September 2011

Finding The Payoff In ENERGY-EFFICIENT Cars?

Author: John Rush

Based on the number of fresh models being introduced this year, the demand for energy-efficient cars appears to be reaching new heights. Hybrids-which are powered alternately by gasoline and battery – have steadily gained traction over the years. And, more recently, cars which are strictly or primarily electric – running on batteries and recharged rather than refueled – are coming to the market.

Given their influx popularity, perhaps you’re wondering if now is the right time for you to invest in a more energy-efficient car. The answer may depend on two factors:

• Your driving habits and the current and anticipated price of gasoline; and

• Your desire to be an “early adopter” and make a personal environmental statement by owning a hybrid or electric vehicle.

The financial equation

As is often the case with innovative technology, electric cars tend to come with a steeper price tag than their gas-powered counterparts. With production occurring on a more limited scale, prices will likely stay higher for electric cars in the near term, just as has been the case for many hybrids. Part of the higher upfront cost may be offset by federal tax credits of as much as $7,500. Beyond that, the financial calculation is based on whether the amount of driving done (and the resulting savings on gas) will overcome the extra upfront cost.

Another factor when considering an electric or hybrid alternative is how it fits your driving habits. For instance, some of the new electric-only vehicles will be most cost-effective for those who use it for limited driving, such as round-trip commutes of 10 miles or less. Another new offering can handle up to 40 miles on a full battery charge before the gas-powered engine takes over.

At this time, the ability to charge an electric car away from home is limited. Some states and cities are beginning to set up public charging stations, but until those are in place, it may be impractical to drive these cars far from home.

Gas prices are another hard-to-quantify factor that may affect the cost-effectiveness of electric and hybrid vehicles. In the short-term, energy prices are unpredictable; however, the general sense is that over time, gasoline is likely to become more expensive. Should this hold true, it could bode well for energy-efficient cars.

Joining the cutting edge

Like other new technologies, the appeal of electric cars is, in part, the ability to have the latest and greatest thing. Even if it may not make as much sense from an economic perspective, for some, having the chance to be on the forefront of what might be the next revolution in cars is a selling point.

Over time, if gas prices trend higher and electric vehicles prove to be an effective alternative, more cars will be produced and brought to the market, resulting in more competition and probably, the ability to purchase a fuel-efficient vehicle at a more favorable upfront cost.

John Rush, CRPC, Financial Advisor, Ameriprise Financial, Inc., 1533 Fording Island Road, Suite 328, Hilton Head, SC 29926, Phone – 843.837.1220. John Rush is licensed/registered to do business with U.S. residents only in the states of AZ, AL, FL, GA, IL, MN, NC, NJ, NV, NY, OH, PA, SC, TX, VA, AND WI.

Brokerage, investment and financial advisory services are made available through Ameriprise Financial Services, Inc. Member FINRA and SIPC. Some products and services may not be available in all jurisdictions or to all clients.

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