Is there enough incentive for people to buy a hybrid car in Canada?

Let’s talk some numbers:

Go to www.honda.ca and try to price a basic Civic Sedan vs. basic Civic Hybrid (sedan as well).

Civic Sedan (including all the fees and taxes):$20,549.05 – $1,000 government rebate = $19,549.05

Civic Hybrid ((including all the fees and taxes): $31,238.85 – $2,000 government rebate = $29,238.85

Difference in price? $9,689.80

Assumptions:

1) ZERO cost of money, to be conservative (in reality, that difference in price will be even MORE, when you factor in the cost of money (the interest));

2) average 20,000 km per year mileage;

3) fuel consumption estimated as (highway+city)/2:

Civic Sedan: (7.4+5.4)/2 = 6.4 L per 100 km

Civic Hybrid: (4.7+4.3)/2 = 4.5 L per 100 km

Civic Sedan consumes 20,000/100*6.4 = 1280 litres per year

Civic Hybrid consumes 20,000/100*4.5 = 900 litres per year

Savings? 380 litres of gas per year

4) average cost of TWO dollars per litre (currently it’s $1.25-$1.30)

Total savings per year? 380*2 = $760

So what do we got?

Pay $9,689.80 more up front to save $760 per year.

How many years do we need to BREAK EVEN? (again, that’s assuming zero cost of money)

$9,689.80/$760 = 12.75 years

Doesn’t look like such a hot proposal economically, does it?

Most people own their cars for 4-8 years, if that.

That compensation of $2,000 for the buyers of hybrids should be increased so that the break even period is UNDER 2-3 years, in my opinion.

Was the government to compensate $10,000 for buying those Hybrids, the break even period would be:

$1,689.80/$760 = 2.22 years – that would make MANY people to seriously consider buying a hybrid

Alex Roitman.

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About

A part-time MBA student from Telfer School of Business (Ottawa University), living and working in Ottawa, Canada

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Posted in sustainable technologies
11 comments on “Is there enough incentive for people to buy a hybrid car in Canada?
  1. penczek says:

    I like your comparison. I agree that there isn’t substantial difference between Civics. But do Canadians drive Civics or other cars that consume much more gas 100km?

  2. ali4ek says:

    Civics are simply used as one of the MOST popular cars that Canadians buy.

    Of course, there are other hybrids available as well.
    I feel that the situation (at least economically) would be similar no matter which specific model we would look at.

    Alex Roitman.

  3. celinemm says:

    To push a little bit the idea of sustainable development in transportation.

    Additional to incentive for people to use hybrid car, I would suggest incentive for cycling to work such as; safe and secure roads, showers at work etc. This would not cost a lot of money; it only requires a mind shift to SD. However taxation credit would be appreciated too.

  4. jsitu79 says:

    One of the issues we talked about in class that is related to sustainable development is equity. People who would buy hybrid cars under your subsidy scheme are most likely middle to high income earners. Low income earners probably go for the second hand cars which would not qualify for the rebate. Since the subsidies ultimately come from tax dollars, you would have a regressive system whereby the poor are subsidizing the wealth.

    Perhaps a more progressive system would be to tax the regular civic sedan $10,000 to put it on par with the hybrid car. Not only would that make people seriously consider hybrid cars, but perhaps even consider public transportation!

    Stop trying to get the poor to pay for your car Alex 🙂

    Jerry

  5. ali4ek says:

    Jerry, I partially agree with your comment, but I would definitely not identify people buying Civics as “high income”.

    I am still persuaded that the vast majority of Canadian population chooses to buy or lease brand new cars with low interest monthly payments, rather than to come up with $5000+ up front to buy a second market car.

    For most people, it’s simply easier to sign a contract without putting next to nothing as down payment than finding a rather significant amount of money up front.

    And, if we agree on that Canadians choose car payments, rather than lump sum of money to pay up front, Civics are definitely on the LOWER end of cars, that can be purchased from dealers.

    Alex Roitman.

  6. jeremy says:

    I’m with Jerry on the pricing of Civics! The price of these (and other fossil-fuelled vehicles) does not reflect their true cost. Also, with larger scale production, maybe the price of the hybrids will come down.

  7. ali4ek says:

    I’ll clarify my point:

    1) the government will not and is not expected to compensate $10K upon a hybrid Civic purchase

    2) car manufacturers’ pricing of hybrids is very high compared to regular cars – at least today

    Conclusion?

    Today people do NOT have a strong enough incentive, at least economically, to buy a hybrid car.

    Alex Roitman.

  8. rtelmosse says:

    I think this blog paints a pretty accurate picture. However, I feel that there is room to expand on the philosophical “mind-shift to SD”

    I see MIND-SHIFT as the cornerstone to ALL ISSUES RELATED TO SD.

    What’s standing in the way of this shift is the general addiction to greed and acceptance that we can continue to live above our means. Hypothetically, we can all drive hybrid cars, but then there’s the issue of disposing them – which requires heat, energy, resources, etc. Who’s looking at this in the long term?

    Also, the more we become efficient, the more people will consume. Can you hear that? “Oh, its energy efficient, let’s buy two.”

    Valid effort by Jeremy to educate the up and comers – and he’s right in that it’s through education that we must start the shift – but we all have to do our part in passing the SD buck because, let’s face it, until someone invents the completely sustainable, renewable energy source (which may be more likely than people changing their minds), we are going to slowly drain this planet of its life sustaining ability.

    Are we doomed? I don’t think so.

    One thing people are is predictable. So let’s focus on the marketing of SD–making SD a trend; making it the “in” thing – like the iPod, cell phones etc. Our species depends on it.

    RT

  9. melanie3943 says:

    Rocketting oil prices…! Positive pressure for change ? Listening to the news yesterday morning, I came out with an idea. Could we find a strong positive aspect in the current oil crisis ? Can we define the price for change? Finally, will the oil price be a strong incentive for the sustainable development or will we accept to pay everyday more and more for an energy that has no other future than to be condemned ?Arthur D Little commodities analysts recently tried to set scenarios based on a main idea. Oil prices will go up, and we can reasonably forecast a stable price of 180 dollars in 2012.They studied the specific sector of car industry, but we can estimate that it will be the craddle of a mass society movement. Based on the previous hypothesis , the car industry turnover, worldwide, will decrease by 5% a year. But this scenario is settled on no reaction from car constructors, which is really nonsense. They will have to adapt, strongly deeper than they do today.The major concerns about car today are pollution and CO2 emissions. The next step is oil consumption. Obviously, CO2 emissions and oil consumption are linked, but today cars are built in order to comply with state laws…and soon they’ll be to comply with an economic necessity. And that is all the point. The real change will, in the car industry, be initiated by an economic matter. Be responsible and involved in the sustainable development will be the central point of the car business. In order to keep their revenue, constructors will have to adapt their offer to the new economic necessities of their customers.The future car customer will need a car that fits a double goal: Be environment friendly and “wallet” friendly !!! This specific example is certainly the first shape of a global movement that will make our everyday behaviour change !

  10. tsolerka says:

    Hi guys, I found this blog that was posted today on the http://www.hybridcarblog.com/

  11. tsolerka says:

    Hi guys, i found a blog website on Hybrid cars http://www.hybridcarblog.com/

    The consensus is that the Toyota Prius is too expensive to make on the assembly line, production costs are too high therefore the retail cost is too high. Apparently toyota have encountered losses, but then another blogger states that Toyota are not making enough to meet the increasing demand and nothing can be done until 2009. Are they not producing enough cars because they are nor profitable enough?

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