We are probably going to buy a mini-van at some point in the next few months. At a certain point, the cumulative mass of our family just isn’t going to fit in a 2011 Elantra anymore.
And as I’ve started the process of figuring out which one to buy, I noticed something interesting. Hybrid vans are cheaper. Way cheaper.
I’m specifically referring to the Chrysler Pacifica, which is the only hybrid van on the market right now. Cost is obviously the big concern in a new car purchase. We don’t really care about features with the exception of:
- safe enough
- rear air-conditioning
- good gas mileage
That’s it. We are simple folks.
Depending on your driving habits, hybrid is way cheaper
This was the most interesting thing to me
When I started the search, I wasn’t necessarily thinking about a hybrid van. But our Elantra gets 30+ miles / gallon. And when I started to look at the mileage of your run-of-the-mill used van, it was eye-opening.
Most vans are getting somewhere in the range of 18-22 mpg in normal driving conditions and close to 30 on the highway. And you can imagine why; compared to an Elantra, a van is way heavier.
But since most of our driving is in-town, we would be nearly halving our fuel economy. In North Carolina, it would appear that the average family spends about $1,150 per month on gas. Since we have one car and a very short commute, let’s say we are spending $700.
That works out to about $250/yr in extra gas costs, right off the bat. (Math is $700 * (11 [difference in weighted mpg] / 30 [old mpg]).) I can do a lot with $250 a year. And that is the conservative figure.
Depending on how you think about the value of $250/year, the equivalent lump sum value of that extra cost is thousands of dollars. (For me, specifically, I value that $250/year at roughly $7k in lump sum form.)
So on this measure, I should be willing to buy a comparable hybrid van if it is no more than seven thousand dollars more expensive than its non-hybrid twin.
But there’s more…
(And no, I’m not even to the tax credit part yet.)
A nifty feature of the Pacifica is that it can run on the battery alone for a certain number of miles; it’s around 33. So that means that if you never drive more than 32 miles in a day and can charge it overnight, you literally never buy a drop of gas.
Of course, we like trips, so that is unrealistic, but still, an extremely conservative estimate shows that more than 65% of our driving is in-town. And since the amount of electricity needed to charge the battery to full (16Kwh) is way less than the amount of gas needed to drive 32 city miles, in-town driving becomes way cheaper.
My calculations put the extra savings at about $6k. So when I compare the annual cost to own a non-hybrid van and a hybrid van, then convert that amount to a lump sum value, it works out to $13k.
In other words, given how much more expensive a non-hybrid is to operate, I should demand a 13k discount relative to the price of a hybrid. Or put another way, I should be willing to pay 13k more for a hybrid.
With the average price of a used van at Carmax running around $24k, this means I would value a hybrid van at $37k. Can I buy a hybrid van for $37k? Amazingly, I can.
For the past month, I have been recording the price of a hybrid van in my local market to see what sort of options are out there and how the prices fluctuate over time. And with the exception of 1 day that I’ve run it, there is a hybrid van available for less than $34k.
The cherry on top
So comparing the two van options, it’s clear that the hybrid is a better value, just based on the price of the two options and the gas savings. (And note: I described us as not driving very much, but I actually used a pretty normal 65% split for hwy/city driving.)
So the hybrid wins.
Of course, that is neglecting the fact that there is also a federal tax credit for hybrid vehicles in the amount of $7,500. So the hybrid wins on gas alone, to the tune of about $3k. When you add the tax credit, the hybrid is now a $10k steal relative to a used van.
I think it’s important to note that the hybrid wins with or without the tax credit.
New was cheaper than used
I assumed, when I started the process that we would buy a lightly used van. Makes sense right? Then I do the analysis above and go: “whoa, it had better be a hybrid.”
Ok, that’s no big deal, hybrids are cool. Let’s go see what sort of hybrid selection there is…uh-oh.
I was shocked that there is a single model. The Chrysler Pacifica.
The minute you drive off the lot with a new car, it loses half its value. Heard that one? Not really.
The first thing I did was check out Carmax.com for a nationwide search of vans. So this really dented my confidence for a bit. There were at most (depending on the day) 5 or 6 hybrid vans available anywhere in the US. Carmax will drive the car to your home market for a fee, so it wasn’t necessarily a cost issue.
I was just expecting to see a lot more options. Few options meant that I might not be getting the deal I thought I would with a lightly used car. Few options was a worrying sign. So maybe this hybrid van idea wasn’t such a good idea.
A did some other searches and eventually realized that there were as many new hybrid vans within 30 miles of my house than there were used vans on the entire Carmax inventory. Ok, great, but new cars have that new car premium attached right?
Shockingly, the new vans were, on average, a good 6 or 7 thousand dollars less than the used options. So much for the “lightly used” car is always the best value mantra.
I did some research and found a potential explanation (though I have no way to verify whether it’s true generally). The idea is that there are a limited number of used cars; you can’t order a used car, you have to buy it from a willing seller.
Compare that with new cars, where the dealer can order as many as they want from the manufacturer, who is gladly willing to make as many as they want to buy. So the new car market and the used car market behave opposite each other in some ways.
A popular new car means lots of cars that become used when first-time owners buy them. More used cars means lower used car prices. On the other hand, a new car that isn’t selling well produces relatively few used cars. So a dealer that wants to stock a specific non-popular vehicle is going to have to bid up the price at auction (classic supply and demand issue).
And in the case of a hybrid van in an era of (relatively) low gasoline prices, you can see how that dynamic might come into play. Again, I’m not willing to say that this theory explains the prices I saw, but it’s consistent with the phenomenon and most crucially, it seems plausible.
7,500 cherries on top
If you are ready this in 2019, there is one more thing. If not, you can skip this section.
The real cherry on top is that there is a $7,500 tax credit for new vehicles with a sufficiently large EV component. And the Pacifica qualifies because the battery is 16Kwh.
So even if the used vans had been $7,000 less than the new vans, after accounting for the tax credit, they’d still be more expensive in practice.
I stuck this section at the end because the key point is that new vans were cheaper than used vans and hybrid vans are cheaper than gas vans. Both of these are somewhat counter-intuitive and I thought they deserved a post.
But if you have read this far and are still on the fence, I wanted to make sure that you had all the information.
It would not be intellectually honest of me to extol all these virtues without acknowledging the obvious fact that to get a hybrid Pacifica takes a huge up-front investment to receive a long-term benefit. That includes both the savings from substituting expensive gas for cheaper electricity and the tax credit, which can take several months (at minimum) to show up.
I wonder if there would be a legal way to build some sort of organization that could help support this cost. Companies that can demonstrate predictable future cash flows are able to sell bonds to finance the development of that income. A driver switching to a new hybrid van is going to have similar future cash flows (from gas savings and from the tax credit) that should suffice to allow them to borrow to finance the car.
Of course, they could just finance the car through the dealership, but that would have to be at rates that offset at least some of the financial benefit. An organization that wanted to help people realize the benefits of hybrid might be constructed to provide the same financing at more competitive rates.
Just a thought. If anyone builds this, let me know. Would love to hear about it.