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Hybrid cars may not be green machines

Battery-powered cars may be better for the environment, but not for consumers’ wallets, says “Today” financial editor Jean Chatzky.

If you tuned into the Academy Awards, you saw stars making statements with more than their glamorous dresses. The new trendy item? Their cars — not limos but hybrids. Naomi Watts and other celebrities abandoned the traditional stretch to ride in the more fuel-efficient Lexus Hybrid. Should you follow Naomi’s lead? If your goal is to prevent global warming and save the environment, perhaps. If your goal is to save money for your future, forget it. That’s the verdict of a new study from Consumer Reports.

Hybrids aren’t inexpensive — in fact, they command a premium over the same cars in their plain-vanilla versions. But according to the magazine’s April issue, just two of the six hybrids tested (the Toyota Prius and Honda Civic) will save buyers money at the end of a five-year period. Even the two that do provide some savings after the five-year period only do so if the owner receives a limited federal tax credit (more on that in a moment.) Note: Originally the magazine said that none of the six cars recovered their price premium, even with the tax credit. They revised it but noted in a prepared statement, “The error does not affect the main message of the story, which is that most hybrids do not save their owners money in the first few years.”

The questionable economic benefits notwithstanding, hybrids are growing in popularity. They accounted for 1.2 percent of auto sales last year, more than double its market share in 2004. And they’re moving as fast as manufacturers can roll them in.

“Except for a few models, whatever is on the lot is pretty much being sold within a month,” says Mike Chung, an industry analyst at Edmunds.com, an automotive information Web site. “Individuals who think you can get a real steal or great bargain on a hybrid (are kidding themselves.) That won’t happen for a while.” But while you may not be able to find a bargain, you can still be a smart shopper. Here’s what you need to know to play the hybrid game:

Timing is keyWait too long to buy a hybrid and you may not be eligible for a new federal tax credit worth up to more than $3,000. The tax law that put these credits in place states that they’ll begin to phase out once a manufacturer has sold over 60,000 eligible vehicles. Toyota is expected to hit that number sometime between June and October — which means if you want one, you’d better act fast. Honda is not expected to hit its limit until the end of this year or beginning of 2007. And experts expect the tax credit on Fords to be available into 2007.

To find out what the estimated tax credit is for the different models, go to aceee.org/transportation/taxcredits06.pdf. Note that these credits are different, and may provide even more savings, than the $2,000 income tax deduction given in 2005. Also, these credits are estimations by the American Council for an Energy-Efficient Economy. The IRS has not released exact figures yet.

Consider all expensesHybrids cost more to buy than the same models in the plain-vanilla gas-guzzling variety. The premium you’ll pay varies by model from about $2,000 to more than $8,000. Your gas savings, even coupled with the tax credit, generally does not recover the premium. “You may be saving $30 to $40 a month (the cost of one tank of gas for a typical driver,” says Chung. “But is it worth a $4,000 or $5,000 premium?”Other hybrid expenses may also be more than you’d expect. Insurers often charge more. You’ll likely pay more for repairs and maintenance because most owners go to dealerships, which generally charge higher prices than mom-and-pop mechanics. And since you pay more for the vehicle, you will also pay more in financing charges.

Finally, hybrids usually depreciate the first five years more than their all-gas counterparts. Consider all these expenses when deciding if the extra premium is worth it. Shop around for insurance. Some companies actually provide discounts on hybrids. Ask local mechanics if they have credentials in hybrid training. Compare APRs at different dealerships as well as from independent sources of financing including credit unions (which are surprisingly competitive on auto loans) to get the best rate.

Take into account your driving habitsAsk the dealership or search websites such as Edmunds.com, http://www.fueleconomy.gov/ or ConsumerReports.com to find out where each hybrid gets better gas mileage — in the city or on the freeway — and choose a model that matches your driving routine. For example, the Prius performs much better in local driving because it runs of only its electric engine, says Chung. It gets 60 miles per gallon in the city and only 51 on the highway. The Honda Civic and Accord Hybrids, on the other hand, may be better for heavy highway commuters.

Also, how many miles do you drive a year? If you drive a ton -- around 40,000 miles per year — you may save enough in gas to break even.Jean Chatzky is an editor-at-large at Money magazine and serves as AOL's official Money Coach. She is the personal finance editor for NBC's "Today Show" and is also a columnist for Life magazine. She is the author of four books, including "Pay It Down! From Debt to Wealth on $10 a Day" (Portfolio, 2004). To find out more, visit her Web site, .