Gas Prices and Hybrid Cars
Every now and then you’ll see a scene in an old movie where gasoline is advertised for 20 cents or certainly below a dollar a gallon. It might seem impossible, but it wasn’t that long ago that gasoline prices were considerably less. I can still remember those kinds of prices and an occasional gasoline price war in the small Midwestern town where I lived my first seventeen years. I never knew what precipitated that kind of local pricing strategy but it was usually short-lived and always exciting while it lasted. Back then, miles per gallon were seldom calculated, except when it came to cruising on a Saturday night and dating. You always had to budget an extra dollar or two for all that weekend fun. If you need more documentary evidence or a memory jogger about prices go to www.randomuseless.info/gasprice/gasprice.html. This personal web site documented over 1,003 personal gasoline purchases from 1979 through 2005 at various sites around Texas. The site owner also makes an interesting correlation between the price paid per gallon at the pump versus the real value of the purchase using a dollar adjusted to “April 1979 dollars” using the “Consumer Price Index-All Urban Consumers for all items less energy” interpolated to the actual purchase dates. According to that data, by 2005, when the average price of a gallon of high test was at a record $3.20, the real adjusted price was only about one dollar a gallon. It is still a better deal than we want to acknowledge. Although tanks have gotten smaller on most vehicles in an effort to lower vehicle weight and improve vehicle fuel efficiency, just like my teen days, we are budgeting again and the pump prices have changed considerably. Now I hear the woes and feel their pain when my friends with SUVs with duel tanks shell out $200 or more for a fill-up. Purchases at that level often mean that gasoline for a month costs more now than the SUV payment. As a gentle reminder, the Federal government now requires automobile manufacturers to determine the fuel economy of all new vehicles offered for sale in the U.S. This information, provided on a fuel economy label affixed to each vehicle’s window helps consumers make informed decisions regarding fuel economy when purchasing a new vehicle. While these labels may vary somewhat in appearance, they must all provide the same information. A complete list of current US vehicle ratings can be found at www.fueleconomy.gov.
With fuel prices rapidly changing, the government made another move on September 9, 2005. The IRS announced that the standard mileage allowance for which employees may be reimbursed (miles driven on behalf of their employers without taxable income) has been increased to 48.5 cents per mile for miles driven after August 31 through the end of 2005. Mileage for the first eight months of 2005 could be reimbursed at 40.5 cents per mile. The standard mileage rate is the maximum amount an employer can reimburse an employee for business-related driving without creating taxable income to the employee.
Along with gasoline price issues, the 2005 hurricane season disruptions taught us that we also have to think about gasoline supplies and availability. Will it ever end? The answer is most certainly, no!
One possible solution that is emerging and getting more press everyday is the hybrids. By my account, there are about 10 notable hybrid vehicles on the market at this writing. The champ of the automobile group for several years has been the Toyota Prius, with Honda offering several units of note—the Honda Insight and the newly revised Honda Accord Hybrid. The Prius however, remains the champ, with reported sales in 2004 of 53,991 according to a recent survey reported by Wired magazine. The Prius has an EPA rating of 60 city and 51 highway miles per gallon, although real driving may be in the mid-40s. If you aren’t ready to give up the SUV, Ford has a compromise vehicle that might be just right for you. The Ford Escape SUV hybrid uses a 70-kW electric motor in combination a 4 cylinder 2.3 liter gasoline engine. This power combination provides an effective 155 horse power which is nearly the same power provided by a regular V-6 gasoline engine. The numbers on this Ford model are quite respectable, with 36 city and 31 highway, and you get stowage and a four wheel drive option. The neatly tucked-away battery doesn’t compromise stowage and it has an 8-year warranty to help take away some of your jitters. The Ford Escape Hybrid beat out all SUV’s in 2005 to be named the 2005 North American Truck of the Year. None of these vehicles are in abundant supply, but production is increasing, and new models are on the horizon. The government continues to encourage you to buy these vehicles by providing tax incentives. The $2,000 tax deduction attached to many of the vehicles will expire on December 31, 2005 and will be replaced by a smaller $500 tax deduction in 2006.
It does seem clear that we must make better decisions about when, where and how much we drive, but if a new automobile or SUV is on your current shopping list, you might want to consider a hybrid and put that process in overdrive for December 2005. Your government is making an offer you shouldn’t refuse!
If you have comments or suggestions, or an idea for a future computer or business topic, e-mail me at Jimmy@CapitalConsultant.net or Jimmy@InsideAnnapolis.com. Jimmy R. Hammond, CPA, is a resident of Annapolis and a consultant to businesses in Annapolis, Baltimore and Washington D.C.