Should you splurge?

Hybrids cost more and they could be worth less in the long run, but are they a better deal?

Globe Investor Magazine, Nov. 21, 2007

The situation
You've been tooling around in a run-of-the-mill SUV for five years. Armed with a handsome bonus, you're flirting with the notion of trading up to something that's both luxurious and muscular, but won't be implicated in the desecration of the environment. Considering a hybrid, you check out the nearest Lexus dealership, where a salesperson touts the virtues of the RX400h. It's the hybrid version of the RX350-an elegant, aerodynamic SUV that competes with the Infiniti and the Murano-and sells for about $62,250, or $10,000 more than the RX350. The test drive is all about hushed elegance, power and speed. The question now is: Do you spring for the Rx400h, or go for the conventionally-powered RX350?

The mileage question
The hybrid RX400h's fuel use statistics are impressive-7.5 litres/100 km in the city and 8.1 litres/100 km on the highway, mileage equivalent to that offered by a small car like Suburu's Impreza. On the other hand, the RX350 is more than $10,000 cheaper and still wins kudos for its fuel efficiency relative to other SUVs. How much can the RX400h save you on fuel? Well, with your SUV, you would be spending $3,200 a year. With the RX350 your annual outlay would be more like $2,700, while filling the RX400h's tank would cost just $2,000.

The money you get back
Ottawa and some provincial governments now offer rebates to offset the cost of energy efficient vehicles, including hybrids. In Ontario, the RX400h qualifies for $1,000 from the feds and another $2,000 from the provincial treasury, meaning the difference between the sticker prices of the two RX models -is reduced to about $7,000-the hybrid premium.

Other costs that will hit your pocket
You believe you'll get $20,000 for trading in your current vehicle and plan to finance the rest of the purchase. According to Intellichoice, a car-ranking website, financing and insurance costs for hybrids tend to be higher than for conventional vehicles. In this case, it would cost you about 23% more to finance and insure the RX400h than it would the RX350. The difference in annual maintenance costs between the two SUVs is negligible and, in either case, will be about half of the $900 you'll likely spend each year maintaining your five-year-old vehicle.

There's much debate about the depreciation rate of hybrids. Hybrid batteries cost $6,000 to $8,000 to replace, although most models are now covered by an eight-year warrantee. Phil Edmontson, author of the Lemon-Aid guides, is openly disparaging: He claims a 2001 Prius that sold for about $30,000 would now sell for just $12,000, due to concerns about the cost of replacing a battery that is not covered by a warranty.

The analysts at Intellichoice disagree, pointing out that de--mand for both the old and new Prius remains strong. However, their projections for the two Lexus vehicles suggest the RX400h will depreciate about a third faster than the RX350.

The final tally
One case for buying a hybrid is that, over time, you'll recover the sticker price premium in savings at the pump. The math works when it comes to cheaper vehicles, but it would to take 10 years to recoup the extra $7,000 cost of the hybrid Lexus SUV. In total, the RX400h will cost about $1,000 more per year to operate than the RX350. Now that's some green.
- JOHN LORINC