As gas prices soar near or past $4.00 per gallon, all of us are feeling the pain at the pump. When we see the cost at the pump spiraling to $50, $60, $70 and more for a fill up, I’m sure many of start to think with longing about the possibilities of owning a more fuel-efficient vehicle. So the question becomes does it make financial sense to trade in our current vehicle for a more fuel-efficient car? Will we really be saving money?
I recently attended a local auto show and had the opportunity to check out a new Toyota Prius. Seemed like a really nice vehicle. More room than I would have suspected for a car that size. And you have to love 51 miles per gallon. Would it make sense to trade in my current gas guzzler for a new fuel-efficient Prius? Does the math work out? Will I really be saving money?
Let’s say that I currently drive a large dually pickup that gets a dreadful 10 miles per gallon. The average person drives around 12,000-15,000 miles per year. We’ll guess on the high side and say I drive 15,000 miles each year. Would it be a good move financially to sell my truck and buy a new Prius? I’d be gaining about 40 miles per gallon. Certainly, I would come out ahead on that at $4.00 per gallon. Well let’s do a little simple math and see.
If I drive 15,000 miles in my pickup at 10 miles per gallon that means I’ll need to purchase about 1,500 gallons of gas each year. At $4.00 per gallon that means I am paying about $6,000 a year just for fuel.
Now, let’s say I was driving that new Prius instead. To travel that same 15,000 miles I’ll only need to purchase about 300 gallons of fuel. Again at $4.00 per gallon I’ll only be spending about $1,200 on fuel.
That’s a $4,800 a year savings. That’s pretty impressive.
But now I have a payment on my new Prius to figure in. The Prius I sat in at the auto show cost about $25,000. If I got a 60 month loan at 3% interest my monthly payment would be about $450. For 12 months that’s $5,400.
Uh-oh. So I’m paying out $5,400 in order to save $4,800. That means I’m going about $600 in the hole each year. That’s not such a good deal after all.
I also skewed this example to try to make it as favorable as possible. Chances are pretty good your current vehicle gets more than 10 miles per gallon. Gas prices have spiked to $4.00 but they haven’t averaged that over the past year. Plus 15,000 is actually a little more than what the average person drives. In reality most people would likely only be saving maybe $1,000 to $2000 per year. Any new car payment is going to be considerably more than that.
Now, that said there is another possibility. Consider a quality used vehicle . If you do a little shopping around you can find a good fuel-efficient pre-owned vehicle for a fraction of what the new Prius cost. In fact you could very possibly purchase a used fuel-efficient vehicle that would give you a payback in a year or two.
If you want to do the calculations for your specific situation, it is really pretty simple math.
(# miles you drive each year divided by how many miles per gallon your vehicle gets) times the current gas price equals your yearly fuel cost.
Calculate this for your current vehicle and the vehicle you are considering purchasing and subtract. This will give you your annual savings.
If you aren’t sure how many miles you drive per year just record your current odometer setting and then drive as you normally would over the next month. At the end of the month check to see how many miles you have driven. You can multiply that by 12 to get an estimate of your annual miles driven.
So should you buy a new fuel-efficient car and ditch your old gas guzzler?
If you want to do this because you think it’s good for the environment, then sure maybe you want to go ahead.
If you just want a new vehicle and want to choose something more fuel-efficient, you can do that as well.
But don’t try to justify buying a new car based on the fact you are going to save on fuel. The math just really doesn’t work. A reasonable used car though? It is possible that you might be able to justify the purchase of a fuel-efficient used car over a period of a year or two. Though even that might be pushing it on fuel savings alone. You’ll simply need to do the math for your circumstances.
Bottom line. If you are in the market to replace your vehicle anyway, then it makes good sense to include fuel-efficiency among the considerations. But even as painful as the trips to the pump are these days, fuel efficiency alone isn’t likely to save you enough to make the car pay for itself.