You think it might be time to dump your highway-hogging SUV for a new and green hybrid or a smaller, used car. But giving up the gas guzzler may not be as cost-efficient as you think. If you still have money left on your loan, trading in your SUV could hurt your wallet more than it helps. In this article, we'll discuss the fuel economy and ownership costs of new, energy-efficient cars and used small cars to help you determine whether going green makes financial sense or whether you're just spinning your wheels. (To read more about your carbon footprint, see Carbon Trading: Action Or Distraction?)
The Price of Newness
Maybe you're addicted to that new car smell - and who can blame you? No spray or cardboard air freshener can mimic it. For many people, however, a new car is second only to a home as their most expensive purchase and the decision to buy a vehicle requires careful consideration.
The fuel savings of switching from an SUV to a new small or hybrid car can be tempting. With high gas prices, fuel savings can top $2,000 per year on smaller vehicles. But consider that your shiny new auto sinks in value by nearly 45% three years after you drive it off the lot. (For more insight, see Top 10 Ways To Get Top Dollar For Your Car.)
The Bright Side of Buying New
A tight economy can mean a little leverage, if you're open-minded. While dealers are hawking big incentives for large vehicles that are losing the green popularity contest, you may still have negotiating power on smaller cars. The key is to stay flexible: dealers are keeping fewer cars on the lot, so if you're willing to choose from available inventory, you have a better shot at haggling for a deal.
In the realm of the hybrid, on the other hand, there are no green bargains to be had. Low inventory - and in some cases, customers signing on to wait lists - send your bargaining leverage out the window. (To learn more about gas prices, see Getting A Grip On The Cost Of Gas.)
What justifies the extra cost for a hybrid? The 2002 report, Guidance for Transportation Technologies: Fuel Choice for Fuel Cell Vehicles, prepared for the U.S. Department of Energy, lists the average manufacturing cost for a small-battery, mid-sized vehicle at about $11,000 and the cost of an energy-efficient hybrid at $12,000 - not a whopping difference. But when hybrid sales jumped 141% in 2005, dealers could gleefully slap a premium on their sticker price. Hybrids cost more than their standard counterparts simply because of higher demand and good marketing. (To learn more about hybrid costs, read Hybrids: Financial Friends Or Foes?)
Pre-Owned and Prized
Sometimes, buying used can be buying green. Late model cars like the Toyota Corolla, Honda Civic, Ford Focus and the MINI Cooper can average more than 30 miles per gallon. And with a used car, you'll lower your overall ownership expenses on items like collision insurance and taxes. (Keep reading about car insurance in 12 Car Insurance Cost-Cutters and Beginner's Guide To Auto Insurance.)
Of course, fuel-efficient cars may not depreciate in value as quickly as their less-efficient contemporaries. That's bad news if you're shopping around, but good news later on, when you choose to sell.
When you're looking for green in a used car go for fuel efficiency, four or six-cylinder engines, and lower horsepower. These factors add up to lower gas usage, which translates to lower costs and lower emissions.
The Gold Standard
The first hybrid to be sold mass market in the U.S. was the Honda Insight in 1999; the Toyota Prius arrived on the scene in 2000. If you can find one of these early models, it may be the Holy Grail of car purchases: the cost-savings of a used car and the fuel-efficiency of a hybrid.
|Model Years and Miles per Gallon
In 1975, Congress responded to the 1973-1974 Arab oil embargo by enacting the Energy Policy Conservation Act, which mandated that car manufacturers increase the fuel economy of cars and light trucks. National Highway Traffic and Safety Administration charts of Corporate Annual Fuel Economy (CAFE ) standards since 1978 indicate that fuel economy stabilized at 27.5 mpg in 1990. So when you seek a used car with decent fuel economy, you can look as far back as 1990s models to find one.
To compare the impact of buying a new vehicle or hanging on to a gas guzzler, you need to plug some numbers into an equation that considers the cost of your new vehicle, the value of your trade-in, the fuel efficiency of the new vehicle and the old one, the average number of miles you drive each month and the cost of gas.
In general, the newer your trade-in, and the more money you owe on it, the less it pays for you to replace your vehicle. For example, consider buying a brand new 14 mpg Nissan Xterra versus an older model 40 mpg Toyota Prius. If you drive 10,000 miles per year and gas costs $4.50 per gallon, then you buy 714 gallons of gas with the Xterra but only 250 gallons with the Prius. Looking at the gas savings, you'll pay $1,125 annually for gas with the sedan, versus the $3,213 with the Xterra, a difference of more than $2,000 per year. But if the Xterra cost $25,000 and the trade-in value after three years is $14,000, you've lost $11,000 in three years. Factor in the Xterra loan payoff and the benefits of fuel savings can disappear. In other words, it you own the Xterra, it may not be worth trading it in, at least from a financial perspective.
Save by Maintaining
If the numbers don't add up to justify a trade-in, you can still save money when you're on the road. Putting these tips into effect can lower the fuel and maintenance costs on any vehicle.
- Tires: Keep tires inflated to the recommended pressure (printed on the inside door frame of the car or in your owner's manual). Every three pounds below the recommended pressure lowers your fuel efficiency by 1%. Tires lose about one pound of pressure per month. By keeping your tires properly filled, you could save up to 130 gallons per year.
- Air Filter: A clogged air filter can decrease engine efficiency by 10%. A new one could help you save 60 gallons of gas each year.
- Speed Limit: Extra speed means extra wind resistance, which makes the car work harder and use more gas. According to the Environmental Protection Agency, every 5 mph you push the pedal over 60 mph decreases fuel efficiency by up to 7%. Drive slower and you may conserve more than 50 gallons of gas per year.
- Tune Up: A poorly tuned engine can increase gasoline consumption by as much as 4%. Regular tune-ups and oil changes help with fuel economy and can save you 25 gallons per year.
- Weight: Excess weight costs you money: an extra 100 pounds can reduce fuel economy by 1%, so don't leave unnecessary items in your car or use it for storage.
If you follow the tips above and you enter into your decision-making process with the bottom line as the biggest factor, you should be on the road to savings in no time. However, the decision to replace a car is never just about money, and a change of heart about a vehicle may go beyond just the price of gas. You may be rethinking the potential havoc emissions wreak on the atmosphere or you may want to voice your opinion about the role of oil in international relations. Giving up a large vehicle to go green may not make financial sense, but if your motives are environmental or political, money may be no object.
InsuranceFind out how to make your portfolio and the companies in it greener.
EconomicsGreen investing is the new buzz word for companies and investors. Find out what it means.
Options & FuturesPut a little green in your wallet by investing in these growing areas.
EntrepreneurshipLearn about how the Marketplace Fairness Act may impact small business owners should it pass in the House and what the act requires from business owners.
SavingsIf you're an aficionado of artisanal brews (or would like to be), a beer club can be a palate-pleasing, albeit pricey, way to expand your hops horizon.
Stock AnalysisIs DKS a bargain here?
Stock AnalysisUrban Outfitters just made a bold move. Will it pay off?
Stock AnalysisWalmart is enjoying a short-term rally. Is it sustainable? Is Amazon still a better bet?
SavingsSome points to consider, before committing to a membership for yourself – or as a gift. The right club can also help you save money over the holidays.
Stock AnalysisMany traders are bearish on Kohl's, but long-term investors might want to take a closer look for this simple reason.
You can only purchase NetSpend reload packs at Giant Eagle, Albertsons, Roundy's and Pathmark supermarkets. NetSpend cards ... Read Full Answer >>
While your auto insurance company cannot pull your full motor vehicle report, or MVR, it does pull a record summary that ... Read Full Answer >>
In microeconomics, utility represents a way to relate the amount of goods consumed to the amount of happiness or satisfaction ... Read Full Answer >>
There are many ways to achieve product differentiation, some more common than others. Horizontal Differentiation Horizontal ... Read Full Answer >>
An original equipment manufacturer (OEM) is a company that manufactures a basic product or a component product, such as a ... Read Full Answer >>
Generally speaking, the retail sector is highly seasonal. Almost invariably, sales in the retail sector are highest in the ... Read Full Answer >>