Car Economics

I always get a chuckle when I see stories like this one.

Fuel Sippers Gaining on Heavyweights

Ever since gas prices started spiking last month, customers have been flocking to one side of Lustine Toyota/Dodge in Woodbridge and ignoring the other.

“The Dodge truck business is way down,” General Manager Jim Giddings said, because of what he called “this gas thing.” He’s on track to sell just 36 Dodge trucks this month, compared with 68 during the same month last year.

Toyota sales, on the other hand, are up 38 percent so far in May. One of the big drivers is the Prius, the gas-electric hybrid that has become a phenomenon in the past year. Giddings said he has a waiting list of more than 50 customers.

Every time we get a gas price spike, we see these stories. It makes me wonder about the state of math education in this country. Switching from the Dodge brand to the Toyota brand, (in a near analogous vehicle) will likely cost you several thousand more dollars as the Toyota is a more premium product. Consumers routinely spend $3000 more for a car because it gets better mileage. So let’s see how much they “save” by doing it…

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Your average 60 month loan costs about $20 per thousand. That is, for every $1000 you borrow, your note is 20 bucks a month. So if someone pays 3000 bucks more for a car, they are spending about 60 bucks more per month on the note. (not to mention insurance on a more expensive car) But how much gas will they “save?”

false-econ.jpg

So they “save” 40 bucks a month while they spend 60 bucks more on the note. They’ll lose 20 bucks a month given my above assumptions.

Granted 1500 miles a month is the national average and I’m assuming 8 MPG increase and static fuel costs… (Many other factors could make the deal more appealing.) But you get the point…

When you are spending tens of thousands of dollars on a vehicle, the mileage is a very, very small part of the overall cost. In the quest for the holy grail of higher mileage, many people will waste thousands of dollars, or worse, get a car they really don’t like.

This is no more prevalent than in the hybrid market. (gas and electric) People are paying thousands of dollars more for hybrids hoping they save money on fuel. This is usually a losing bet even if the hybrids get the mileage they were supposed to which they often don’t.

So if you are looking at new cars, go ahead and do the obligatory check of the EPA sticker but keep 2 things in mind.

The EPA estimates are near worthless (especially on hybrids)and spending more money chasing better mileage is often false economy anyway.

There are many functions that make up the cost of operating a vehicle. If you want to figure out your true cost, get a calculator and do it right. Simply looking at the mileage estimates and buying the one with the higher number might make you feel good, but economically, it is just pain silly.

Memes
Life's painful lessons

15 Comments

  1. ben b May 20, 2004
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