Wednesday, July 10, 2013

Indianapolis Opting to Buy Hybrid Cars Would Cost Taxpayers $10.6 Million to Save $2.5 Million on Fuel (Revised)

The Indianapolis Business Journal reports on an internal review released by the city which shows that the Department of Public Safety would save $8.6 million over 5 years if it replaces 1,035 non-patrol vehicles, generally Crown Victorias and Dodge Chargers, with hybrid vehicles, in particular Ford Fusions "which are estimated to cost $34,056 apiece, or 53 percent more than what the city has paid for Dodge Chargers in the past."
Ford Fusion

To arrive at the savings claimed in its report, the public safety's "vehicle-efficiency team" took the $12.2 million upfront cost of the 1,035 hybrid vehicles and compared that to the estimated $15.9 million in fuel savings.  That $3.7 million difference was then added to $4.9 million which represents the projected resale value of the hybrids after five years, for a savings of $8.6 million.

Worst math ever.  It should not be surprising that city officials are constantly taken to the cleaners when negotiating with folks in the private sector.

First, 1,035 Ford Fusions purchased at $34,056 apiece, renders a cost of $35,247,960.  Meanwhile, at $22,259 a piece, the total cost of 1,035 Dodge Chargers would be $23,038,065.

The City's claim of $15,900,000 in fuel savings over five years is grossly exaggerated to say the least.  For the 1,035 new hybrids, that is a fuel savings of $3,072 per year, per vehicle.

Assume that the Ford Fusion gets 40 mpg and the Dodge Charger gets 25 mpg.  Let's say the vehicles are both driven 10,000 miles a year.  The Fusion would use 250 gallons, the Charger 400.  Take the 150 gallon difference, multiply it by the $3.25 cents per gallon (the price the city is using for its figures), and you get a savings of $487.50 per year, which is nowhere close to the $3,072 per vehicle the city is claiming. To get to a savings of $3,072 per hybrid, each Fusion would have to be driven over 63,000 miles every year for five years!  The table below includes a much more realistic savings of $487.50 per car multiplied by 1035 cars over a five year period.

Finally, you have to back out the five year depreciation of the Ford Fusions versus the Dodge Charger.  From reviewing the depreciation rates on the AOL Autos website, it appears that over five years a Dodge Charger loses 76% of its value while the Ford Fusion loses 87%.  Thus a five year old Dodge Charger will be worth $4,332 while a Fusion will drop to $5,342.  Over 1,035 cars that translates to $4,483,620 for the Chargers and $5,529,136 for Fusions.

So let's do a table to simplify things:

Cost
Ford Fusions
Dodge
Chargers
Initial Cost
$35,247,960
$23,038,065
Fuel Savings
-$2,522,813
0
Resale Value
-$4,581,945
-$5,529,136
Net Cost
$28,143,202
$17,508,929

Of course city officials count on the fact that most reporters don't have the time to sit down and do detailed math as I have done.  If they did, they'd find out the City's claim of an $8.6 million savings on buying 1,035 hybrids for the Public Safety Department is as phony as a $3 bill.

16 comments:

draxolotl said...

Where on Earth can you get a new Dodge Charger for $18K? http://autos.aol.com/cars-Dodge-Charger-2013/pricing/



draxolotl said...

Paul, here's their math if you are careful enough to actually read what the article says:

The Fusions cost $34056, which is 53% more than the Chargers. So, $34056/1.53 = $22259 for a Charger. So, a Fusion is $34056-$22259 = $11797 more expensive than a Charger. $11797 x 1053 cars = $12.42 million. (My result is a bit different from the $12.2 million, probably due to rounding.)

So, they could have been a bit more clear and said "It would cost $12.2 million EXTRA to replace the fleet with hybrids Fusions vis à vis Chargers." Remember that this is in the context of Ballard's order that all vehicles in the fleet will be replaced, so we are buying SOMETHING no matter what.

The extra expense of $12 million for buying the hybrids VERSUS buying the Chargers would be covered by $15 million in fuel savings.

Poorly written article in the IBJ, but they are right.








draxolotl said...

Oops, the difference was because I transposed digits. It should have been 1035 vehicles, not 1053.

$11797 x 1035 = $12.21 million

My mistake. But the premise of the IBJ article was still right.

Paul K. Ogden said...

First of all, draxoloti, you simply accept the $15 million (actually $15.9 million) in fuel savings is correct. That is obviously not correct. The only way you can get to that number is if the 1,035 new hybrids are driven 63,000 miles per year.

As far as the cost of the Dodge Charger, you're right that I had those numbers wrong. I made the mistake of taking the price of the Fusion 34,056, that it was 53% of the cost of the Dodge Charger and assuming the Charger cost $18,049. But the Fusion costs 53% more than the Charger so the multiplication is actually a little different than what I did and it does render a cost of $22,259. I am making adjustments for the corrected cost of the Charger.

But in my calculation, I account for BOTH the cost of the Charger and Fusions. When you look at that, the resale value of both and ACTUAL fuel savings instead of the pie in the sky number they use which is clearly wrong, the purchase of these hybrids will cost the taxpayers millions more than the fuel savings.

Indy Rob said...

Here is a different way of approaching the savings.

Per consumer reports, the hybrid-fusion gets about 37 mpg, the v-6 charger gets about 24 mpg.

In 150,000 miles, the fusion uses about 4100 gallons, the charger uses about 6250 gallons, the fusion uses about 2150 less gallons of gas.

Based on this, the hybrid makes sense if the premium is less than $8600 (assuming an average gas price of $4 gal).

Since the difference in price is more like $12,000, unless there is a huge difference in residual value after 150,000 miles, this purchase makes little sense.

Paul K. Ogden said...

Thanks, Indy Rob. I used 40 mpg for the hybrid and 25. You looked up the actual numbers and found they were 37 and 24. I agree the purchase makes no sense.

draxolotl said...

Here is an expression for the number of miles that need to be driven per year per vehicle to make the hybrid a worthwhile purchase:

m = d/((1/a-1/b)pn)

where m = miles per vehicle per year,
d = difference in vehicle price,
a = regular car mpg,
b = hybrid mpg,
p = the price of gas, and
n = number of years of use

So, what I am getting is, assuming 37 mpg for the hybrid and 24 mpg for the Charger and $4 gas, you would need an average of 40240 mi/veh*yr for the hybrids to be worth it.

According to the claimed fuel use in the IBJ article, you can infer that Public Safety drives about 53000 mi/veh*yr !! As someone who walks to work, that seems extreme to me. That is 146 miles per day per car. Does every city employee drive to Bloomington for lunch every day?

The rub is, the article says "public safety's annual use of 2.3 million gallons of fuel". Public safety, as stated earlier in the article, actually has 2075 vehicles. If that is the number, they drive 26602 miles per vehicle per year, which is much more reasonable, but then would require $6 gas for us to come out ahead (which is not out of the question, by the way, but that is a separate discussion.) So why are they talking about 1035 vehicles? That is where I'm confused. Maybe there is some fuzzy math, but I still stand by my assertion that it is not 100% fuzzy as Mr. Ogden made it out to be.

Paul K. Ogden said...

I realize, draxoloti, they may have been extrapolating numbers based on all the vehicles at the department instead of the 1035 they want to replace. (Which by itself is a dishonest approach.) At the end of the day though it doesn't matter. You compare the miles driven and divide that by the mpg of the hybrid versus the regular fuel car then multiply by the cost of gas per gallon. The result is nowhere near the fuel savings they claim.

My calculation is that the Dept of Public Safety would have to drive 63,000 miles per year per car to get the savings they're claiming. Or gas would have to go way, way up. The fuel savings numbers are bad, bad numbers.

Paul K. Ogden said...

I realize, draxoloti, they may have been extrapolating numbers based on all the vehicles at the department instead of the 1035 they want to replace. (Which by itself is a dishonest approach.) At the end of the day though it doesn't matter. You compare the miles driven and divide that by the mpg of the hybrid versus the regular fuel car then multiply by the cost of gas per gallon. The result is nowhere near the fuel savings they claim.

My calculation is that the Dept of Public Safety would have to drive 63,000 miles per year per car to get the savings they're claiming. Or gas would have to go way, way up. The fuel savings numbers are bad, bad numbers.

Gary R. Welsh said...

I can't believe there hasn't been more scrutiny given to this decision. It's hard for me to believe that if you're laying out a lot more money to purchase the car in the first place that you're going to recover that increased cost in fuel savings. Perhaps, but I think it should have been studied more thoroughly. I also wonder how the batteries in these cars, which are very expensive to replace, will hold up given the type of use they will experience by law enforcement. The article mentions that they expect to trade them out before the life of the battery expires but that's assuming they will get the life out of them that other motorists get out of them.

draxolotl said...

Your assumption that city vehicles are driven 10,000 miles per year is very, very conservative to say the least. The average American car is driven 12,000 to 15,000 miles per year, and public safety vehicles (e.g. police vehicles) are on the road much more than that. As we have both already stated, this all hangs on accurate data regarding Public Safety's mileage use per car. If we can get that number from an honest, unbiased source, it is an easy calculation that any 7th grader can do (and using the expression I gave you a couple comments ago, it doesn't matter how many cars you are talking about; what matters is the mileage use per car.) Otherwise, it is pure speculation.

What we should do, is do the math to figure out how many miles you need to drive per year for the hybrid to be a good purchase. Then, identify the cars that drive more than that number of miles and replace THOSE cars with hybrids.

Racoon said...

Gary Welsh remarks: "I can't believe there hasn't been more scrutiny given to this decision"

Just imagine the level of scrutiny they've given to a $1.3 billion mass transit investment....

Racoon said...

draxolotl:

I haven't tested your equation yet (I'll assume it works OK), but I suspect it merely calculates a "boundary" - sort of a 'break-even point' or a point of indifference between two choices.

It does not, however, include a cost of money factor. That would place a cost on the higher up-front cost of a fleet of hybrids vs. gasoline-powered vehicles.

Your formula also implicitly assumes no other cost differences exist -or will be found- between the two vehicle types. That's a very risky assumption.

Pete Boggs said...

This is the Mo-G mindset (blind-set), that government is an actor; an investor, developer, chauffeur, mommy, daddy....

The party of responsible, Constitutionally restrained (enumerated powers), small government, does not exist.

Indy Rob said...

Some more city dishonesty/stupidity. The city is comparing the current gasoline usage to only a predicted usage for hybrids and not comparing what would happen if they just buy the non-hybrid version of the fusion.

The starting issue is that the city has an ageing fleet of crown vics which probably need to be replaced;these crown vics get about 14 to 15 miles per gallon. At 45,000 miles per year, each one of these crown vics uses 3000 gals per year, a new fusion (non-hybrid) that gets 26 mpg (consumer reports) and would use about 1730 gals for the same annual mileage, a ford-fusion hybrid that gets 37 mpg and would use about 1216 gals for the annual mileage.

There is already a significant reduction in fuel costs going from the crown vics to non-hybrid fusions (about 1270 gals for 45,000 miles), but the city is planning on spending an extra 12,000 per vehicle to get an additional savings of 514 gallons.

The extra cost of the hybrids is not justified by the fuel cost savings.


Pete Boggs said...

HIgh-bread?