LSU Hybrid Vehicle Study Examines Financial Benefits, Fuel Economy

08/02/2013 10:00 AM

BATON ROUGE – Don Chance, James C. Flores Endowed Chair of MBA Studies and a professor in the LSU Department of Finance, recently co-wrote an article published in the book “Energy Finance and Economics: Analysis and Valuation, Risk Management, and the Future of Energy.” The article, “Financial Analysis of the Purchase of a Hybrid Consumer Vehicle,” examines the benefits and costs of 15 vehicles that exist in both hybrid and standard combustion versions.

According to Chance, the study began as a classroom illustration in his MBA course and was co-written by LSU Flores MBA graduate Pratik Dhar and Betty Simkins, a professor of business and finance at Oklahoma State University.

With gas prices steadily climbing, many consumers consider the advantages to driving hybrid vehicle, Chance stated. He added, however, that the fuel economy is only financially beneficial to a minute class of drivers, including taxis, delivery services and other commercial vehicles.

“Even high mileage consumers such as commuters, however, would rarely benefit, because they typically spend more of their time on the highway, in which case the combustion engine does most of the work,” Chance said. “Thus, the only high mileage situations that can be justified are businesses that put in most of their miles in cities.”

Additionally, the authors found that the financial advantage of large SUVs, even at low gas prices and average mileage use, is not due to energy savings but to the relatively smaller markups on the hybrid versions of those vehicles. This was deemed a counterintuitive result.

“The hybrid versions of these vehicles are more expensive than their standard versions,” Chance explained. “Given their already high prices in standard form, manufacturers are clearly reluctant to mark them up much more. These large vehicles are no more efficient than the smaller ones. They simply have a lower markup to overcome.”
Ultimately, the study indicates that consumers buying hybrid sedans should be aware that even after energy savings, those vehicles are generally several thousand dollars more expensive.

Wiley published “Energy Finance and Economics: Analysis and Valuation, Risk Management, and the Future of Energy” in February as part of the Robert W. Kolb Series in Finance. The book is billed by the publisher as providing “a comprehensive look at this topic by examining the areas of valuation, analysis, and risk management that are associated with it and including timely discussions about the future of energy.”

The Department of Finance is a Chartered Financial Analyst, or CFA, Program Partner and a Certified Financial Planner, or CFP, Board-Registered Program that offers high quality curricula to undergraduate and graduate students interested in careers in corporate finance, asset management, real estate, insurance, banking, financial planning and business law. The department boasts internationally renowned research faculty in several areas, including derivatives, asset management, banking and spatial econometrics. The department’s Securities Markets Analysis Research & Trading Lab boasts the Bloomberg Professional service, the platform used by more than 300,000 leading business and financial professionals worldwide to make informed business decisions, and an extensive library of financial data bases including the Wharton WRDS System. Additionally, the department encourages, supports and conducts research in real estate by housing the nationally renowned Real Estate Research Institute.


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Wendy  Marx 
E. J. Ourso College of Business

Posted on Friday, August 2, 2013