Trading guzzlers isn't always cheapest option

Selling low, buying high doesn't save

David Zalubowski/Associated PressA 2008 Mark LT pickup truck at a Lincoln-Mercury dealership in Englewood, Colo., is being offered at a huge discount. (David Zalubowski/Associated Press)

Squeezed by frequent fill-ups that approach or even exceed $100, many owners of SUVs, trucks, and minivans are considering whether to sell their gas guzzlers - which may be worth much less than they thought - and buy a smaller car, or hold on and hope that resale values will inch back up.

To determine which option makes the most financial sense, experts say owners should weigh how many miles they drive, how they use their vehicles, and how long they expect to keep them. If they are leasing, they need to consider the cost of breaking their contracts.

Certainly many drivers are opting for smaller models, particularly hybrids, over larger cars and trucks. Sales of the Toyota Prius in particular are so strong that many buyers are putting down large deposits and waiting months for delivery.

Automakers are also cutting truck production and preparing to build more small vehicles.

But hybrids do not necessarily pay for themselves over the long term, and it is possible that buying a large vehicle now, when demand is low, may make financial sense for someone who needs one.

Consumers who buy a Prius instead of a four-cylinder Toyota Camry need to own it 5.5 years to earn back the higher price, according to Edmunds.com, the automotive information website, which assumed annual use of 15,000 miles, a price disparity of about $5,500, and fuel at $3.69 a gallon.

It will take nearly 19 years for the owner of a Lexus GS450h, a larger hybrid car, to recoup the premium over the purchase price of a gasoline-only Lexus GS460, the study showed.

And in some cases, a large vehicle just makes sense, particularly for people with specific needs, like shuttling children or carrying equipment to a job site. To overcome buyer resistance and clear dealers' lots, manufacturers have offered huge discounts on trucks and SUVs - rebates of up to $7,500 for a Lincoln Mark LT pickup and up to $6,000 for a Dodge Ram.

But even if you don't want a new guzzler, you might want to hang on to the one you have. "If you're in a vehicle with a lot of useful life left, you're most often better staying in that vehicle," said Jack R. Nerad, executive market analyst at Kelley Blue Book, which estimates cars' resale value and provides information on new models.

He added, "If you are trading in an SUV at a low point in terms of resale value, and you're buying a four-cylinder Camry, a hotter segment, you're buying high and selling low."

Some consumers want to remain in a large vehicle, but hope to find one that is more efficient. Lena Tamboer, a dog show judge who lives in Mahwah, N.J., said she was getting 12.8 miles a gallon in her 2003 Lincoln Navigator. The Navigator had just 46,000 miles on the odometer when she decided to replace it with a Lexus RX400h hybrid crossover.

She said she had originally hoped to get $12,000 for her Navigator as a trade-in, but would have been happy with $10,000. As it turned out, she got far less, though she declined to say how much.

Still, Tamboer figured the trade was worth it because the Lexus hybrid - which usually costs about $5,000 more than the gasoline-only RX350 - is estimated to get 26 miles per gallon in the city.

An Edmunds.com online calculator (edmunds.com/calculators/gas-guzzler.html) suggests otherwise. The website estimated that a 2008 Lexus RX400h would cost more than $48,000 before any deals, and that her Navigator would bring $12,370 - considerably more than she actually got.

The Lexus goes twice as far on a gallon as the Navigator, which would save Tamboer $123 a month at the pump at the current average gas price in her area of $3.54.

But the gap between the price of the new hybrid and the trade-in value of the old Navigator is so large that Tamboer will have to drive the Lexus almost 25 years before she saves enough on fuel to recoup the difference - even longer if gas prices fall further.

High gas prices, of course, have made both hybrids and diesels more appealing and therefore more expensive.

Hybrids are also pricey because a small but devoted group of buyers are eager to be seen as concerned for the environment, said Alexander Edwards, president of automotive market research at Strategic Vision in San Diego. "They are willing to give up power, performance, and styling and will pay extra for a green car," Edwards said.

"A lot of those folks, their principal priority is to look for a vehicle they can be proud of and talk to their friends about," he added. "If the Prius did not have the presence, they would go to a BMW or Mercedes."

Edwards added that the economics of hybrids had become so favorable that mainstream buyers were shifting over in large numbers.

Autodata said it took dealers eight days in July to sell a Prius on the lot, down from 15 days a year earlier. A GMC Yukon XL, on the other hand, was on the lot for an average of 174 days, up from 92 days a year earlier.