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Is Leasing Hybrids Cost-Effective?

2/1/2008 4:05 PM
KO Join Date: February 2008 Posts: 2	Is Leasing Hybrids Cost-Effective? With our company’s green initiatives kicking into high gear, I’m thinking about getting some hybrids. I’ve been reading conflicting research as to whether leasing hybrids is cost-effective. Can anyone help?

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2/1/2008 4:16 PM	#1
ChrisBrown Join Date: February 2008 Posts: 2	Re: Is Leasing Hybrids Cost-Effective? KO, Here is a response from Jack Leary, president of Motorlease: We do lease some hybrids but they are more a political than economic statement. This is driven by two factors. The first is residual value expectations. The cost differential between a standard propulsion system and the hybrid does not translate into any increase in value at resale time. There is too much uncertainty about the reliability and maintainability of hybrids at higher mileages for auto wholesalers to want to bet their money on used hybrids. Thus, the entire cost of the system, and maybe more, must be amortized over the life of the lease. Second is cost recovery. The increase in fuel economy associated with hybrids is only realized in city-type driving. On the highway these cars function like any other internal combustion engine. The payback from decreased fuel cost is simply too slow for most fleets. It is interesting that the city of New York is requiring a phased switch to hybrid taxis. This should provide interesting real-world data. In the meantime, with no residual value enhancement from hybrid technology and a resultant prolonged payback time, the application is limited in the fleet market when there are not other considerations such as "green" policies. In our market, the size of the car matters and some of the smaller fuel-efficient cars are not as popular for sales representatives. General Motor’s fleet cars–Impala and G6, in particular–are really economical. Fuel economy is not yet the deciding factor but it leans their way when combined with comfort.

2/1/2008 4:16 PM

ChrisBrown

Join Date: February 2008
Posts: 2

Re: Is Leasing Hybrids Cost-Effective?

KO, Here is a response from Jack Leary, president of Motorlease: We do lease some hybrids but they are more a political than economic statement. This is driven by two factors. The first is residual value expectations. The cost differential between a standard propulsion system and the hybrid does not translate into any increase in value at resale time. There is too much uncertainty about the reliability and maintainability of hybrids at higher mileages for auto wholesalers to want to bet their money on used hybrids. Thus, the entire cost of the system, and maybe more, must be amortized over the life of the lease. Second is cost recovery. The increase in fuel economy associated with hybrids is only realized in city-type driving. On the highway these cars function like any other internal combustion engine. The payback from decreased fuel cost is simply too slow for most fleets. It is interesting that the city of New York is requiring a phased switch to hybrid taxis. This should provide interesting real-world data. In the meantime, with no residual value enhancement from hybrid technology and a resultant prolonged payback time, the application is limited in the fleet market when there are not other considerations such as "green" policies. In our market, the size of the car matters and some of the smaller fuel-efficient cars are not as popular for sales representatives. General Motor’s fleet cars–Impala and G6, in particular–are really economical. Fuel economy is not yet the deciding factor but it leans their way when combined with comfort.

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