43,455.00	17	21	441	357	798	$1,732.35
ML320 BlueTec	$44,455.00	21	27	357	278	635	$1,568.25

Again we have a mere $1000 price disadvantage to overcome. But we save only $164.10 each year on the larger SUV, so our break even point pushes out to 6.09 years of ownership. This means the original owner will never recoup even the $1000 investment in the diesel.

Devils Advocate

Ok so even thought the prices are current you feel the price of gas was too low in the exercise? Lets play devils advocate and raise the price to see how they fare:

If we factor the prices at $3.17 for premium and $3.47 for diesel we get the following.

	Break Even Point Years
GS450h	5.35
RX400h	7.32

E320 BlueTec	5.35
ML320 BlueTec	3.05

So looking at the figures both pros and cons in the Luxury/Premium segment the economic savings are not there if you plan to turn your vehicle in the commonly accepted 5 year turn around for the this segment at current fuel prices. So you might want to think twice if saving money was a primary concern because it probably won’t happen for you.

kart1 - 2/5/2007 4:58:27 PM

+4 Boost

Ya, so? Here is the thing. The comparison is really not a good one definitely for Lexus. The Lexus hybrids aren't made to give the best gas mileage the engine can offer, it is made to give you power first and then gas. Like Lexus would say with the power of a V8 and the economy of a V6. So the comparison is not very good at all, and it is stale now.

For MB you still get more power (I don't know about performance, I haven't seen any numbers for it yet) and diesel is more efficient. The thing that really hurts here is that the price of diesel is much higher compared to gas than it used to be due to ULSD.

The main thing about these cars should be to fool people, I mean other people not the owners themselves. For example, lets say I buy a GS 450h I will tell everyone (the environmentally friendly girls) that I drive a hybrid and it is good for the environment. Fool everyone to think that I am actually help to save the world and then blow them away at the stop light.

Then thing is that if you really want to save the planet get a cheap econobox (not everyone cares as much), you really aren't helping buying $50k cars that require so much energy to produce.

Agent009 - 2/5/2007 10:22:12 PM

+4 Boost

Point taken but you can't compare two identical models. There really isn't identical model in any premium line. These are the closest examples of such, and what a real world consumer would have to chose from. That is why they were chosen.

1970toyotamarc - 2/6/2007 12:00:50 PM

+2 Boost

If you agree that there are no identical models to compare, then why does this comparison keep coming up?

Agent009 - 2/8/2007 5:22:24 PM

+1 Boost

The comparison keep coming becuase we are told they are the best choice. Best choice of what? Compared to what? When you compare to the closest possible alternative they don't pan out.

DieselRules - 2/8/2007 6:56:31 PM

+1 Boost

E320 diesel out-performs E350 gas in the real-world.
On the drag-strip, they are roughly equal.
Xerocool is the only person who commutes on a drag-strip, so its an important distinction for him, but if he ever sat his butt in a diesel car and drove one he'd be an instant convert.

Bill - 2/5/2007 5:58:41 PM

-2 Boost

Lexus hybrids are about high performance with decent fuel consumption. Mercedes diesels are about great fuel savings with decent performance. And there lie the fundamental differences.

Ummm...yeah...

webguy - 2/5/2007 6:27:23 PM

+1 Boost

Another element to "the math" not being considered is Lexus makes just everything but ML and navigation standard (and crazy expensive items like PCS) on hybrid models. Rain sensing wipers, ventilated seats and back-up camera, for instance, are standard on the GS Hybrid, and only part of expensive packages on "lower" models. Throw in the no fuel compromise performance gain (at least in acceleration), and Lexus has more than made up the difference for many buyers; as long as the dealer can avoid showing the gym locker sized trunk before getting the customers to sign off.

I’m not sure if Mercedes does the same for BlueTec.

Agent009 - 2/5/2007 10:23:32 PM

+2 Boost

Both models were chose at base price, there will always be differences.

Agent009 - 2/5/2007 10:24:21 PM

+3 Boost

This is a comparison on cost effectiveness only.

jon21 - 2/5/2007 9:46:32 PM

+5 Boost

lightingsue- Then, you better go write Billy Sue ford to STOP making hybrid cars/trucks ASAP! :P

Agent009 - 2/5/2007 10:25:56 PM

+1 Boost

That is why we chose base models of each, to take out all of the options which confuses the issues.

1970toyotamarc - 2/6/2007 12:03:06 PM

+2 Boost

great points about performance and environment, neither of which are ever given consideration in these silly comparos.

Threepoint1415926 - 2/6/2007 3:43:05 PM

+3 Boost

I dont agree with your statements. While the E320 diesel may not seem as fast on paper as the E350, real world performance is much better. Torque on hand means I can jump in and out of traffic instantly without changing gears. I'm a diesel driver and do so and I dont do it for the "penny pinching." Also, though California may not like particulate pollution you cant tell me that diesels have worse emissions than their hybrid counterparts. If I am reading this correctly, the hybrid burns more fuel and hence has greater carbon emissions than the diesel does. You cant say "emissions" and exclude every type but the one you want to address.

Further, I've seen several reports of hybrid owners not getting nearly as good of mileage as the EPA estimates show but countless people get better mileage in diesels.

Agent009 - 2/5/2007 10:26:37 PM

+1 Boost

That is why we chose base models of each, to take out all of the options which confuses the issues.

makkystyle_14 - 2/5/2007 9:01:46 PM

+3 Boost

This "math" completely neglects the resale price of the car after 5 years. If the the used hyrid sells for a premium over the non-hybrid then you have that money to factor intot the equation as well.

1970toyotamarc - 2/6/2007 12:04:08 PM

+2 Boost

another great point never factored in. good job Lexus guys.
We're not gonna take this bs anymore.

JRobUSC - 2/6/2007 1:10:13 PM

+1 Boost

except that KBB (gold standard of resale) and the Automotive Leasing Guide (who sets market residuals for leases for all makes and models) have both said after researching the issue that they expect the resale % to be LOWER for hybrids than for the gasoline-only models. Not only will you pay more up front but you're not going to keep the car long enough to recoup the difference in gas savings, AND you're going to lose a little more when you sell or trade it.

People can confuse the issue all they want talking about performance and what not, and hybrids and diesels aren't going anywhere. But the numbers are the numbers. And simply put, the higher cost of diesel fuel vs. regular gas or the higher cost of a hybrid vs. a non-hybrid equates to not saving anything. Period. The only way that changes is if you buy the hybrid for the same cost as the non-hybrid or diesel fuel for the same cost as regular fuel. Until either of those occur the only savings you're accomplishing are in your head.

XYZZ - 2/6/2007 6:26:21 AM

+4 Boost

just the thousands in europe who order 6-bangers and/or diesels in their S-class! lol!

XYZZ - 2/7/2007 8:10:14 AM

+2 Boost

if you are not smart, making SENSIBLE and INTELLIGENT posts are not a concern.

rom64 - 2/5/2007 10:12:42 PM

-1 Boost

Today's conventional hybrids are the most useless auto invention to date. I do not understand why automanufacturers did not think about a diesel hybrid! It makes much more sense than a petrol hybrid and would definately be more efficient than a diesel itself. Honest to God, what stupidity. You're better off with a diesel for now and wait for the eventual diesel hybrid which DOES make sense financially/economically and environmentally.

This is the problem with petrol hybrids which are not looking attractive enough for the typical buyer.

Agent009 - 2/5/2007 10:29:38 PM

+1 Boost

Diesel Hybrids have been held back for drive ability issues. Primarily due to the difficulty in firing off a 25 to 1 compression ratio engine vs a 10 to 1. It is a harder task to make smooth.

XYZZ - 2/6/2007 6:29:46 AM

+1 Boost

what stupidity you express yourself!

diesel engine option = premium price + extra weight

hybrid = premium + extra battery pack weight

diesel hybrid = 2x premium price! + 2x weight penalty!

XYZZ - 2/7/2007 8:03:48 AM

+2 Boost

THEORETICALLY a diesel hybrid could perform well. but the improvement over a plain diesel OR a regular gas hybrid likely would be insufficient to overcome the above DISADVANTAGES.

rom64 - 2/5/2007 10:15:50 PM

0 Boost

And btw, imagine estimates of 70+ mpg with diesel hybrids.

Think about it.

Agent009 - 2/6/2007 1:58:31 PM

0 Boost

Never said they were.

SilverAero - 2/6/2007 2:32:05 AM

+2 Boost

I think the point is that if you are looking for a good deal and want to save gas money wait 5-7 years and see how much better things will be. I would hate to go buy a prius just to find out that the next one will actually get 80 MPG! Right now we are only seeing the beginning of what hybids can do. I have no doubt in my mind that these thing will be like computers over the last 15 years, the one coming out next week will render yours irrelevent.

JRobUSC - 2/6/2007 1:13:32 PM

-1 Boost

not anymore it doesn't. That hybrid tax break was tied into the amount of vehicles sold, and it is no longer in effect. You buy a new Prius or similar car, you don't get the tax break.

XYZZ - 2/7/2007 8:19:52 AM

+3 Boost

you DO TO get a tax CREDIT with priuses. it just is not as LARGE as it used to be, since toyota/lexus have sold more than 60,000 hybrids.

all OTHER manufacturers still get the original tax credits.

1000rrRider - 2/6/2007 10:04:07 AM

-2 Boost

This article never mentions tax brakes but even with the tax brake the resale value on hybrids is much lower the on regular cars or diesels due to maintenance and repair costs after your warranty expires. So for instance once you final recouped your hybrid investment you will have to fork out approximately $2500 for new batteries. They are spouse to last about 10 years but in reality they last about 6 year to 8 years.

1970toyotamarc - 2/6/2007 12:06:18 PM

+3 Boost

That is a completely fabricated lie. Resales on hybrids have been extremely high, some of the best in the businesss. And I have yet to hear of even one battery needing replacement after 8 years on the market.

JRobUSC - 2/6/2007 1:15:56 PM

-2 Boost

because you've never heard of it, it must not be true.

Regardless of the battery issues or any other reasons you're still wrong, as KBB and the ALG both have indicated they expect lower resale percentages for hybrids versus their gasoline-only coutnerparts. We'll see down the road.

Agent009 - 2/6/2007 1:59:51 PM

-1 Boost

Toyota ran out of tax breaks a while back, read the news

1970toyotamarc - 2/6/2007 3:57:32 PM

+3 Boost

1. http://www.automotivedigest.com/view_art.asp?articlesID=17857
"KBB says best vehicles at 53% are Mini Cooper, Toyota Prius, Honda Accord hybrid. that's 2 hybrids in their top three."
And have you actually priced a used hybrid yourself, they are commanding prices higher than new ones on occasion.

2. http://www.autonews.com/apps/pbcs.dll/article?AID=/CW/20060623/FREE/60619011/1111

(this one answers my detractors about no batteries having expired yet.)

"Toyota spokesman John McCandless says the company has not had any battery failures in its hybrids. The only batteries that have been replaced were those damaged when the vehicles were in accidents. The cost was covered by insurance, so the owner did not incur the direct cost."

oh, and from the same article, "Automotive Lease Guide, of Santa Barbara, Calif., which sets residual standards for the industry, does not release residual information on hybrids.". So where are you getting your info from exactly?

what else ya got?????

Agent009 - 2/7/2007 4:13:39 PM

+1 Boost

Those are nice facts but the article is about Premium vehicles not a Prius or Camry..

JRobUSC - 2/8/2007 10:04:25 AM

+1 Boost

here's one:

http://moneycentral.msn.com/content/Savinganddebt/Saveonacar/P37272.asp

and another:

http://www.cars.com/go/crp/buyingGuides/Story.jsp?section=Hybrid&story=HybridPrice&subject=stories&referer=&year=2006

Those talk about the tax credit being gone or lowered, the higher cost of the cars initially, the possible lower resale percentage (NOT lower dollar figure, lower percentage), AND the battery pack issues.

There's hundreds of these online. There are also plenty of articles that say the cars will hold their values really well, though KBB in conjunction with the ALG both said they expect lower resale percentages. Again, just as I said in the post you're trying so hard to correct, "we'll see". Right now, the costs offset the gas savings, there's no two ways about it -- you're just not saving anything if you buy a hybrid only for the fuel economy. The most useful implementations of a hybrid so far, in my eyes, are Lexus's "performance hybrids", the GS450h and 600h, because they were designed to offer higher fuel economy than the vehicles they match up with performance-wise.

1970toyotamarc - 2/8/2007 11:55:02 AM

+2 Boost

009, since when do comments ever stay on topic? I was responding to the specific lie that hybrids have low residual value and being called out on saying that no batteries have expired yet. But if criticism of me veering off topic is the best anyone can come up with, I'm ok with that.

JRobUSC - 2/8/2007 2:15:06 PM

0 Boost

1970, you need to watch your use of the word "lie". You keep using the Prius as an example for resale, but what KBB and the ALG said was that hybrid vehicles that have non-hybrid versions of the same car are expected to have a lower residual percentage by comparison. The Prius does not have a non-hybrid version. There are more articles out there saying to expect lower residuals for hybrid versions of non-hybrid models as there are saying the opposite. There are also numerous articles about the expected issues of battery failures and the incredibly high costs associated with them. I already gave you two examples, if you require more I'll run another search and post more of them, the last one only took five seconds. What we're saying is "let's wait and see".

quizz - 2/6/2007 12:12:05 PM

+1 Boost

hybrids are best purchased in the $25,000 price range, such as the Prius

rom64 - 2/6/2007 12:34:04 PM

+1 Boost

ApexAlex, you're above statement makes no sense. You're refuting my remarks based on your ideologic forumula of 'premium price' and 'weight'!? Which are the most neglectful aspects of a petrol/diesel hybrid. Look at the GS450h/LS500h. Hybrids already weigh heavier than conventional cars and are more expensive.

Furthermore, diesels are cheaper in most markets than their petrol counterparts.

So here's to you
'what stupidity you express yourself!'
idiot!

XYZZ - 2/7/2007 8:33:58 AM

+1 Boost

you missed the point. yes hybrids DO weigh more with the battery packs. which i DID mention.

diesel engines ALSO weigh more than gas versions of the same car. the engines MUST be more robust to withstand higher C.R.s. and turbos add a further weight penalty.

my point, which you seem to have NOT COMPREHENDED, is that a diesel hybrid will therefore have a DOUBLE weight penalty.

it's irrelevent if diesels are cheaper in "some markets" if they actually cost more in the U.S. market. not to mention diesel FUEL also sells at a premium over gasoline here.

dolt.

cdoke - 2/6/2007 4:34:14 PM

+1 Boost

Agent 009,

Independent of what others say, your analysis is pretty good. As far as the basics it is pretty much spot on the money, and it is nothing but a convolution of the issue to bring performance into the matter. The analysis is conducted to provide insight into differences in power train from the point of view of the customer assuming that the customer is rational i.e. they want to save money.

Given this, I am afraid, however, that your analysis has a fundamental problem. I am afraid it is actually optimistic. Granted, nobody but those who do technical economic analyses even examine the issue of the time value of money. A dollar today is worth more than a dollar tomorrow. The basic future value of a lump sum is characterized by the equation:

F= P*(1+i)^(n)

Where F is the future value, P is the present value, i is the discount rate over the unit period as described by n, and n is the number of periods. Usually, n is in years, and the associated i is around 10% to 12%. So if you spend $5,000.00 today lets say for some reason you manage to be able to recoup your losses in 5 years from today, it will take more than $5,000.00 for you to break even. Because of time value of money, in today’s terms that $5,000.00 that you get back 5 years from now at a 10% discount rate is worth only $3,104.61. So, for you to break even in that scenario is if in 5 years, you manage to recoup a sum of $8,052.55.

As a result of this, your analysis is actually optimistic. In addition, if you want to be anal, there is also a lost utility in the fact that that original $5,000.00 could be invested in the bank and be worth more as a function of time.

Agent009 - 2/7/2007 4:21:25 PM

+1 Boost

Good point, how about an article taking those factors into consideration? If possible throw in the resale of the vehicles too, after all it is a complicated issue.

1000rrRider - 2/6/2007 4:58:07 PM

+2 Boost

Hybrids are good for tree huggers and they work great when they are new and under warranty. But the people who buy a current generation hybrid and think it will pay for it self are dead WRONG maybe in the future they will. I work at a Honda dealership and the current 60 month residual value on a 2007 civic is 45% but the hybrid civic is only 36%, plus once your warranty is up, be prepared to pay big for service and parts. Eventually you will have to replace the IMA batteries and that will cost you not $2500 as I mentioned before but approximately $5000. The diesel powered cars are less environmentally friendly but they don’t take such a big hit on resale value and in general last longer then gasoline cars.

XYZZ - 2/9/2007 3:26:36 AM

+1 Boost

civic hybrids simply are NOT as desirable as priuses or camry hybrids.

residuals on ALL new models are just ESTIMATES. they cannot be actually determined, until a market for post lease cars actually develop.

even the people working for lease companies are JUST ESTIMATING. being in the biz, they may ESTIMATE better than joe off the street. but are STILL just estimates.

note they cover their asses by using the term "EXPECT residuals to be..." they CAN NOT do more than ESTIMATE.

S4cabriofoxone - 2/6/2007 7:14:23 PM

-1 Boost

Ahh, stupid article. No need!

jt716 - 2/6/2007 7:47:44 PM

-1 Boost

Isnt Volvo gonna come out with a c30 diesel hybrid?

Loki123 - 2/7/2007 1:51:24 PM

+1 Boost

I'm not even going to entertain "F= P*(1+i)^(n)"...

I like my information straight up - that being said...

Hybrids DO NOT save you money when you factor in a higher purchase price for "similar" vehicle
Hybrids reduce petroleum consumption
Hybrids reduce air pollution
Hybrids in the US/Canada (Ontario) get a tax credit or tax deduction

When you buy a Hybrid you are buying into a trend - The "look at me I'm enviromentally conscious" trend.

Your choice is quite simple: You either pay at the dealership or you pay at pump. If you buy and flip cars every few years - you will not come out ahead. So, are hybrids worth the extra $2000+ ante at the dealership?

No.

Agent009 - 2/8/2007 5:23:57 PM

+1 Boost

Well if you pay at the dealer you are losing even more because you are paying interest on the amount financed.

JRobUSC - 2/8/2007 7:11:46 PM

+1 Boost

there's interest on the amount financed regardless of whether you buy a car at a dealership or from a private party. A loan is a loan is a loan. Unless you're planning on paying cash for the car you're going to pay interest, and paying cash is the worst way to buy a car. You save the interest but are out a large sum of money that could have been invested. Let's say you go out and buy a $25k car in cash. Great, you paid no interest but you don't have your $25k. Had you taken a 60 month loan at 6% interest you'd pay roughly $4k in interest over the course of the loan, but you could invest your $25k at the same time. You'd only have to average a 3.5% annual rate of return to break even with the interest you're paying on the car, and 3.5% is pretty crappy. If you got even a marginally decent rate of return you'd end up thousands of dollars ahead (a 6% return, for example, nets you $8500, putting you $4500 ahead of the interest). That has nothing to do with where you bought the car, that's simple economics.

XYZZ - 2/9/2007 3:45:18 AM

+1 Boost

the most credible analysis i have seen to date, was done by consumer reports.

bottom line: the civic hybrid and prius "pay back" the hybrid premium in 5 years. thereafter, owners "earn" some $2-300 annually in fuel savings. (at the gas price then. likely to be much higher in 5 years' time.)

a MORE REFINED analysis, which included the federal TAX CREDIT and comparing the prius to the more similar sized camry rather than the corolla CR used, showed IMMEDIATE paybacks, and savings from Day One.

since the tax credit was REDUCED, it takes longer now however.

DieselRules - 2/8/2007 7:16:44 PM

+1 Boost

AGENT 009:
You forgot the fact that the DIESEL RESALE is much HIGHER than the gas model, and the hybrid, coming up on its expensive battery-pack replacement, will sell for LESS than the gas model.

FACT: 20-year old MB e-class (AKA 300-series) cars are still selling for > $5000- (wagons going as high as $10k) but a 20-year old GAS-powered benz is worth little more than its weight in scrap metal. You can get ones that look like they just came off the showroom for $2500.

The diesel is clearly a much better bargain in the Luxo cars.
In small cars, such as a Beetle/Jetta/Golf, the TDI costs about the same as the turbo gas engine ... its a no-brainer!

Kostin - 2/10/2007 6:12:26 AM

+2 Boost

@huu76:You said earlier that: "This comparison is only valid in Europe where they don't give a rats ass about the environment."
The average engine size in Europe is about 2.0 if not less.The American average engine size is probably triple.Logically,the smaller the engine,the smaller is the fuel consumption the smaller is the pollution.In Europe you'll find one V8 at 100 vehicles.In US you'll probably find 70 V8's out of 100 cars if not even more.
This being said,who does not give a rat's ass about environment?

DieselRules - 2/23/2007 3:14:03 AM

+1 Boost

The German environmental movement is so strong they will likely form the next government.
How close is the Sierra-club to running the US???

As for ULSD ... that's all that you can buy in North America ... the old dirty diesel is gone ... illegal!