Comparing resale prices and total cost of ownership for gasoline, hybrid and diesel passenger cars and trucks

Abstract

Turbocharged direct injection (TDI) diesel and hybridized electric gasoline (HEV) vehicles provide higher fuel economy, but have higher manufacturing costs and sell at higher prices than conventional gasoline vehicles. All other attributes being equal, rational consumers expect to recover this price premium in fuel savings over the vehicle lifetime. Since many owners sell their vehicle after three to five years, resale prices should also reflect fuel savings. Here, we employ data from used vehicle auctions in 2008–2009 for paired alternative and conventional vehicles to compare the difference in resale prices to the expected fuel savings and the five-year cost of ownership expressed as the net present value (NPV). To estimate resale prices,we group the auction data by season and by year. We then correct for accumulated odometer mileage, which accounts for most of the variability in prices. At five years, higher fuel economy vehicles retain a higher proportion of their initial price than conventional options. The ratio of the resale value to the initial purchase price increases at higher fuel prices. For the paired HEV – conventional passenger vehicles, the difference in resale prices approximates the expected future fuel savings. The price difference for TDI diesel–gasoline pairs exceeds the fuel savings; other attributes such as performance or prestige may account for this difference. Regardless of the mechanism, the fuel savings and higher resale values compensate for the price premium for the TDI diesel and HEV options.