There are many factors that go into the car selection process, many of them emotional, not necessarily practical or economic. But if you are currently in the market for a new car and are considering a hybrid based on the economics of the decision, I will provide a quick way to evaluate your choice.

Now to be fair, the evaluation needs to be of like vehicles. If you are choosing between a large SUV and a compact hybrid, there are probably other considerations in play. So, for this analysis, I will compare the best selling of the hybrids, the base-level 2010 Toyota Prius with a comparable Toyota Corolla using the MSRP of the base level for each, $22,150 and $17,000, respectively.

A few additional assumptions:

1. The price of gas remains at current levels around $3/gallon

2. The average MPG differential between the two models is 20 MPG (50 for the Prius vs. 30 for the Corolla)

3. You drive about 15,000 miles per year

Can you justify the $5,150 premium for the Prius?

You will save about 200 gallons of gasoline per year driving the Prius resulting in reduced gas purchases of $600/year. At that rate, it will take over 8.5 years to recoup the additional money spent to purchase the Prius. Considering most Americans only keep a car on average of 3-5 years, you will likely never justify your hybrid purchase on the gas savings.

Couple this with the end of hybrid tax incentives and the discontinuance of the carpool sticker program in states like California for hybrids and the case for a hybrid is tough to make on the economics. 

However, if purchasing a hybrid is an alternative to a car that garners only 20 MPG, the economics begin to change.  Using the same assumptions as above, you will now save 450 gallons of gas per year, or $1,350.  So, in less than 4 years, you will have recovered your added purchase cost.

So now I must confess, I am a happy owner of a 2006 Prius with 50,000 miles (and a carpool sticker), but also have a 2008 Honda Pilot that only gets about 18 MPG on a good day and there is one great real and psychological benefit of the Prius over the SUV -- not only does it takes about 1/2 the amount of time to fill the tank at the gas station, I don't get depressed dropping $75 in 10 minutes to put gas in a tank that will be empty again all too soon and can avoid any Post-Fill Up Syndrome (PFUS) that could otherwise require costly therapy to overcome.

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