Cost Benefit Analysis

Hybrid Cars
Presented by
Mukesh Kakkar
Jeff Graebner
James Lepp

Agenda

What is Cost Benefit Analysis (CBA)

Costs and Benefits
Applications of CBA
Steps involved
Process Flow
Hybrids
Functioning
Consumer opinion

Cost & Benefits

Benefits are
primary positive
outcomes or
consequences

Costs are value

of the resources
that must be
used to develop,
implement, and
operate the
program being
analyzed

Application of CBA

Whether or not project should be

undertaken
Could the project be viable in
future
Which among many competing
alternatives and projects should
be funded given a limited
budget.

CBA Drill-down tree

Cost Benefit
Analysis

Costs

Direct Costs
( resources budgeted)

Benefits

Indirect Costs
(not budgeted)

Tangible Benefits

Intangible Benefits

revenue

Positive benefits

Personnel

Lost time

Goodwill

Facilities, equipment,
and materials

litigation

Knowledge gained

Other

Health/Pension
benefits

Attitude Changed

Opportunity Cost

Process improvements

Benefits to society
and environment

Negative benefits

CBA Process Flowchart

Establish Objectives
Identify Constraints

Identify Assumptions
Define Base case
Define Alternatives

Set Analysis period

Define level of effort

Estimate benefits and cost
relative to base case
Evaluate risks
Compare net benefits
and establish ranks
Recommendations

Hybrid Vehicles

Functioning

Opinions- facts or fiction

Gas Prices
Gas Price

Gas Price ($)

3
2.5
2
1.5
1
0.5
0

Year - Quarter

Regressions

Moving Average
Simple Regression
Holt-Winters
Multiple Regression (3)
Time Series Decomposition
ARIMA

Multiple Regression

Dependent Variable

Gas Price

Independent Variables

Significant

Consumer Price Index (CPI)

Average number of miles traveled per vehicle
9/11 dummy variable
Hurricane Katrina dummy variable
War in Iraq dummy variable
Quarters dummy variables

Insignificant

Total number of hybrids on the road

Total number of light vehicles on the road
Personal Income
Motor Vehicle Output

Statistics
Audit Trail -- Coefficient Table (Multiple Regression
Selected)
Series

Standar
d

Included

Description

in Model

Coefficien
t

Gas Price

Dependen
t

-13.76

1.63

-8.44

Error

T-test

CPI

Yes

0.05

0.01

9.88

Miles Vehicles
Traveled

Yes

0.00

0.00

6.89

9/11

Yes

-0.16

0.04

-3.74

Katrina

Yes

0.25

0.07

3.57

Iraq War

Yes

6.23

0.92

6.79

-0.01
Value
0.11
-73.65
0.04
-72.47

0.04

-0.27

0.04

3.00

0.04

Overall1.00

Q1
Accuracy Measures
Q2
AIC
Q3
BIC

Yes
Yes

Yes

Mean Absolute Percentage Error

(MAPE)

2.38%

R-Square

97.78%

Adjusted R-Square

96.60%

F-test
82.68

Forecast

Year

Gas Price

2006

$2.73

2007

$2.91

2008

$3.19

2009

$3.47

2010

$3.75

Vehicles Used in Study

Ford Escape Hybrid

Ford Escape

Honda Accord
Hybrid

Honda Accord

Honda Civic Hybrid

Honda Civic EX

Lexus 400 Hybrid

Lexus RX 330

Toyota Highlander
Hybrid Ltd

Toyota Highlander
Ltd

Toyota Prius

Toyota Corolla LE

Benefits of a Hybrid

Savings at the Pump

All Hybrids get a better fuel economy than their counterparts
Lower Insurance Rates

Drop of 5 to 10%

Government Assistance

Federal Tax credit

Coase Theorem

Lower Emissions

Less Carbon Monoxide adding to Global Warming

Self-Powering Engines

Take a decentralized approach to environmental pollution

No hassle in finding a plug

Special Car-Pool Lanes

No matter how many people are in the car

Costs of a Hybrid

General Maintenance and Repair

Even though it does have an electric engine it is still
needed
New Batteries
Need to be changed out every 8 to 10 years
Higher Depreciation Rate
Expected as 1 to 4% higher
Higher Initial Cost

Between $4,000 and $9,000

5 years

Inside the Numbers

Honda Civic
Hybrid (50)

Purchase price
(Automatic)

Honda Civic
EX (28)

$22,400

Hybrid extra
cost or
savings

$18,444

$3,956

Sales tax (7%)

1,568

1,291

$277

Tax credit

2,100

$2,100

Fuel cost (5 yrs)

4,468

7,979

$3,511

Insurance (5%
savings)

4,670

4,916

$246

Maintenance &
repair

4,163

4,163

$0

Financing (3%)

3,568

2,938

$630

Five-year
depreciation
rate

56.10%

Projected resale
price

9,832

with federal tax

credits
w/o federal tax

53.00%
8,669

$1,163
$2,156

Inside the Numbers (Continued)

Miles
Driven

Year

Carbon
Monoxide
Emitted

Honda
Civic
Hybrid

Honda
Civic EX

50

28

2006

15,000

274,950

5,499

9,820

2007

14,500

265,785

5,316

9,492

2008

14,000

256,620

5,132

9,165

2009

13,500

247,455

4,949

8,838

2010

13,000

238,290

4,766

8,510

25,662

45,825

Total Carbon Monoxide Released

The Results
Model (mpg)

Manufacturer
Ford
Honda
Honda

Escape Hybrid
(33)

Escape (23)

Accord Hybrid
(28)

Accord (25)

Civic Hybrid (50) Civic EX (28)

Costs/Savings
with taxes

$3,871.42

without taxes

$2,450.58

-2

with taxes

$3,251.84

-3

without taxes

$3,901.84

-4

with taxes

$2,156.36

$56.36

with taxes

$4,296.78

-4

without taxes

$6,496.78

-6

with taxes

$2,953.00

-3

$6,074.62

-6

with taxes

$1,493.43

without taxes

$4,141.38

-4

without taxes
Lexus
Toyota

Toyota

RX400h (30)

Rx330 (25)

Highlander
Hybrid Ltd
(30)

Highlander
Ltd (25)

Prius (55)

Corolla LE
(34)

Points

without taxes

The Results (Continued)

Carbon Monoxide
Saved

Model (mpg)

Amount

Points

Manufacturer
Ford

Escape Hybrid (33)

Escape (23)

38,882
Honda

Accord Hybrid (28)

55,787
Accord (25)

Lexus
Toyota

Toyota

Civic Hybrid (50)

Civic EX (28)

25,662

45,825

RX400h (30)

Rx330 (25)

42,770

51,324

Highlander Hybrid Ltd

(30)

Highlander Ltd (25)

42,770

51,324

Pirus (55)

Corolla LE (34)

16,905

5,499

20,163

8,554

8,554

51,324

45,825
Honda

The Results (Continued)

Costs/Savings

Model (mpg)
Manufacturer
Ford

Escape Hybrid
(33)

Escape (23)

Accord Hybrid
(28)

Accord (25)

Civic Hybrid
(50)

Lexus

RX400h (30)

Toyota

Honda
Honda

Toyota

With Tax
Without
Savings Tax Savings
Included
Included
9

-1

Civic EX
(28)

Rx330 (25)

-4

Highlander
Highlander
Hybrid Ltd (30) Ltd (25)

-4

Pirus (55)

Corolla LE
(34)

Questions

"An unsophisticated forecaster uses statistics as a drunken man

uses lamp-posts - for support rather than for illumination."
Andrew Lang