Daniel Gross over at www.danielgross.net points readers towards a piece in today's Financial Times about Canadian taxi companies shifting to hybrids to save money (for Mr. Gross' piece, click here and then scroll down to 'Yellow Goes Green'). I have some questions about Mr. Gross' argument.
He writes:
Foes of hybrid vehicles -- and the people who drive them -- routinely argue that it doesn't make economic sense for people to buy cars like the Prius. After all, for a typical driver, it takes a long time to recoup the higher sticker price in gas saved. This theoretical line of argument, made most prominently and fatuously by Holman Jenkins, Jr., of the Wall Street Journal, is continually undermined by actions and data coming from the real world.
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Today, Bernard Simon reports in the Financial Times reports that one group of enterpreneurs who work in a highly competitive low-margin business are finding that hybrid cars help increase their profits.
[...]
Lets say an urban taxi drives 60,000 miles per year. And lets say it gets 20 miles per gallon on congested streets. With gas at $2.50 per gallon, the hack spends $7,500 a year on gas. Now lets say Mr. Kang is correct, and a hybrid uses only 1/3 the fuel of a regular taxi. That's a savings of $5,000 on gas in the first year alone.
I have no problem with the argument that profits will go up due to fuel savings--although it seems you would not be able to carry as many passengers in a hybrid as a traditional Crown Vic or Cutlass cab. My (perhaps overstated) quarrel is with the seeming contention that it takes so long for a 'typical' driver to recoup the costs that it somehow makes it more profitable for the taxi company to buy hybrids than the 'typical' driver.
Let's use Mr. Gross' example of driving 60,000 miles and let's say that the typical driver averages 12,000 miles per year and still gets the same 20 miles per gallon. In that case, the typical driver would have gas bills of $1,500 per year for 5 years. Using a discount rate of 5%, that's a present value of $6,818. The hybrid that gets 60 miles to the gallon would have an annual gas bill of $500 with a present value of $2,273. The hybrid savings for the typical driver? $4,545. Comparing that to the taxi example, the difference in savings between the typical driver and the taxi is $455. Is that really the tipping point for choosing hybrid versus traditional cars?
It doesn't seem to me that delayed savings is really what is keeping the typical driver from buying a hybrid. Maybe I'm making too much of this. But since when has that stopped me?
Another thing, the 66% decrease in fuel consumption is ENORMOUS! If the cab companies were truly concerned about fuel efficiency, why didn't they switch to more fuel efficient cars long ago? The relevant comparison for such an example would be comparing a hybrid to the comparable gas engine model. For example, a Honda Civic Sedan hybrid is rated at 50 mpg. The comparable gas engine model? 30 mpg city, 40 highway. Even using the lower number, the gas savings for the hybrid is now only $2,000 in the taxi example.
Again, my point? Allow me to rewrite Mr. Gross' last paragraph [my changes]:
Lets say an urban taxi drives 60,000 miles per year. And lets say it gets 20 miles per gallon on congested streets. With gas at $2.50 per gallon, the hack spends $7,500 a year on gas. Now lets say..a [smaller more fuel efficient car] uses only [2/3] the fuel of a regular taxi. That's a savings of [$2,500] on gas in the first year alone. [And the smaller car costs less than the big clunker.]
It seems to me that pitching the argument in terms of small hybrid versus traditional cab misleads the reader into thinking that hybrids are a huge cost savings. Relative to the comparable gas engine model, the Civic Sedan Hybrid costs roughly $6,500 more. To make that up in gas savings, the cab would have to last for 195,000 miles. I'm sure it could do it, but that seems like a pretty close call.
In the interest of fairness, I haven't factored in insurance costs (might be lower for hybrids, but not everywhere) or maintenence costs (probably lower for traditional engines right now).
OK, I'm not sure I made a relevant point, but it's Friday afternoon and I'm done--for now.
