Press Room

CRES BLOGGERS

April 18, 2006

by Tom Konrad, CRES Treasurer

I started by looking at hybrids. After all, I love my Prius to a degree most people reserve for friends, family, and pets. While another Prius would not be big enough to haul the occasional sheet of plywood for my woodworking hobby, and lacked 4WD for Denver snow, there are now four distinct hybrid SUVs on the market that would do quite nicely.

So my wife and I looked at the Ford Escape and the Toyota Highlander.

I did extensive web research.
We took test drives.
We got sticker shock.

Value for money is very important to me. In fact, it is a central passion in my life. As an investment advisor, I know that finding great companies is not particularly difficult. Great companies are all around us. Finding a great company that’s also a great value is another thing altogether, but that is where the real money in investment is made.

The problem with all the hybrid SUVs out there is that they are targeted at the luxury market. Rather than using hybrid technology to primarily boost efficiency, the makers instead decided to focus on power. The end results are fun to drive, but the relatively small boost to economy does not justify the increase extra $8,000 to $9,000 you can expect to pay when you leave the dealer’s lot.

At current gas prices, buying a hybrid SUV saves only about $0.02/mile, so the vehicle would have to last for about 450,000 miles to make back the extra cost of the vehicle, and that does not count the cost of replacing the battery pack every 100,000 miles. I believe that gas prices will continue to rise, but not enough to make the miniscule savings from a hybrid SUV justify the sticker price.

But what about the environmental benefits? Were my wife and I doomed to squander our planet’s resources just because we wanted a roomy vehicle with four wheel drive?

Then I thought of diesel. Diesel engines are more efficient than gasoline engines to begin with, and the newer “common rail” diesel (CRD) engines start quicker and create less particulates than the old diesel engines we remember from the last gas crisis. Using B20, or 20% biodiesel, further reduces emissions, and since it comes from soy and canola, it is renewable, and the amount of energy necessary to make it is lower than the rather controversial ethanol.

While it is possible to cook up biodiesel from used cooking oil, I have neither the time nor confidence in my rusty chemistry skills to try that for myself. Fortunately, we have a local company, Blue Sun,
(www.gobluesun.com) that pays farmers to grow soy and canola for use in biodiesel, and sells it through about 15 gas stations throughout Colorado, including in Denver, Boulder, Golden, Fort Collins, Colorado Springs, and Pueblo. My only complaint about Blue Sun is that it’s private, so I can’t invest in it.

I would have to plan my fill ups (although I could use regular diesel in a pinch), but it would be quite possible to fill up with B20 most of the time, with a little planning. As an added benefit, I would know I was aiding the distribution of a renewable energy technology. My B20 purchases would encourage the expansion of the biodiesel-at-the-pump network, to the point where it wouldn’t just be compulsive renewable energy advocates like myself who fill up with B20.

I had a vision of a day when every gas station had a biodiesel pump, and diesel engines running on B20 were as popular as…, well, as popular as hybrids are today, with people paying way too much for them.

There was only one thing to do, and I looked up diesel SUVs on my favorite car research site, www.Edmonds.com , looked under diesel SUVs…And found the Hummer H1.

My heart sank… until I scrolled down the screen.

Below the Hummer, looking very out of place, was the Jeep Liberty. Apparently Daimler decided to equip a few models from its recent Chrysler acquisition with their diesel engines. It was a match made in renewable energy heaven, as far as I am concerned.

I ended up paying about $25K for my Jeep Liberty CRD, or about $8,000 less than I would have paid for a comparably equipped Ford Escape Hybrid (the Toyota costs more.) I’ll be spending about 50% more for fuel for the Jeep than I would be spending had I bought the Escape, but it will be 100,000 to 200,000 miles (depending on how quickly fuel prices rise) before the extra fuel costs add up to $8K.

In addition, diesel engines last longer and need less maintenance than gasoline engines, and using biodiesel only adds to their longevity. Hybrids, on the other hand, need an expensive battery pack replacement around 100,000 miles.

How does the diesel Jeep Liberty compare to the base model? Fuel for the diesel engine costs about the same as gas for the standard V8, because B20 currently costs more than regular gas, although the diesel gets about 20% better mileage. There are some savings in maintenance for a diesel engine over a gas engine, and the vehicle will probably last longer, but unless diesel prices fall, it probably won’t make up for the extra cost (about $2000… the diesel option costs more than that, but the current high cost of diesel fuel meant that the salesman was happy to get it off his lot, and I had more bargaining power.)

I paid about $2000 over the base model Jeep so I could feel good. People buying Hybrid SUVs are also paying extra so they can feel good, too. I think that’s wonderful, but even when you’re paying extra to feel good about your purchase, it’s important to keep in mind how much extra you are paying.

Is my Jeep better for the environment than the Escape I didn’t buy? Probably not, but it’s not much worse, and I can leave that $8,000 I saved invested in one of my favorite renewable energy companies. The earnings may even pay for that extra $.04 a mile I’m spending on B20… it would only require a 5% return if I drive 10,000 miles a year.

Tom Konrad, Ph.D. is CRES Treasurer, and an Investment Advisor with AIG Financial Advisors. AIG Financial Advisors is a registered broker-dealer and SEC registered investment advisor. Tom can be reached at (303) 748-0209 or tom@tomkonrad.com.