Thursday, January 8, 2009

Fuel economy -- is it a real concern?

Even though the price of gasoline has moderated in the past few weeks, price increases are inevitable. One of the important factors in preparedness is evaluating the cost of our transportation needs. Gasoline price increases draw a lot of attention to fuel costs as a component of the overall cost of owning and operating a vehicle. If you are in the category of those buying expensive luxury cars, then you probably don't spend much time worrying about the gas costs. On the other hand, most of us are concerned about the extra expense of $4.00 plus per gallon gasoline.

Although most of the current car ads emphasize fuel economy, there is a real question about the relative importance of this particular component of the cost of operation. For example, if you are purchasing a $20,000 car on a contract at 6% interest, your interest cost alone, without compounding or any extra charges, would be around $1200 a year. Fuel costs would vary with the fuel economy of the car and the miles driven.

Focusing on the fuel costs, the Environmental Protection Agency has fuel economy guides for the present car years and for many past years. Even a brief review of the reports, shows that fuel economy varies dramatically. For example, minicompact cars vary from 13 mpg to 32 mpg. Assuming gas at $2.50 a gallon and an average of 15,000 miles driven per year, the cost of gasoline alone can vary between approximately $2,900 a year at the low end, to $1,200 a year at the high end. The largest range in efficiency is found in midsize cars which vary between 11 mpg on the low end, to 46 mpg on the high end. You can immediately see that any cost savings from buying a higher mpg car can be negated by the cost of borrowing money to purchase the car in the first place.

So what does it cost to own a car? The actual cost includes depreciation, interest on your loan, taxes and fees, insurance premiums, fuel costs, maintenance and repairs. Edmunds.com has a True Cost to Own calculator. For example, a standard 4 dr hatchback, 2009 Toyota Prius costs $39,236 with an average cost per mile of $0.52. This cost compares very favorably with Nissans and Hondas in the same category. By comparison a 2009 Corvette Z06 costs $101,164 and the average cost per mile is $1.35. A car like the Corvette depreciates over $9,766 in the first year alone. Even by the fifth year, the car is still depreciating over $5,700 per year. Even the Prius depreciates from $4,246 in the first year, to about $1,655 in the fifth year.

Even with gas at $4.00 a gallon, for an average of 15,000 miles per year, even if you drive a Prius (or practically any other car) the depreciation cost exceeds the cost of fuel and that staple of the Arizona family, the 2009 Chevrolet Suburban, costs, depending on the model, over $1.00 per mile to drive and loses $19,244 in depreciation IN THE FIRST YEAR alone.

Since such a large part of a family's expenses go to transportation, part of being prepared in order to survive, includes knowing the true cost of your choice of vehicles. Fuel economy is only one of the very expensive factors to consider in purchasing a car.

2 comments:

Eliza said...

Last week we heard that the price of CNG (at least in Utah) will increase 183% (or something close to that), so the price of CNG will just about equal that of gas here.

Tiffany said...

Yet another reason to not buy a new 2009 Suburban. :) A 2004 works great for us. (Too bad they don't make small cars with great gas mileage that also hold 8 people!)