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Tax credit running out for hybrids

Incentives phase out after 60,000 sold

By Martin Zimmerman | Chicago Tribune Newspapers

July 1, 2008

The U.S. government offers tax incentives that can save consumers thousands of dollars when they purchase a hybrid vehicle. But buyer beware: The three most popular hybrids sold in America either no longer qualify for the tax break or are about to see it reduced sharply.

On Tuesday, the tax credit on the No. 3-selling Honda Civic hybrid will be cut in half, to $525. It will disappear at the end of the year.

The credit on the Toyota Prius, once $3,150, and for the No. 2 Toyota Camry hybrid, vanished in the fall.

According to the 2005 federal law that established the credit, the tax break begins to phase out after a manufacturer sells 60,000 qualifying vehicles. Because of heavy demand for the Prius, Toyota reached that benchmark early in the program.

Honda also hit the limit last year, and the tax credit on the Civic hybrid began phasing out Jan. 1.

The Prius and Civic rank first and second in fuel economy among cars for sale, according to the government, with combined city-highway ratings of 46 m.p.g. and 42 m.p.g., respectively.

So far, the diminished tax breaks don't seem to be hurting sales of the Prius or the Civic.

"Maybe one in four of our customers even knows about the tax incentive," said Marc Canon, a spokesman for AutoNation Inc "Fuel economy is what's bringing them in."

Without tax breaks, it takes longer for fuel savings to make up for the cost of a hybrid's complex gasoline-electric powertrain.

For example, a 2008 Camry hybrid sells for about $4,000 more than a regular Camry, according to a study by Kelley Blue Book. With gas at $4.50 a gallon and no tax credit, it will take 6.4 years to make up the cost difference, the study found.

The Nissan Altima hybrid costs about $4,400 more than its non-hybrid but is eligible for a $2,350 tax credit. The payback period is 3.7 years, according to Kelley.

"Many consumers don't do the math," said Eric Ibara, director of market valuation at Kelley Blue Book.

Los Angeles Times