"An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen today." "Nimblefinger" at xkcd forums

## Sunday, April 10, 2011

### Thinking of another new vehicle

The Land Rover LR3 HSE that has been my vehicle since November of 2006 now has about 95,000 miles on the odometer. I've stabilized at around 21 m.p.g. in the truck, which isn't so bad for a vehicle rated at 13 city and 17 highway. But it's getting a bit tired and fuel prices are on their way back up with, in my opinion, not excellent chances of dramatic decreases.

So, with the encouragement of our CFO (surprisingly), I'm thinking of a new vehicle. Unlike the last replacement which resulted in the LR3, fuel economy will be a primary consideration. I've fairly well narrowed the list down to two vehicles: the Ford Fusion Hybrid and the Chevy Volt. Each will achieve dramatically better fuel economy than the LR3 but they are quite different vehicles.

The sticker price of the Volt is around $40,280 with an available$7,500 tax credit for a net price of $32,780. With a couple of options (not many are available) the figures come to$42,395 and $34,895 respectively. The Fusion Hybrid, specced out as I would purchase it, comes to$33,260. Shockingly, this is about $8,585 above the non-hybrid Fusion. With respect to fuel costs, my estimate is that the Fusion would use about 42 gallons per month compared to approximately 91 for the LR3. This is assuming that I'd get 46 m.p.g., based on information gleaned from a blog devoted to hypermiling the Ford Fusion Hybrid (seriously!). Thus, I'd spend about$170/month on regular vs. $392/month on the premium fuel demanded by the LR3 (all estimates in this post are based on regular gasoline at$4.09/gallon and premium at $4.39/gallon). It's more than possible that I would not use any gasoline on some months with the Volt - if I leave home with a full charge and recharge at the office (actually close by at our laboratory since that has accessible outlets) I might only burn gasoline when going to meetings from the office. But speculation has to enter here and, using an estimate of trips that would require gasoline and this article about the mileage in "extended range" mode (i.e., using the internal combustion engine to charge the battery) I estimate that I'd use about 12 gallons per month, costing about$47.50.

But I'd also be using electricity. Using information from the same page, I'll estimate that I'd get 32 miles out of the 10.4 kilowatt hours usable in the battery pack. And subtracting the gasoline miles above from the annual total, I estimate that 17,700 miles per year would be on electricity purchased from the electric utility. Finally, I'm speculating that the average cost/kilowatt hour will be $0.12 for an annual and monthly electricity cost of about$690 and $58 respectively, or a total cost to provide motive power of a bit over$105.50/month. Note that this is $286.50 less than the LR3 and$64.50 less than the Fusion Hybrid.

I'm not completely sure why the U.S. government is in the business of subsidizing my Volt purchase but, without it there'd be no way I'd consider a four seat commuter car for over \$42,000. With it, this looks like a viable purchase. For most, it likely would not be. The things that make it compelling are that it would replace a gas hog, and that I drive 23,000 miles/year.

There are a couple of non-financial considerations that push me toward the Fusion Hybrid. The first is that the Sync system looks pretty cool. The second is that Ford did not need to declare bankruptcy and undergo a takeover by the U.S. government. They survived the economic storm on their own and are doing well. Philosophically, I'd like to reward that. The economics may rule that out. The decision is not final, however. In a subsequent post, I'll determine the net present value of each vehicle given what we'd spend, what we'd get for the LR3, the fuel savings, and a discount rate base on our company's actual cost of funds.