In case you missed my last article detailing my passionate hatred for the latest bit of consumer stupidity, known as hybrid automobiles, I’m back with a sequel piece. Here I’ll be employing the mighty power known as algebra to explain why buying a hybrid automobile makes no economic sense, except in what would be best classified as a nightmare scenario. To illustrate this, I want to compare the Toyota Prius with (in my opinion at least) one of the best inexpensive cars on the market, the Toyota Corolla. The cars are of a similar size and equal seating capacity (5). So what makes the humble Corolla more than a match for the mighty Prius from an economic perspective? The answer is simple: cost.

Consider the following vital stats about the two automobiles:

Car City MPG Highway MPG MSRP Range
2008 Prius 48 45 $21,100 — $23,370
2008 Corolla 28 37 $14,405 — $16,415

According to Uncle Sam, it’s plausible to assume that the average driver puts about 15k miles on a car every year. Likewise, according to the DOT, the average American keeps their car about 4.5 years. That’s not a whole lot of time to recover the cost of the vastly more expensive Prius. But with the price of gas these days, it has to be a good deal, right? Wrong.

Assuming that the cars depreciate at an equal rate (or you just crash them into a tree and get nothing from your insurance company) and that inflation (now pushing 4% per year) drops to zero, here’s where the Prius becomes cheaper as determined by the price of gas (here we only consider the lowest end model of each car):

When the Prius Price of Gasoline (per gallon)
Costs Less $2.00 $3.26 $5.00 $8.00 $10.00
Years 22.8 14.1 9.1 5.7 4.6

So for a Prius to be more economically sensible for the “average” American, gas has to cost $10.00 a gallon. And this is assuming 0% inflation. The numbers get worse when you factor in a 3% inflation rate. Assume that the gas price listed is the price today and that the cost of gas increases inline with the 3% inflation rate (Ben Bernanke and I are both being hopeful). Then the crossover point looks like:

When the Prius Price of Gasoline (per gallon)
Costs Less $2.00 $3.26 $5.00 $8.00 $10.00
Years 36 18 11 6 5

So unless we assume that gas prices are going to head up significantly faster than the inflation rate, it’ll still take $10.00 per gallon gasoline to make the mightly Prius cost-competitive with the humble Corolla. Perhaps that’s something to think about the next time you head to visit the Toyota dealer…