September 24, 2011

Are gas sippers worth the extra purchase cost?

The high price of gas makes it more expensive to operate your car. But many cars that are more fuel efficient, such as electric or hybrid cars, are more expensive to buy. Do you really come out ahead? To make a fair and long-term comparison, you can estimate the total cost of driving various cars over the years that you plan to own it.

You don't have to start from scratch: Consumer Reports has done just this calculation for a selection of cars. They assume that you keep the car for only five years and re-sell it when you buy a new one. You need to keep in mind that all their numbers are average numbers, but you can get a feel for the trend.

For instance, according to the CR analysis, the cheapest cars to drive for five years are the Honda Fit and the Toyota Corolla ($0.46/mile), the most expensive the BMW 750Li ($1.85/mile) (June 2011 numbers).
The Toyota Prius, at $0.50/mile, is at the head of its class of family sedans. And the Toyota Camry LE (4-cyl) and the Camry Hybrid come out about the same, at $0.57 and $0.58/mile, respectively. So the feelgood factor for buying the greener hybrid comes for free. (A cynic like CelloDad would say that that's how Toyota arrived at the price differential).


Edmunds.com also offers a measure of what they call the True Cost to Own, or TCO. Select your make and model and they will give you a year-by-year detail of what it costs to own and drive your car for the first five years, assuming you drive 15,000 miles each year.

This is great as a starting point, but of course you are not that "average owner", and you and your car will have a characteristic TCO all your own. Because of the detailed breakdown, you can still use Edmund's data, as a springboard for an estimate of your personal TCO. And you can use it to look at a few places where you might find savings.

Purchase price
This is the largest item by far on Edmund's list, and the place to look first for savings. You could, of course, drive a hard bargain with your dealer. But even before you do that, you would do well to consider whether you might do with a different car.

Car size
It is worth asking yourself the hard question whether you really need that large car. For instance, the 5-year TCO for a 7-seat Toyota Sienna minivan is about $39,000; for a 5-seat Toyota Corolla it is about $29,000: That means a savings of $2000 each year. If you have a family of four you could get around in a Corolla for most of the year. Then, when the grandparents come for their yearly visit, you could rent a 7-person minivan (about $600 per week base price) to go on daytrips together, and you would still be saving a bundle compared to driving the minivan all year. If half your clan arrives, a 12-passenger van costs about $750/week to rent. Or you could splash out and rent a convertible to cruise around in the sun: you've gained flexibility.

Engine & transmission
CelloMom will never tire of saying this: for the same-sized car, you can save $1500-3000 of the purchase price by choosing a smaller engine; after purchase you enjoy the better fuel economy. CelloMom can help you find out what engines are truly available, even if outside the US, for the car of your choice; and many in that extended range are more fuel efficient than what you find in your local dealership. Ask your dealer for them. You can save a further $1500-2000 by choosing a manual transmission instead of automatic. "Smart" automatics like CVT drives cost more to buy but are more fuel efficient.

Borrowing money costs money. A 60-month can loan has lower monthly payments than a 36-month loan, but in total you end up paying a lot more. The most frugal way to buy a car? Save up for a few years (earn interest), and write a check! Thumb your nose at the credit rating agencies, and drive away with 100% ownership. Put zeroes in all the boxes marked "financing".


Premiums are determined by factors such as your age and driving record, and the safety record of your car. A large part of the insurance premium covers liability; putting in an inquiry with her insurance company, CelloMom was surprised to find that her premium varied by less than 20% from car to car. Some companies offer insurance against any mechanical malfunction not covered by the car's warranty.

Longer ownership
It is greener anyway to keep your old car for longer, even though its carbon footprint is generally larger than that of a new car. You car loan payments will have stopped, and you can start saving for the next car. The cost of maintenance & repair does go up with the age of the car, and unpredictably so (this is partly why the published TCO stops at the fifth year), and for most of us determines how long we keep a car.

Fuel cost

For their analysis, edmunds.com assumes that you drive 15,000 miles a year, and that the price of gas remains close to $4/gallon. The EPA estimates that the average mileage for passenger cars is close to 12,000 miles per year. Finding your individual annual mileage is easy if you're the first owner of your car: just look at the odometer, and divide the miles on your car by the number of years that you've owned it. Then calculate your annual gas bill as follows:

Annual cost of gas = annual miles * price per gallon / fuel efficiency

For example, in 2011 a Prius owner driving 10,000 miles would spend 10000miles * $4 per gal / 50mpg = $800. The owner of a Hummer H3 (14mpg) would need $2857 for the year.

The tricky part is in guessing the price of gas for the years you plan to own the car. (If you get this one right consistently, you could make a bundle playing the oil futures). In the last decade it has been anywhere between $1.40/gal, to about $4.00/gal.

As you can see from the Edmund numbers, the cost of gas (the fuel that actually makes the car move) is a rather small fraction of the total cost of owning a car; most of the TCO is overhead. Consider the alternatives: if you drive less than a few thousand miles a year, a carshare scheme or occasional renting might be cheaper for you. If you live in a city, you might prefer using your feet, your bike or public transport over carrying the cost of owning (and parking!) a car.

All of the above is just about dollars; it doesn't take into account what it's worth to you to reduce your carbon footprint: only you can make that call.


  1. The answer lies in computation, though the problem would be getting the correct figures involved in that computation. It would probably help to seek advice from automotive experts.

    1. I agree that the toughest part is to put in the right numbers! Of course, the wild card in the computation is the fuel price over the lifetime of the car, and that's anybody's guess.

      The marginal production cost of oil (the cost to get an _additional_ barrel out of the ground) is around $100 right now. So personally I'm not optimistic that the price of gasoline will go down, in the long run.


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