Drive Time
Junk Your Gas Guzzler?
There's nothing like $100 fill-ups to put your big bruiser on the endangered list.
By Mark Solheim, Senior Editor, Kiplinger's Personal Finance
August 2008
Large-SUV sales have plummeted 30% this year, large pickups have dropped 22%, and nonluxury large-sedan sales are off by 24%, according to J.D. Power and Associates.
Motor City can't shut down truck and SUV assembly lines fast enough, and General Motors may put the suddenly uncool Hummer brand on the chopping block. Owners of trucks and SUVs are trading them in (when the dealer accepts them) at a breakneck pace.
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Switching to a fuel-efficient car seems like a no-brainer -- for reasons both environmental and economic. But before you shop, crunch the numbers. A smaller fuel footprint makes financial sense if you're going from a bruiser to a fuel sipper. But trading to a vehicle that offers a marginal gain in fuel economy might not pay off anytime soon.
When bigger is better. The numbers don't compute when, for example, you trade a relatively new crossover S'V with so-so gas mileage for a new, small crossover with pretty good gas mileage. That's because cars typically lose 40% to 50% of their value in the first three years of ownership, and interest on a car loan is front-loaded.
Let's assume you bought a 2006 Honda Pilot two years ago for about $29,000 with a five-year, 6% loan and 10% down. Your monthly payments are $505. The average trade-in price today is $18,070, and you still owe $16,590 on the loan. The six-cylinder Pilot gets only 17 miles per gallon in combined city and highway driving, so you're thinking of trading it in for a 2008 four-cylinder RAV4 Limited, which gets 22 mpg.
Sell the Pilot and pay off the loan, and you have $1,480 left over. The RAV4 costs $25,590. The money from selling the Pilot goes toward the down payment, but you finance an additional $1,300 for taxes, title and tags. To keep the comparison nice and neat, let's assume you use a 36-month loan, which will be paid off at the same time as the Pilot loan would have been. Your monthly payment will increase by $268 a month.
Your new loan payments run $3,216 more a year; but at $4.04 a gallon, the annual fuel cost of the RAV4 is $806 less, assuming you drive 15,000 miles a year. After considering the resale value of each vehicle in three years and adding in the estimated cost of repairs once the Pilot is off warranty, you'll be about $1,700 poorer if you buy the RAV4.
When smaller is better. But say you want to trade in an iconic guzzler, a 2006 Chevy Tahoe LS (15 mpg), for a 2008 Nissan Altima S (26 mpg). Again, assume you bought the Tahoe two years ago, for $37,000 with a five-year, 6% loan and 10% down, and your monthly payments are $644. As gas prices rise, new and used S'V and truck prices fall, so the average trade-in price now is only $16,195. And after two years, you still owe $21,160 on the loan.
The Altima will set you back at least $20,000 (after a $1,000 rebate from Nissan), so you need to come up with a $5,000 loan payoff plus about $1,100 for taxes, title and tags to complete the transaction. If you roll all that into a 36-month loan with no money down, your monthly payment will increase to $769 a month (that's with Nissan's 3.9% financing). That's about $1,500 a year more than the Tahoe payments, but at $4.04 a gallon, the annual fuel cost of the Altima is $1,709 less than for the Tahoe. After weighing the value of each vehicle in three years and adding in the estimated cost of repairs once the Tahoe is off warranty, you'll be more than $2,000 ahead with the Altima.
What if. Trading in is more lucrative if your car loan is paid off. And if you buy an inexpensive urban warrior or a used car that is also fuel-efficient, you're likely to come out ahead pretty quickly. And this analysis assumes that gas prices will stay around $4 a gallon. If they go up, your cash flow and smugness factor will rise that much faster.
Reader Comments (23)
Posted by: Teni at 07/22/2008 09:05:06 PM
What if the Suburban is paid off and you only drive it 10K a year? It makes more sense me to buy or borrow a little used car that gets in the range of 30mpg for runs to the store etc... but keep the Suburban.
Posted by: stupidme at 07/25/2008 09:57:29 AM
i purchased a KIA Sportage 2005, i have only 9700 miles on it. i am now retired for 2 years. paid it off in march of this year. i love the size, style, room, handling BUT the gas mileage is between 12-13 miles to a gallon which when i bought it - it stated 19 gallon city driving. that is what i drive the most. suggestions besides never buy a KIA again.
Posted by: seyelda at 07/25/2008 11:05:21 AM
Stupid me---if you are only driving 3000 miles a year keep your Kia. You will be many dollars ahead than if you trade.
Posted by: jj at 07/25/2008 11:52:05 AM
Get a tune up
Posted by: Damdifino at 07/25/2008 11:57:44 AM
My daughter wants a big truck. I figure since they're practically giving used ones away, I can afford to run lots of gas through it with the money I save up front.
Posted by: Nick at 07/25/2008 12:39:19 PM
Every journalist keeps writing about how switching to a more fuel efficient car doesn't save any money. They are missing the point. They should look at other factors such as environment and dependence on middle eastern oil and factor that into the cost savings.
Posted by: smartguy at 07/25/2008 01:19:29 PM
Buy a motorcycle for a thousand bucks and get 60-70 mpg. I use my Kawasaki 250cc for short trips and commuting. Gas prices could double and not hurt me.
Posted by: George at 07/25/2008 03:03:58 PM
The problem is if gas goes down to $3.50 or less your savings go away real quick and if large vehicle is s better fit for your life then you lose both the savings and benefits of owning the larger Tahoe or Pilot. Keep your current vehicle drive a little less and when you have your SUV paid off in a couple years you have a better understanding of what the different fuel options are.
Posted by: Brad at 07/25/2008 08:52:32 PM
Careful w/ your motorcycle. More people are riding them that shouldn't be. Lost 2 dear friends in the last two months (and they were experienced riders). Buy a diesel and run bio diesel. It's $5 per gallon but you get 45-50mpg w/ the VW Beetle. Or do like me and get an older mercedes and run filtered veg oil for free. Each dollar saved at the pump is a few cents not going into al quaida's pocketbook! Don't let oil companies & car makers pull the wool over your eyes. Also, go watch "Who Killed the Electric Car".
Posted by: Gumby at 07/26/2008 02:10:39 PM
The author apparently think like static. He assumes that the gasoline price is a constant as far as trading in marginally better fuel efficient cars. He forgets that even only a 5 mpg difference in every car trade-in can contribute greatly to the supply and demand balance of oil cosumption. I would assume that if everyone trades in the gas guzzler for either a maerginally better car or super efficient car, the accumulated effect on the everyday demand would be a lot lower and will push oil price down considerably. We could end up paying only $2.50 for gasoline when all is said and done . That will not be all, we will have to stick with future purchases of super efficient cars forever.
Posted by: Chuck at 07/27/2008 08:24:51 AM
I agree with George. Dive a little less. Walk a little more. Use public transportation when possible. Carpool if you can.
Posted by: Jay at 07/27/2008 12:38:50 PM
My Dodge Viper is not getting traded in anytime soon.
Posted by: Gumby at 07/27/2008 01:44:25 PM
George Why settle for $3.50 a gallon? We can aim for $2.50 or less a gallon. We cant get there even at $3.50 if we keep business as usual buying gas guzzlers.. never !!....Faceit.. The world is driving more cars and trucks and America has no choice but to start driving fuel efficient cars. We are going to war to maintain our import quotas now at 70% of our daily usage. Fuel efficient cars probably can push it back down to something like 40% or so. We cant just say heck lets drill for oil off San Francisco and Miami and we will keep on buying SUVs and PickUps. This is a Russian roulette simnple as that...
Posted by: Pete at 07/27/2008 04:42:39 PM
Do what I did. I parked my Buick and bought an 18 year old Ford festiva. Say what you want, but argue against my gas mileage. 4 tank average: 42 MPG. Granted it's not for everyone, but a small, used gas sipper like mine is perfect for commuting and errands (and it's a blast to drive). These things can be gotten cheap enough to make having them rebuilt attractive (it's what I'm doing) and they let you save a fortune on fuel that can be put towards other expenses.
Posted by: Tom G at 07/27/2008 11:29:01 PM
I get 20MPG on my 3500 dodge diesel which I need to pull my 30 ft fifth wheel and 20ft bass boat.[11MPG then] I think I would have a hard time using anything less and would be a hazard on the highway. Total energy cost to the country would be much more for anything more also. I'll keep what I have and enjoy my lifestyle.
Posted by: Stanley at 07/27/2008 11:30:43 PM
We've been through Gas issues before the mid 70's then the 80's all man made Hocus Pocus same this time, they will screw around with the public, stop making trucks which is stupid to start with for a while then people will figuare out that this is here to stay, go back to the way they were and they will forget all about it. Gas companies will drop gas a little more (in price) to make themselves look good...who's kidding who here? I own an old S10 I can pull 40 miles to the gallon without trying...and bought an older GMC Suburban. I love it and again just because its a big truck doesnt mean its a so called GAS GUZZLER....Another thing there are soldiers saving this country every day bless them and yet the GAS companies are trying to hold this great contry of ours HOSTAGE. I for one are just a bit ticked off being held up by a gas pump,4 bucks to mow your lawn...
Posted by: TS at 07/29/2008 01:12:02 PM
Tom G, I live full time in my 5th wheel and primarily stay high up in the mountains with huge snow storms in the winter, getting rid of my truck was also not an option. Its a necessity! When I started paying more in gas than food,rent, and payments combined (back when it was $3/gal) something had to change. I got a new motorcycle and love it! Total operating cost including refresher MSF course, new gear, tires, gas, payments and insurance is under 35% of gas alone on the truck averaged over last 11 months and 25K miles on the bike. And I always have the truck for pulling the trailer and snow days.
Posted by: rower30 at 07/30/2008 09:36:31 AM
S10 and 40MPG? Ya, right. Need a 3500 Dodge diesel to pull a trailer? Funny, we pulled a big trailer all over with a 1965 Dodge Dart...and so did everyone else (Darts, Comets, ETC)... There is no reason to even own a lot of the bigger cars. The Corolla is as big as Camary was a few years ago, and gets significantly better real world mileage. Lighter cars are also MUCH safer than they were with high strength steel and air bags. Crash tests prove this out both in labs and on the roads. Bigger is still better, but by no means where it was ten years ago. I own a Ford Focus and a MB E320. Guess what is much more fun to drive and gets good gas mileage? 40MPG at 70MPH and 35MPG in town. The E320 does 28MPG on the highway and 22 in town (it is HEAVY) but needs at least mid-grade fuel at a premium price so its cost per mile is no better than my 16 year old Ford Ranger pick-up was burning regular and getting 23MPG AT BEST highway, and a dismal 15 in town. Motorcycles? My BMW R100RT gets 43MPG at 70 MPH and about 50MPG at 60MPH. Add the hysterically high cost of tires ($130.00 each and maybe 8,000 miles, batteries, fluids and such and it COSTS me money to drive it. You have to drop to 400cc or less before the benefits iron out. There is no magic to this, 4,000+ pound S10's and Ranges don't get 40MPG. Neither to 3,700 pound E320's even with CD below 0.28. A pick-up is 0.38 at best to 0.45 on average. The good news is, several good small cars exist that will get 40MPG on the highway that are not hybrids, and are affordable across a wide feature to price point. The low end has Fits, and there like, the mid range has the Focus and their likes, and the upper end has the Corolla and their like. All are good small cars that are about 2,200 to 2,800 pounds, making in-town mileage realistically 30MPG. I'm not sold on the Prius or hybrids. Go off the battery in any longer drives (no brakes) and you're stuck with a HEAVY car that has too little power and who's mileage will drop to below 20MPG...and stay there till you get back in town and regeneratively charge the battery with the brakes, and get back on the electric. I do not drive in-town to work but 30 miles each way with maybe three stops. The battery will go flat day one and stay there the way I drive.
Posted by: Michaklis at 08/01/2008 01:53:01 AM
Completely stacks the deck by assuming 5-yr loans on the guzzlers and 3-yr on the gas-savers. Then compares the monthly cost. Are people really fooled by this?
Posted by: Don Cunningham at 08/13/2008 02:22:34 PM
I keep my 1997 Landcruiser(15 mpg) for ski season and occasional towing. It is much more valuable to me than the market value. I drive 95% in my 2006 mazda 3 (33 mpg) - bought it three ago years ago to save gas- not to save money.I have been pleasantly suprised.I pay cash for cars but if financed this mazda would pay for itself (vs.fuel for the Landcruiser). My wife has a 2003 Acura MDX and I would not change it to save on gas-no savings there. I keep records on the number of gallons of gas I buy each month and in the last three years it is down from 105 gallons to 48 gallons per month. We live at 7600 feet altitude in Colorado- the 4WD's are a necessity at times.It is less cost to keep the 11 year old Landcruiser and Mazda 3 for my use than to swap the two for one vehicle which would meet my needs.
Posted by: hebrew1969 at 08/16/2008 11:48:27 PM
The best car is the one that is paid for. If I wanted to double my gas mileage, it would easily cost me $2-300 p/mnth. Given my current monthly fuel bill of $77, that increase hardly justifies a car loan even if my driving increased by 200%. Think about it, if you expect to make car payments forever, well, yeah, it makes sense to switch to a higher mpg vehicle, but otherwise, you're blowing money for nothing; just to make the Green Jihad happy.
Posted by: jack groshans at 08/18/2008 10:07:28 AM
The bottom line is this..if you have a car that is paid off..the price of gas is of no issue..don't be conned into buying a car that saves gas, because now you have a car payment, higher excise taxes, higher plate fees, higher insurance premiums and you still have to buy gas. Forget the mumbo-jumbo you just read. Keep your old car..as long as it is safe for the family...don't concern yourself about being GREEN, nobody really cares about that anyway, if they did they wouldn't own cars in the first place. Buying into the story will only cause more money problems that you don't need.
Posted by: JakeHilfter at 06/07/2009 07:06:25 PM
Hi, good post. I have been wondering about this issue,so thanks for posting.