Because most philosophies that frown on reproduction don't survive.

Friday, January 14, 2011

Buying A Car To Save Money

Cars that get over 40 miles per gallon in fuel efficiency are, reportedly, becoming all the rage, with more models from American and foreign car makers being introduced at the latest Detroit Auto Show.

So I got curious, having just started a 18-mile-each-way commute, what exactly are the savings one can achieve by buying a more fuel efficient car? I assumed a situation faily like mine: My car is paid for and costs me only minimal maintenance to keep up (a 14-year-old Toyota Camry) and a 20 mile each way commute.

Say you're considering buying a new car which gets 40mpg for $20,000. That seems moderately standard for these cars. Assume a 40 mile daily round trip commute, and an additional 40 miles of weekend or additional driving. Assuming a current care actual efficiency of 20mpg. Assume the price of gas goes up to $4/gal. How long would it take for you to make up the cost of that new car in fuel savings?

I calculated savings as follows:

(([Daily Commute]/[Old MPG])-([Daily Commute]/[New MPG])) x [Price of Gas]) = Daily Gas Savings

[Cost of New Car]/([Daily Savings] x 6 x 52) = Years to make up cost of car

How long would it take? 16 years.

Then I decided to go at it the other way. What changes would allow me to pay off the expense of a new car in gas savings over a normal financial window of five years?

- If the cost of a new car gets below $6,500
- If the cost of gas goes over $12/gal
- I tried coming up with an increased MPG efficiency answer, but it's impossible. Even if you could get 100,000 MPG, it would still take eight years (assuming gas prices of $4/gal) to pay off the expense of a new $20k car via gas savings. If you assume a 100MPG car and seek for the gas price which get you to break even in five years, you need a gas price of $8 per gallon.
-If you vary the length of commute, a 130 mile daily commute (assuming 780 miles per week of driving total) would allow a $20k car to pay for itself in gas savings in five years with gas prices of only $4/gal.

16 comments:

Catholic Bibliophagist said...

I think Liz Pulliam Weston came up with pretty much the same conclusion in one of her columns -- that it's almost always cheaper to keep driving your old car. Needless to say, I'm nursing along my eleven year old Saturn and dreading the day when I'll finally have to buy a new car. (Especially since Saturn no longer exists, and I'll have to go out and research new ones.)

Brandon said...

I suppose there are places where the commute option is at least almost in reach, particularly if one relaxes the requirement that the car has to pay for itself completely in gas savings alone; my parents used to commute five days a week from Carlsbad, NM to Guadalupe Mountains National Park, which is just under 55 miles one way, not counting the very occasional driving to more distant areas of the park. Not quite good enough, but starting to get at least to the point where it wouldn't be utterly implausible.

Big Tex said...

I've recognized this phenomenon also. My 10-year-old truck is paid for. My commute of 10 miles doesn't justify a new car to save money. The truck is reliable and gets close to 18 mpg on the highway.

I may consider one of these whiz-bang hybrid/electro cars once they make it in a truck and I NEED a new vehicle. (It will be a LONG time before I need to replace my truck... 10 years and two repairs. Not bad.)

Justin said...

You must be a genius. You just proved a new car is more expensive than a free car. Congratulations.

If you compared a new regular car to a comparable new fuel-efficient car, you'd have yourself an achievement.

Darwin said...

Justin,

Huh?

The question I was attempting to address is whether it is a good idea to buy a new car much sooner than one otherwise would (say in my situation where I have an old car that could easily last another 3-5 years) because of high gas prices and the fact that much more efficient cars are now available.

Obviously, if you have to buy a new car anyway, taking fuel efficiency into account is a good idea.

jenniferfitz said...

Darwin,

We had the same result when we did our calculations. We own a truck (which we use for trucky purposes) and a minivan, since we have a midsize family. We asked back when gas prices first jumped, would it make sense to purchase the spouse a tiny little commuter vehicle for use around town and to work.

Even bought used, the vehicle wouldn't pay for itself in fuel savings.

So we're still at the same set-up, though thinking of maybe trading in the minivan for a very efficient sedan or hatchback when minivan goes, and just using the truck (crewcab) if we need to get all 6 of us someplace together.

We'll see.

Anonymous said...

My commute to work is 7 miles. Since I live in southern California and the weather is always nice (70+ degrees today) I ride my bicycle to work.

What mileage does a bicycle get? No, it isn't infinite. When I ride my bike I burn calories, so I have to eat more, and growing food does require some energy input (the farmer's tractor needs gas, for example). UNESCO says that North American agriculture averages about 2.4 food calories output for every calorie of fossil fuel input. I know that I burn about 50 calories per mile when I ride. The energy equivalent of a gallon of gasoline is about 38,000 calories. So I get something like 2,000 MPG when I ride.

My bike cost a lot less than $20,000.

Joel

Anonymous said...

i think the more interesting question is how long would it take for the savings in gas to pay the difference in price between comparable fuel vs non-fuel efficient cars? buying a new car you dont need will never make good financial sense, even if it ran on free smiles and happy feelings. hopefully there will be a followup article.

im not sure what the answer is, but this article is irresponsible for claiming fuel efficient cars are "not worth it" in a meaningless scenario. oh, and im pretty sure this is also somehow responsible for loughner's actions. im just saying. for shame google reader recommended items, for shame.

Anonymous said...

i commute 62 miles each way. lucky, i bought a $6k vehicle that gets 43 mpg, just before gas prices jumped to $4 per gallon. insurance for the honda silverwing 600cc was half that of my 22 mpg aerostar van.

weekly it paid a profit of $6. (tire every 3k miles). for the win, select the right vehicle.
best regards,
kevin

Anonymous said...

You forgot to include increasing maintenance costs for the older vehicle (timing chain,water pump, struts and brakes usually need replacement at about 100k miles for example). I agree that new car would likely still be much more expensive.

JoAnna said...

Our 10+ Ford Escort had no air conditioning (we live in AZ) and sprung a leak in the gas tank. Fixing it would've cost more than the car was worth and so what it would cost to put a down payment on a new car. We opted for the new car (2011 Nissan Versa, bare bones model - no power locks or windows, manual transmission, no stereo). I commute 45 miles one-way so a reliable, safe car was paramount. The gas mileage is just a bonus.

S said...

it is absurd to look at this purely from the point of 'money'. Get a bike or atleast more efficient cars. That way you don't have to go bombing the middle-east and also do your tiny weeny bit to saving the planet.

Matthew Fedder said...

It's not a startling conclusion by any means, but it's worth reminding people who suffer from new-car-lust that the excuses they/we come up with to justify the purchase are often irrational.

Matthew Fedder said...

@"S": Cost can often be seen as a proxy for energy, and it is most definitely true in this case: A large amount of energy is used to produce a new car, probably pretty close to the amount of energy needed to drive it for an average person's ownership period.

Keeping your old car, in most cases, is far more green than paying up for a new car.

Tom said...

1. You assumed gas prices would stay constant for the whole 16 years - would there be a way to build this into the equation by taking the rise of prices from the last 16 years?

2. Anonymous is correct that maintenance prices will be higher for the old car - particularly if the new car comes with a warranty.

3. Here in the UK each car has to have a road tax license, which is a yearly fee. The fee is lower the fewer emissions your car produces - not sure if there's anything similar for you.

4. Others have pointed out that gas efficiency isn't the only bonus of having a new car!

5. Insurance may be cheaper on a new car than an older, less safe car.

I'm unconvinced, but I think what you've done is worthwhile; it's interesting to know that based on gas consumption alone, if gas prices remain at current levels, that's how long it would take.

Darwin said...

I've got to admit, this is one of those cases where a post that was just a quick toss-off gets far more attention than I expected. I get the impression that Google may be a bit part of this.

Thanks for all the comments, everyone. A few replies, though I will probably do a follow-up post in a day or two to cover some of the questions here:

Gas Prices: As several have noted, I assumed a single gas price for the calculation, which is highly unlikely given even a five year timespan, much less a 10+ one. However, I did try to cover for this by assuming a $4/gal price despite the fact that prices around here are currentlyu only $3/gal. I also tried plugging in other average gas prices. But short of writing a cute little web app in which you can set your assumptions and run a live calculation, simplicity seemed like the way to go.

Maintenance: Obviously, my 14-year-old Camry is unlikely to run another 16 years, and getting it to do so would require some hefty maintenance expenses. Right now I'm used to spending $1000 to $2000 in maintenance per year on my older car, and it's true that you're basically free of this on a new car for the first 2-3 years. Including this would be a good idea. Obviously, at a certain point, a car is just too old and broken down, and it's time to buy a new one, regardless of the equation here.

Taxes and Insurance: A couple questions from the UK on this one. Most tax and insurance incentives in the US (my experience is in California, Texas and Ohio, so elsewhere it may vary) point you towards keeping an older car. Insurance gets less expensive because it would cost less to replace an older car with a comparable one than a new car. My 14-year-old car costs roughly half as much to insure as my wife's 4-year-old one, because if my Camry is in an accident, they'd write off the car for a couple hundred dollars and be done with it, they're only worried about liability. Taxes are also usually either a flat fee or else a percentage of the car's value, which means that older car's are cheaper on taxes. (There's a lot of pressure against going the other way since poorer people typically drive older, cheaper cars and it seems unfair to tax them more than richer people with newer cars.)

Gas Savings Isn't Everything: Obviously, gas savings are not everything in deciding whether to buy a car. I wrote this piece because the idea of replacing your car in order to save on gas was in the news and, to be honest, I'm always subject to temptation to replace my car because it's pretty old and unflattering looking. If someone feels a strong moral compulsion to use less gas regardless of cost, this obviously doesn't apply. And if your car simply isn't sustainable for other reasons, than clearly getting a more efficient new car cushions the blow of buying a new one to an extent. I do still think, however, that it's probably worth being realistic about what your actual gas savings are likely to be. What I came up with here was that I could save around $24/wk on gas, or $100/month. If I was thinking of taking on a $300/mo car payment, I'd want to be clear how much of that I could actually expect to offset with gas savings.

Also, as a couple people have pointed out, it's possible to spend a lot mess money on a fuel efficient car if instead of buying one of the new, high tech, fuel efficient cars you buy a slightly older car which is still very efficient simply by virtue of being small and light.