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SCOTT BURNS

At 46 miles per gallon, you can drive this investment to the bank

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May 3, 2008

According to the trip meter on our 2003 Prius, my wife and I have covered the last 2,200 miles at an average of 46.1 miles per gallon. That's pretty typical of the mileage we've enjoyed since buying the car five years and 62,800 miles ago.

Back then we wanted to accomplish two things. We didn't want to be a major part of the increasing Dallas air pollution. And we wanted to declare our personal energy policy of importing less.

Don't get me wrong. We're not tree huggers. We just think health and survival are great motivation for change.

The Prius we bought was the funny-looking one, not the sleek 2004 model that has become so popular.

When I first wrote about the car, many readers sent "yes, but" notes.

Yes, but what about the expense of the battery?

Yes, but what about the premium you pay for the car - will you ever recover it?

We were willing to take a chance on the battery. And at its delivered price of $20,055, we didn't see that we were paying a big premium over other small cars. We also put a value on the fact that it was quieter than most small cars, that its continuous variable transmission was smoother, and that it had climate-control air conditioning not usually found on $20,000 cars.

When we bought it, our expectation was that it would cut our gasoline consumption by about 500 gallons a year, saving us $750 a year based on the $1.50-a-gallon price of gasoline at the time. (Those were the good old days!) If gasoline prices rose to $2 a gallon, as many expected, we might save $1,000 a year.

Figuring $3.20 a gallon - well below the current national average price of $3.63 - the Prius is saving us more than $1,600 a year of after-tax income.

It's interesting to look at that savings in terms of what you'd have to invest to enjoy the same income. An investor in the 25 percent tax bracket buying a 10-year Treasury obligation, recently yielding 3.76 percent, would have to invest $56,738 to get the same net cash benefit. At the end of the 10 years, if inflation averaged 4 percent, his original investment would have lost about a third of its purchasing power, providing more depreciation than income. And he wouldn't have had transportation.

We figure, by the way, that we saved the $3,500 cost of a replacement battery in the first 30 months or so of driving. The battery, like the rest of the car, is doing fine. So a big "yes, but" question is behind us.

The Prius, over the same 10-year period, will depreciate more than a Treasury obligation - probably about 70 percent - but it will also have provided transportation. According to autotrader.com the recent average offering price of the 49 used 2003 Priuses for sale in the entire country was $14,309. The NADA value for a clean retail car is $13,600. That's dirt cheap for five-year depreciation.

Scott Burns is a syndicated columnist. He can be reached at scott@scottburns.com.

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