DETROIT – Yes the headline is a real grabber and its one Consumer Reports magazine will get a lot of mileage from this month.
It is absolutely correct! Here's my rant: if you want to kill a car company, just keep jacking up the CAFÉ standards [which the Obama Administration is in the process of doing]. It's a theme I have been banging the drum on for several years now because the subject at once makes me frustrated for its big government implications and downright crazy for its personal finance ramifications.
Hybrids cars and trucks, extended range-plug ins and every iteration in between amount to fascinating technology. They represent the clear evidence how the auto industry can stretch itself and show all the world to see that for all of its low tech reputation, your car is likely the most technologically advanced consumer product you will use today. I have watched and learned much about the auto business in more than 20 years in Michigan. I have learned to appreciate the steep ups and downs, the circuitous ins and outs and the staggering complexities of one of the world's great industries. Simultaneously I spent much of that time learning economics and personal finance. I became the first and only Journalist/Certified Financial Planner Professional™ in the nation. Automotive economics and personal finance is the confluence of my areas of expertise. So when I read a story like Consumer Reports' I can't help but want to jump on my soap box.
If you have bought into the notion you can do yourself and your planet a great service through an eco car purchase, that the economics surrounding its increased gas mileage is the reason to buy, you have bought a pig in a poke! This kind of purchase is infinitely more complex than any car buying experience you have ever known. Consumer Reports points out most eco cars cost between five and ten thousand dollars more than the conventional gasoline engine version. If you think you can make up that money during the time you own the car it is more than likely you are mistaken. Consumer Reports says with at least one vehicle it would take you thirty eight years to get your money back. ]
View: Consumer Reports fuel-efficient small sedans
View: Fuel economy sedans report
The reason I get so worked up about this situation is this is not market driven. By that I mean the auto buying public is not clamoring for eco cars. In fact it's quite the opposite. Eco cars make up only about two per cent of the auto market right now and a recent study shows many of the first customers who bought eco cars are not buying another. The reason is they found out the hard way the truth contained in the Consumer Reports story. The Federal Government has decided it will force Americans to buy cars they don't really want and force the auto industry to build more and more to meet emissions and gas mileage standards. At the same time, and making matters much worse, this push comes at a time when the average family struggles to keep up with falling incomes, underwater mortgages and crushing, hidden inflation brought on by jacked up gasoline prices. This environment makes the act of buying a basket of groceries feel more like a mugging. Here we have a government hell bent on forcing a square peg into a round hole in the most difficult economic downturn in nearly a century. And guess who gets to pay the price? You, of course, especially if you buy into the eco car sales pitch. All of this is unnecessarily expensive and onerous for many Americans.
Now, if there were more truth in this advertising I could live more easily with this sad situation. Many who have purchased hybrids did the math, checked out the pros and cons and decided they were comfortable with the choice. Devin Scillian, Local 4's anchorman, is among this crowd. He believes whole heartedly in the green movement's demands for this kind of change in the auto industry and happily paid the premium to buy a Chevrolet Volt. He loves his car and says he will buy another. Good for him. He went into the deal knowing exactly what he was getting into. I have spoken with auto analysts who will say buying these vehicles on the economics alone is too simple. Making the exact comparison between hybrids and conventional engines is not so easily done. Because some hybrids and extended range vehicles get better mileage in the city than the highway, the kinds of driving you do will matter greatly in the calculus whether you can get your pay off quickly. There are in fact some eco cars that do pay off in the first few years of the purchase; as it should be. Still, in the end, all of my angst may be for naught. Because the federal government is not in the mood the change its mind on emissions and mpg's we are likely to see more and more of these vehicles on the road. So understanding how all this works is vital for every American.
As your on air financial planner, I implore you or anyone you know who is considering buying a hybrid or extended range vehicle, at the very least do the math! Take the time to carefully consider the economic impact of such a purchase on your family's budget. If you can afford an eco car buy one! If you know in advance what you are getting into and you are comfortable with the Faustian bargain you are more than likely making, have at it! But make certain you also look at the other auto technology that is emerging. It is quite possible right now the conventional gasoline hybrid engine version of the hybrid you are considering gets very close to ore even better mileage then the eco version. It is also likely that conventional car costs a lot less. For the average family this is the right answer [at least for the time being].