Alternative-powertrain vehicles are proving a good investment, as some owners on both sides of the Atlantic are even selling their greener cars for more than what they originally paid for them.

For instance, in the US, values for a three- or four-year-old Honda Insight are almost identical to the more upmarket Acura RSX Sports Coupe at around $14,800 for a 2005 and $13,500 for a 2004. A 2006 Prius will set you back a healthy $21,500 – when a 2009 model would cost $22,000, according to www.edmunds.com.

In the UK, British Car Auctions has reported hybrid and Liquid Petroleum Gas (LPG) vehicles are fetching far more at auction than their gasoline equivalents.

“It would appear that rising fuel prices have succeeded in making motorists more environmentally friendly where successive transport policies have failed," said BCA’s Tim Naylor.

Although the cost of fuel and maintenance are important considerations when buying a car, depreciation in its value during ownership is always the biggest cost. The vehicle's worth at the time of sale is known as its "residual value."

Residuals for hybrids have always been high compared with gas equivalents because they are relatively expensive to buy and tend to be well equipped. So it’s more telling to compare percentages.

Specialists at Kelley Blue Book and Edmunds both make monthly forecasts of future values, and Edmunds use the figures in the calculations of True Life Cost quoted on the consumer website.

In August 2007, he says, Edmunds’ three-year residual forecast for the Prius was 58.9 percent, a year later it has jumped to 62.2 percent. The Civic Hybrid was expected to retain 60.1 percent of its value in 2007, for 2008 the prediction is 62 percent.

“Prius sales have gone through the roof this year," Joe Spina, senior manager, remarketing at Edmunds told GFF.

The one-year forecast for the Ford Escape Hybrid has jumped a dramatic 2 percentage points over the past year. In 2007, it was predicted to retain 75.5 percent of its value after 12 months. Today’s projection is 77.5 percent.

Not surprisingly, in some cases hybrids outstrip their gas equivalents. For example, in 2007, the Toyota Highlander hybrid had a three-year residual forecast of 53.5 percent compared with 49.9 percent for the 2wd model. This year the prediction is 57 percent for the hybrid, 52.1 percent for the 2wd. (Both vehicles also benefit from the introduction of the 2009 model.)

Even though they have been restricted to 45 states in the US until this year, diesels are also beating their gas equivalents. According to Edmunds, a 2005 VW Jetta TDI wagon is currently worth 82.8 percent of its value new, compared with 64 percent for the gas GL wagon. A 2005 Mercedes E320 CDi sedan retains 61.1 percent compared with 53.7 percent for the gas equivalent.

So far prices E85 Flex Fuel vehicles have not risen in a similar way and there is little data to support any conclusions on residual shifts.

Electric vehicles are not tracked yet because there are so few on sale. The Chevrolet Volt - planned for launch in 2010, is expected to have high residual values in its early years, however, because plenty of early adopters are ready to buy them, but the supply will be limited.  

Looking ahead five years, Edmunds prognosticates that diesel vehicles will do better than hybrids, partly because of the hybrid batteries' so called "time bomb."  If a vehicle has a warranty of 100,000 miles, it could be out of warranty within five years and a new owner could find themselves with a bill of $5,000 for a new nickel metal hydride battery.

Technology is also moving so fast, the appearance of extended-range electric cars, such as the Chevrolet Volt and fuel cell vehicles such as Honda’s FCX Clarity, that today’s hybrids may look quaint within five years.

More immediately, the growing number of used hybrids on the market will gradually bring prices down. As more are launched and sold, buyers of used hybrids will have more choice and this will cause prices to descend from their current lofty heights.

Ironically, Americans’ traditional resistance to the charms of diesel may keep residual values high. Despite the launch of new clean diesels, many Americans still see diesel as undesirable and smoky. Plus, the high price of the fuel means the vehicles’ excellent range is no longer enough to offset the higher purchase price.

“Even though there will be more (diesels on the market in future) the number won’t be high enough to push prices down," Spina said.

Mark Cooper, research director at the Consumer Federation of America, has been studying buying trends and estimates the actual shift to fuel-efficient vehicles began as far back as 2005. The research found that among those intending to buy a car, the average fuel economy of their current car was 24.1mpg, but on average they intend to get 32.7mpg in their next vehicle (new or used). About 60 percent of poll respondents said they were willing to consider major changes to achieve even higher fuel economy, including switching to hybrids.

However, Cooper points out that consumers are looking at high-efficiency conventional fuel vehicles as well as those powered by alternative fuels. So prices for used small cars and frugal gas vehicles are also strong.
 
Kelley Blue Book has recently launched a new section for its site, called kbb Green, including an interactive feature that helps consumers to decide whether to trade in their car for a greener alternative. Although an early swap may seem like a good idea, some consumers would lose out because of the low value they would get for their current, comparatively thirsty, car.

One irony is that in five years’ time, the plunging prices of SUVs are likely to have leveled out. Because manufacturers have cut production, there will be fewer available on the used market, so buyers needing a used SUV may ultimately have to shell out more.

AUGUST 2008