Fuel efficiency for economists

One of the inhibiting factors to buying a fuel efficient car is the price tag. For drivers that would like to avoid burning fossil fuels to power their car, an electric vehicle may be an attractive option. However, the sporty, all-electric Tesla Roadster is prohibitively priced for the average person ($100,000 USD). Even the upcoming plug-in electric series-hybrid Chevrolet Volt, at half the price, is considered expensive. So, for the average Canadian, hybrids and small-displacement engines are the most realistic choice. Most provincial governments have tried to remove the high-cost barrier by offering rebates for fuel efficient cars. But I was curious about the initial cost of the car vs fuel efficiency...or, in other words, how much more would a "green" consumer pay for gas savings? Apparently, I was not the only one to have this idea, as it was published in the elite journal Science, very recently. So, I created a scatter-plot of vehicle cost vs fuel efficiency (in L/100km, which is arguably a better way to measure fuel efficiency than US MPG, but that is a whole different post). I spent an evening virtually building cars, via the manufacturer's (Canadian) website. I decided to price all vehicles as base-model, with automatic transmission and air-conditioning, as these are really the only extra features I care about on any car. Only compact or mid-size cars were included. This is the result:



The green line represents a subjective trend (not statistically verified) that excludes the hybrids. Any cars placed below this line are a good deal for economists. That is, they are very inexpensive when considering their fuel efficiency as an additional major cost. In contrast, cars above this line are blatant rip-offs. For example, the Mini Cooper, while very fuel efficient is incredibly expensive compared similar vehicles. I do realize it is a BMW, a high-end luxury vehicle designed for performance, not fuel efficiency; But some people might consider purchasing a Mini because it is far more esthetically pleasing than other options.

Not surprisingly, hybrid vehicles (Toyta Prius and Honda Civic) are the most fuel efficient. However, even with a $2000 CAN rebate, which is what the Ontario government currently offers for the Prius, the initial vehicle cost is still expensive. However, if you were to drive one these hybrids for the lifetime of the car (let's assume 300,000 km) and you are using 3 L less fuel per 100 km than the average compact car (5.5 L/100km vs 8.5 L/100km), and if fuel remains at $1.25/L (yeah, right) then you would save $11 250 CAN in fuel costs by driving a hybrid rather than another compact car. In this light, the hybrid is the obvious choice for economists.

Some surprising results: Volkswagen, legendary for its fuel efficiency is not very fuel efficient at all when compared with similar sized competitors. Also surprising, is the Honda Civic, a common choice among university and college students for its low base price seems to be over-priced for its fuel efficiency. The Smart ForTwo is a bit of an outlier, with great fuel efficiency but for a slightly more costly premium. However, for those who are concerned about safety as well as cost and fuel efficiency, the Smart ForTwo is far superior to other compacts. The big question of potential buyers; Is your safety worth the extra vehicle cost?

Perhaps most surprising is that Toyota and Hyundai compacts were beat out by the Pontiac Wave in terms of base cost and fuel efficiency. I'm shocked. A domestic car comes out on top of the list, when considering fuel efficiency and vehicle cost. I suppose this reflects the changing times due to the current pressures on car manufacturers, and a strong motivation for domestic companies to survive the competition of inexpensively produced foreign products.

I realize I might be missing some important data points on this graph. Let me know, and I will update accordingly.