Act Fast Before Tax Incentives for Hybrid Cars Expire

Time is running out and hybrid car buyers only have until the end of the year to get their tax credit for buying a Honda Civic hybrid, one of the more popular fuel saving vehicles on the market. The expiring tax credit is the latest in a series of changes chipping away at the financial incentives to buy a hybrid. Tax breaks tied to Toyota's popular Prius, which gets over 45 mpgn, and its other hybrid models ended about a year ago. Now the federal government is phasing out the similar incentives on the Honda Civic hybrid, which gets 42 mpg.

Combine that with the fact that fuel prices have fallen from their historic highs above $4 a gallon this summer, and it's getting a lot more expensive to be an environmentally conscious driver. Hybrid tax incentives start to go away when a car maker sells its 60,000th vehicle, a level Toyota reached mid 2006 and Honda hit in third quarter 2007. The amount of the tax credit is first reduced by 50% before disappearing altogether over several months. Honda's tax credit, currently $525, will be phased out by yearend, according to the IRS. The Civic credit had been as high as $2,100 before the phaseout began in January.

Sales of hybrids, though still only about 2% of the overall market, have grown rapidly since the Prius made its debut in the US in 2000. Toyota and Honda were the first to have these vehicles in dealer showrooms when fuel prices started skyrocketing in the past few years.

Hybrids get better mileage because they pair a traditional internal combustion engine with an electric motor, which is powered by a rechargeable battery. Electric motors boost power to the regular gas engine, allowing automakers to install smaller, more efficient motors in hybrid cars. Some hybrids run on electric power alone at low speeds, further saving fuel.

Higher sticker prices and lower fuel costs make hybrids less economical than their gas counterparts because it takes far longer to earn back the hybrid's price premium through savings at the pump. Hybrids can cost anywhere from $2,000 to $7,000 more than conventionally powered cars. The Honda Civic hybrid retails for $21,954, compared with $17,820 for a conventional Civic, according to Edmunds.com, an autoresearch firm.

A Honda spokesman says the automaker has no plans to discount its Civic hybrid in light of the disappearing credit. Next year, Honda is releasing a new Insight model, expected to be priced around $19,000, much cheaper than most other hybrids, though it will not be eligible for a tax credit. In any event, many customers have grown accustomed to hybrids' prices and buy them to brandish their environmental credentials, not save money. So dealers and analysts don't expect Toyota and Honda hybrids to suffer.