Buying a New Car to Save Gas – Does it Make Sense?
These days many people, sick of the rising price of fuel, are looking at buying a new car to save gas. That’s all well and good, buy does taking the major step of buying a new car just to save at the pump actually make sense? After all, just the hassle of dragging yourself around to various dealerships for an afternoon of abuse seems like a high price to pay, let alone the opportunity cost, depreciation, and interest that go along with a new car purchase.
I decided to look into the whole question of buying a new car just to save-gas, because while I would love nothing more than to buy a new car, I find the process of actually doing so kind of revolting, and the thought of increasing my debt on a depreciating asset such as a car seems like financial suicide. Not to say that I don’t like cars. As you can tell from my frequency of automotive related posts, I actually love cars, but like many other loves, my attraction for things of a motorized nature has little to do with their financial appeal.
The first thing you have to examine is your current vehicle. Obviously that will have a tremendous impact on your decision. The gas mileage of your existing vehicle, how much you pay for insurance, it’s age and weather or not it’s nickel and diming you to death all enter into the equation. For the purposes of this discussion I’m going to choose a basic, 5 year old family sedan that actually gets pretty good gas mileage.
Let’s say you’re driving a 5-year old Honda Accord EX. It was one of the best selling cars in 2003 and there are sure plenty of them out there. The EPA combined fuel economy rating, revised for the new stricter standard is 25mpg. If you drive 15,000 miles per year you’ll burn 600 gallons of regular consume.
One note here:
Do not waste your money by burning premium fuel for this car. The manufacturer doesn’t recommend it, and as long as you’re using top tier gas, regular grade fuel has basically the same detergent additive package, so it will keep your engine just as clean as running premium. Only spend extra money to buy premium gas if your vehicle’s manufacturer recommends that you do so.
Back to the Accord. 600 gallons of regular will cost you roughly $2,460 at current prices. Yes, I know that the prices will probably go up by the end of the year. They’ll probably go up by the end of the month. Lets say you were to trade in the Accord in on another Honda, the winner of my Top 10 Best Gas Mileage Cars (You Can Drive Every Day) Civic Hybrid. Now the Civic Hybrid gets 42mpg combined according to the EPA ratings, so for the same 15,000 miles you’d burn 357 gallons, at a cost of roughly $1,463. This means that you’ll save almost exactly $1,000 in annual fuel costs by switching to the Civic Hybrid over your old Accord.
That’s great, but you have to look at the other costs associated with the transaction. For one, your Accord, if you bought it new is paid off, or just about to be. That means from a pure cash flow basis you’ll be way behind by taking on monthly car payments of $455, assuming you could actually get a new Hybrid for the list price of $23,270, delivered. That also assumes you got a loan at today’s average auto loan rate of 6.48%. Honda actually has special 1.9%, 60 month financing for those who qualify, so you may be able to lower that to (only??) $413.
Average trade in for that car is $9,794, meaning you financed $13,476. If your Accord was paid off and you traded it in, your monthly payment would drop to an almost palatable $264. Edmunds.com lists the average annual cost for insurance, depreciation, and maintenance on the 2003 Accord LX as $3,200. Add that to the annual fuel bill of $2,460 for an annual cost of $5,660.
For the Civic, it’s much, much higher, mostly due to depreciation. Weather a hybrid will still depreciate at current rates is debatable, but there’s only past history to go on, so that’s what I used. Depreciation, maintenance, and insurance for the new Civic Hybrid totals a staggering $22,752 for the first 5 years of ownership. Over $12,000 of that sum is due to depreciation. The 5 year annual average is $4,550 + the fuel cost of $1,463, and the annual interest of $469, for a total annual cost of $6,582.
SO, it’s almost $1,000 cheaper annually to continue driving you old Accord, at least until you start having to fix things. If you have to replace a starter, timing belt, water pump, wheel bearing, CV joint or any one of the dozens of things that can go wrong on a used car as it goes past 150,000 miles, the equation could swing back in favor of the new Civic Hybrid.
For right now if you’ve got a similar car to the Accord, or something that costs less to operate and own, I’d say it isn’t worth it to buy a new car to save gas. If you’re driving a big truck or a car with a big V-8, I’ll see you at the Honda dealership!
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