Best time to buy a hybrid car: Right now

Prices are dropping and most still have tax incentives. But it may end by summer, Edmunds.com says.

By Peter Valdes-Dapena, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- If you're thinking of buying a hybrid car, this would be a good time to act on that impulse, according to a pricing and cost analysis by the automotive Web site Edmunds.com.

To cover the expense of the complex systems, auto makers tacked big price premiums onto the hybrid versions of their cars, and those premiums usually outweighed the savings in gas costs.

2008 Mercury Mariner Hybrid
The 2008 Mercury Mariner Hybrid is available with a $2,600 federal tax credit.

"In the past, our research showed that the 'True Cost to Own' a hybrid vehicle was exorbitant," said Alex Rosten, Manager of Pricing and Market Analysis for Edmunds.com.

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Now, however, federal tax incentives can cover much of the cost difference. And the supply of hybrid vehicles is beginning to exceed demand, resulting in bigger negotiated dealer discounts and cash incentives from manufacturers.

Tax credits running out

In order to support the purchase of hybrids without giving too big a boost to Japanese manufacturers, which already sell most of them, Congress set up the hybrid tax credit plan so that it covers only a certain number of vehicles from each maker.

Once a given manufacturer sells more than 60,000 credit-eligible vehicles, tax credits for that company's vehicles start being reduced and ultimately eliminated.

Toyota is now offering rebates and discounts to make up for lost tax credits.

In some cases, the rebates and discounts amount to more than than the tax credits would have been worth.

For example, because Toyota is past the sales limit, the tax credit for purchasing a Prius has dropped to $1,575, from $3,150 in September 2006. Next month, it will be halved again, to $787.50.

But the cost of buying a Prius has already dropped even more. On average, a Prius purchased this month cost about $3,300 less than one purchased at the end of last year, according to Edmunds.com.

Factoring in the tax credit, a Toyota Camry Hybrid purchased now should cost about $23,118, according to Edmunds True Market Value. That's about the cost of a mid-range V6 Camry or top-of-the-line 4-cylinder version.

Prices for other hybrid vehicles are falling as well, but not as fast. Tax incentives for those vehicles, like the Ford Escape and Mercury Mariner Hybrid, remain high, however.

Some state and local governments also offer tax incentives to purchasers of hybrid vehicles.

In addition, some corporations, such as Bank of America, offer cash incentives for employees who purchase hybrid vehicles. Some insurance companies, such as Travelers and Farmers Insurance Group, offer discounts to drivers of hybrid vehicles.

Prices likely to rise

Hybrid prices probably aren't going to stay low for long, though, Rosten told CNNMoney.com.

Summer is coming and car prices, in general, are firmer during the warmer months when more people are out shopping for cars, Rosten said.

Gasoline prices also tend to rise during the summer. That's going to cause people to look harder at fuel economy, giving an extra boost to hybrid demand.

So, if you're in the market for one, these next few weeks probably provide an ideal opportunity to buy a hybrid vehicle, Rosten said.

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.