Considering trading the gas-guzzler?
 

Don't buy that Prius until you read this.

B

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Trading in gas guzzler may cost you
Friday May 2, 6:00 am ET
Terry Jackson

Like a lot of people, you may be watching the price at the pump soar and wondering whether it's time to dump your current, less-than-efficient SUV, truck or car.
It's tempting to simply haul your 15 miles-per-gallon vehicle down to the dealership and drive out in something that gets 30 mpg or more. But that may not be smart, at least from a financial point of view.

People thinking of going this route need to take several factors into account.
For starters, your gas guzzler is worth considerably less as a trade-in than it was even six months ago. By some estimates, the value of used sport utility vehicles has dropped more than 20 percent since January.

Even if your current car is paid for, you're likely to incur new monthly payments on that fuel-efficient replacement.

Finally, it could take years to realize actual savings at the pump when other factors are taken into consideration.

Here's an example:

Suppose you have a two-wheel-drive 2001 Ford Expedition XLT. According to Edmunds.com, it is worth about $5,700 as a trade-in and gets about 16 mpg in city driving, although most owners of that model know real-world mileage is less than that.

At $3.70 a gallon for regular fuel, it costs about $97 to fill the Expedition's 26-gallon tank.

To cut that bill, the Expedition owner is looking at a two-wheel-drive 2008 Ford Escape Hybrid, which can likely be bought (assuming reasonable options on board) for about $28,000, plus taxes, title fees, etc.

The Escape Hybrid promises to deliver about 32 mpg in normal driving, double what the 2001 Expedition delivers. A fill-up of the Escape's 15-gallon tank at $3.70 a gallon would cost about $55.

But what are the real savings?

Assuming you own the Expedition free and clear and use the trade-in value as your down payment -- and cover the sales taxes and other fees in cash -- the Escape will come with a loan for about $22,300. At current rates, financing for 60 months means a monthly payment of about $439.

So let's add up the costs for a year:

It costs about $3,500 to keep it filled with gasoline, assuming prices stay at about $3.70. If they go to $4 a gallon, the bill will be about $3,750.

In the new Escape, your annual fuel bill, assuming the same mileage and $3.70 a gallon, would be about $1,730, a savings of about $1,770 a year.

But the new Escape will cost you $5,268 in payments, not counting out-of-pocket fees and the value of the Expedition used at trade-in.

Even after factoring in the one-time federal tax credit that comes with an Escape Hybrid, swapping a serviceable gas-guzzler for a more fuel-efficient new vehicle is unlikely to provide a financial benefit for five years, when the new vehicle is paid off.

Of course, there are reasons to get a more fuel-efficient vehicle the go beyond bottom-line economics. They include concern for the environment and helping to reduce our oil imports.

And if it's simply just time for a new vehicle -- the old one is worn out, or you've budgeted to trade vehicles at this time anyway -- then by all means it would be foolish to not consider something that gets considerably better fuel mileage.

But if your prime motivator is the sticker shock at the gas pump, act with caution. While a new vehicle may help you save at the pump, it can significantly increase your overall costs.

And even if you don't care that it's gonna cost you more, buying a new car means using resources to build a car plus putting one in the landfill.

Hey Kuan, do you see lots of cars in-tow headed to Mexico? I live on I-10, a major E-W highway that goes to TX. On any given trip greater than a half-hour I will see at least 1 convoy of towed vehicles headed west. They are mostly driven by hispanic-looking males but you'll often see a car or 2 with families. Both tow and towing vehicles will usually be stuffed to the gills with appliances and boxes. License plates are predominantly from the Carolinas. I'm wondering how wide-spread this phenomenon is.

B

PS I think it's a good thing. Those folks are undoubtedly going to make money on multiple transactions. They work their butts off in the norte for low wages and enhance that income with a significant resale business.

I think we're at the wrong end of I35 here. :D It didn't occur to me that our discarded autos went to Mexico. Sounds reasonable.

The entire premise of the article is not valid.

It's always more costly to purchase a new vehicle...........independent of whether it's a $hitbox or a hybrid. To attempt to utilize the cost of fuel as the sole argument to switch vehicles will never be financially worthwhile.

If you are going to sell or trade a 2001 vehicle for a newer model, independent of the cost of fuel, then selecting a more fuel efficient version will be a prudent move.

However, as most of us are aware, an older vehicle is always the better value, even with the higher fuel costs.

I suppose at some time there will be a convergence beyond which you're actually paying more for gas than if you had purchased a new car, but if you're the type who doesn't dwell on the past and treat each day as a new one, you'll still save money in the future if you don't purchase a new car while having lost money in the past. How's that for a contradiction?

If one wants to make it even more interesting, one might also consider the difference in insurance costs between the "old" and "new" vehicles.

If one lives in a place where a stout annual personal property tax is assessed on vehicles, then oh, baby! That new vehicle hurts... and hurts... and hurts...

But you have to admit, it works, at least for the car salesman. As it said, But if your prime motivator is the sticker shock at the gas pump, act with caution. While a new vehicle may help you save at the pump, it can significantly increase your overall costs. Do you think the salesman will tel you the part where it can significantly increase your overall cost? I'll bet he won't even tell you about the insurance difference.

They forgot to add in taxes, on the new Escape they are going to be a lot more.

The best solution would be to dump the old Ford SUV for a base 4 cylinder 2wd Rav4, that will return real world 23mpg around town and cost almost $10k less than the Escape hybrid.

16mpg is generious, 13 is probably closer to the mark for an Expedition. Plus they are all 4wd up here so that hurts mileage as well.

My diesel Excursion gets about 18 if I keep to the speed limit and cruise control

heres something else to consider.my girlfriends daughter has an 03 yukon denali.owes right about what it's worth.well she was talking of getting an 08 gmc envoy with 11,000 miles.time she got done with the deal she would still owe about 25,000.she asked me if it was a good deal.
well i checked nada guide but they don't list cars that new,but they do list the msrp for one and a base model is right at 32,000.for comparison sake i got on ebay and there was 2 of em 1 had 8,000 miles and had a buy it now price of 19,000.can you believe that a 13,000 dollar hit and it isn't even a year old.
there is always a hard hit the first couple years so pretty much if you get a loan on it,you will owe more then it's worth pretty much until you have it paid off.and if you even think about trading it in your gonna take it in the shorts like a night after beni hanna's

The article was talking about a gas one though, the diesel will do better.

Didn't someone say that if you bought a Porsche you take a 40% hit after the first year or something close to that?

Yes, it is the sticker shock which is depressing the prices. They know you want to get rid of it and they are in the driver's seat since they are the buyer.

What if I'm considering trading in a Jetta TDI with under 40K miles?

Supply and demand. We know why you are considering it and thus the price will be HIGH. Gas price sticker shock? Any high consumption vehicle will drop and low consumption vehicle price will go up. People don't know how to look at the whole thing before making a decision