Fuel-Efficient Or Financially Prudent

By Michelle Singletary
Sunday, May 25, 2008

Watching television recently, I was amused by a motorist who said that all he could do about soaring gas prices was to close his eyes and pump.

There are some things you actually can do to reduce your costs -- and fuel consumption -- such as driving slower and taking the junk out of your trunk. But Consumer Reports has released a warning about one gas-saving tactic that might end up costing you more money.

If you're thinking of trading in your gas-guzzling vehicle for a more fuel-efficient ride, do the math -- because the savings you're hoping for at the pump might be negated by the price you pay to replace your car.

The high cost of gas is changing the way some people are shopping for a car, according to a survey of Michigan AAA members. Gas mileage was ranked as the No. 1 criterion that auto club AAA members said they would use in deciding their next car purchase. Next came make and model, safety features, performance, seating capacity and technology features.

I understand that paying upward of $4 a gallon is making your heart pump faster, but that pales in comparison to the several thousand dollars you may have to shell out for another car.

"While we support the downsizing trend in principle, we caution consumers to look at their long-term owner costs and not rush to make a change they may later regret," said Jeff Bartlett, deputy auto editor at ConsumerReports.org.

Here's the problem -- at least in the short-term -- with trading in your car for one that's more fuel-efficient. You have to take into consideration several factors, including depreciation and finance charges.

Let's start with depreciation, or the value your car loses over time. If you've had your car for only a few years -- three or less -- it's not worth the savings in gas to trade it in because you take a big hit on its declining value, Bartlett said.

Depreciation makes up about 48 percent of an average owner's total vehicle costs in the first five years of ownership, according to Consumer Reports. Fuel cost averages about 21 percent of your vehicle ownership.

And then there's the finance charge. If you're two or three years into your current loan, you would be trading up to several more years of car payments, plus interest.

Let's look at an example laid out by Consumer Reports. Suppose you have a 2005 Ford Five Hundred SEL V6 sedan that gets 21 miles per gallon. You want to trade it in for a 2008 Toyota Prius hybrid, which gets 44 miles per gallon. The per gallon mileage figures are based on Consumer Reports' fuel-economy test results.

Let's assume you drive about 12,000 miles every year. At $3.75 per gallon (and, of course, this national average might change by the time you read this), you'll pay about $2,000 in gas this year driving the Ford, according to Consumer Reports estimates when it did these calculations. If you owned the Toyota, your fuel bill for the year would be about $1,000.

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