Toyota Prius is selling for more than MSRP. Is it worth the price?

May 16, 2011 12:15 PM

Car pricing comes down to supply and demand, and right now, shoppers are demanding more fuel-efficient vehicles to deliver financial relief. As a result, the market is seeing incentives evaporate on many small, thrifty vehicles. Likewise, used-car prices on small models have risen, and trade-in values on older, gas-guzzlers are down. Nationwide, we’re seeing the popular Toyota Prius sell for hundreds above MSRP. What’s a car shopper to do?

Checking with TrueCar.com, we see that the Prius is transacting for about $400 above retail here in Yonkers, NY. In principle, it is painful to pay over sticker price, as we are all so programmed to negotiate like it is a full-contact sport. But if you really can’t face another $80 fill up, it might be worthwhile.

Before rushing to the dealership, take a deep breath and look long term. As we explored through our multi-post series on car downsizing, there are two main strategies for reducing your cars’ costs: short-term (with significant compromises) and long-term (greater potential returns).

If you must save money immediately, and quite frankly, many motorists are in this situation, then you have to assess your current vehicle’s trade-in value. To truly save money, you want to buy a replacement that is as close to that number as possible. In other words, you don’t want to sign up for an expensive car loan that will put you further behind the eight ball. After all, rushing into a few years of car payments really isn’t delivering the short-term gains this shopper needs. The answer here will be downsizing at least one vehicle class and engine class, if possible, while looking at used models that are recent enough to have contemporary safety features (stability control, curtain air bags) and have many reliable years of service left. Needless to say, this shopper will not be buying a new Prius.

If you can look long-term, consider what your vehicle needs will be for years to come. Historically, people would hold on to a car bought new for about five years. With the struggling economy, this time has extended to six years. The longer you hold on to a car, the less it costs per year to own, on average. So, plan to hold on to your next ride at least six years, if not longer. We have recently tested a first- and a second-generation Prius, each with more than 200,000 miles on the clock and both performed quite closely to our original test cars. The Prius has proven to be quite a reliable, too, based on our Annual Auto Survey.

While you need something frugal today, choose a model that will serve your needs over time and be enjoyable to own. Once you sift through the list of candidates that perform well in Consumer Reports testing, are safe, and reliable (an exercise that takes just a minute with our New Car Selector tool), then dig in to the Owner Costs.

Owner Cost information, available on the model pages at ConsumerReports.org, predicts the costs for depreciation, insurance, maintenance and repair, and fuel economy for up to eight years. After all this, it wouldn’t be surprising if the Prius tops on your list. Which brings you to today’s burning question: Is it worth paying above sticker price for it?

Maybe.
Our past analysis has shown that trading in a 2006 Ford Explorer on a new Prius would pay off. At about the three-year mark, the annual owner cost of the Prius would dip below the already heavily depreciated Explorer, then provide increased savings from there. Paying extra for the Prius will put this sweet spot back slightly, especially with the Explorer trade-in value heading in the wrong direction, but the long-term strategy would add up.

Another reasonable approach would be to wait out the current storm. Let Prius production catch back up with demand and target a year-end model this summer or hold out for a 2012 Prius. Incentives will likely return, and it is also likely the trade-in value on the Explorer may edge back up, especially as winter approaches in the Snow Belt.

Remember, the Prius isn’t the only fuel-efficient car on the market. There are many others that may not have the same production limitations and still deliver considerable ownership cost savings over your old gas guzzler. (See our list of most fuel-efficient cars and best values.)

There are many scenarios and personal ambitions surrounding car purchasing. Focus on your goals, and do the research to ensure you are accomplishing those goals on your timeline. Where the numbers can run away from you is when you focus on the pump price rather than your car’s depreciation rates and trade-in values.

In the end, your satisfaction counts for much. I, for one, would not be satisfied paying a premium for a product that I know will soon drop in price.

Learn how to save fuel now and choose an thrifty new or used model in our guide to fuel economy.