The decision to purchase a new or new-to-you vehicle should always be preceded by strategy and investigation. As many consumers race to their local Toyota dealership to trade in their Dodge Durango or Ford Taurus for a Prius Hybrid or a Honda Civic, I've decided to analyze a number of potential buyers' total vehicle use, real costs associated with making a trade, and gas consumption. Here is a real world example of such analysis. I hope this will motivate you to let Car Pal Car Buyer’s Agent and Auto Buyer’s Advocate analyze your real world example.
Using the conservative figure of a 7% increase in price each year over the previous year’s estimated fuel prices, and an average of 15,000 miles per year of driving, I calculated the cost of my neighbors' almost-paid-for (14 more months) SUV, which averages 22 mpg vs. a lower-than-average estimate of 40 mpg average on a new 2011 Toyota Prius.
Here is what I found: At the end of five years, not including the cost to purchase a new Prius (average price for a new Prius is $25,000 depending on which of the five packages one selects and depending upon whether or not one retains Car Pal to get a lower price), they will have saved $6,323.73 in fuel expenses provided their driving habits stay the same over the next five years. However, the balance they owe right now is $6,142.
By taking on a new payment for a Prius (subtracting the estimated trade value of their SUV, which is at an all time low because of fuel prices, and adding back the payoff to the final purchase price), they would have to finance just over $23,000 including tax, tags, and fees. While it may be worth their while to feel better when they go to the pump, it would take many years to make up what they save in fuel costs vs. what they now would have to budget for a payment on a new vehicle over an additional 46 months' worth of payments.
Again, this calculation assumes that the price of fuel stays constant throughout the first year, then increases 7% at the beginning of each consecutive year. We do have to keep in mind that typically, after a vehicle is paid off, owners must prepare themselves for maintenance and repair costs associated with owning an older vehicle. One must budget roughly $4000/year (depending on the make and model, of course, and repair history) for a vehicle after the first five years of ownership. Even taking those costs into consideration, the evidence clearly demonstrates that there will not be an immediate, or even a short-term savings generated by a impulsive decision to go for the more efficient vehicle.
One other factor that requires close scrutiny is that the cost of fuel-efficient vehicles has never been higher (selling at a premium because of low supply and high demand), and the trade-in value for a vehicle that is considered a gas guzzler has never been lower. It may be more strategic to trade when gas prices level out, which they always do eventually.
Because every scenario and case is entirely different, Car Pal invites you to click this link and we will give you a free analysis of the specifics of your personal vehicle ownership situation. Please also feel free to send the link to a friend who may be able to benefit.