Before trading in your gas guzzler, do the math and make sure you're saving
On TV recently, I watched as a motorist said 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. 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 get rid of your car.
I understand that paying upward of $4 a gallon is making your heart pump faster, but that pales in comparison to the money 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, auto deputy editor at ConsumerReports.org.
You have to consider 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 three years 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 total cost 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.
Let's assume you drive about 12,000 miles every year. At $3.75 per gallon (and 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. If you owned the Toyota, your bill would be about $1,000. That savings looks good.
But wait, says Bartlett. When you calculate the total cost of ownership (depreciation, finance charges, insurance, maintenance, sales tax, and fuel) the Toyota will cost about $9,000 to own for the first 12 months, while the Ford costs $6,000.
Of course, the total cost of ownership can rise if the interest you pay or your insurance costs are higher than the national averages. If you pay cash for the car, have a shorter loan term, or live in a state without sales taxes, your annual cost could be lower. On the other hand, holding onto a vehicle that gets terrible gas mileage can mean its depreciation may accelerate. If gas prices hit $5 a gallon, you will have a tough time trading it in, Consumer Reports warns. However, Bartlett says, it still might be better to tough out higher prices.
Michelle Singletary is a columnist for The Washington Post. She can be reached at singletarym@washpost.com. 