Buy an Economy Car and Save Money on Gas? Not Hardly.
Jun 24th, 2009 | By Richard Marmo | Category: Featured, Morning Whiskey
As has already been noted so eloquently by Linda Traynham, the current Cash For Clunkers bill that wended its pathetic way thru what currently passes for the United States Congress and now requires nothing more than Obama’s signature to become law, is designed for exactly one thing. Or two, if you happen to be a dedicated environmentalist. Its primary purpose is to jumpstart the semi-nationalized automotive industry in general and Government Motors in particular, while the secondary reason is to destroy as many, large, old, reliable, safe cars as possible.
What our Keystone Kops Kongress (The KKK of the 21st Century.) has done is to forget history and simple economics.
Historically, Americans have a preference for large cars. Granted, you can always find a group of people who drive nothing but small cars, like Ferrari, Maseratti and Volkswagen, though they have always been in the minority, like those who wear Birkenstocks. But most of us prefer big and bigger. Keep in mind that it’s not just because they’re bigger. There’s far more to it than that. Consider. Big cars ride smoother on rough roads and over railroad crossings. Engines are more powerful and the trunks are generally large enough to hold two weeks worth of luggage or a couple of dead bodies. And in case you think I’m exaggerating, why do you think gangsters like big cars?
Taking a road trip? Nothing like a big car for comfort while traveling in luxury for 600 – 800 miles. Then there’s safety. Big cars from the good old days, and even the current poor imitations of big cars, are simply safer. Hit another vehicle…or have one hit you…and you stand a very real chance of walking out of the mess with nothing more than a few strained muscles. I should know. I’ve both seen it and done it. Try the same stunt in a small car and you have a better than even chance of residing in the nearest hospital for a few weeks and then scheduling your life around physical therapy for the next six months or better. That’s if you’re lucky. If you’re unlucky? Your surviving loved ones will become intimately acquainted with funeral home procedures. Simple cremation can still run some $3,500, while a very modest traditional funeral will range from four to over ten grand, and that doesn’t include a monument or gravesite.
Our brilliant Kongress has also managed to either forget or totally ignore economics, which is apparently what they do professionally. It doesn’t take a genius to figure out that you’re not saving money by buying a new car to replace your old one in order to save money on gas. Don’t believe me? Then let’s run a few figures based on automotive ads, along with an actual experience that I had.
All the automotive ads tell you that by trading in your old comfortable, roomy gas-guzzler that gets a paltry 15mpg in town for a nice, shiny econobox that gets a spectacular 32mpg on the highway and a very reasonable 20mpg in town, you will save thousands of dollars every year.
Sure you will.
First of all, that sipmobile is going to run you $19,995.00 with nothing down and a very affordable 5-year note. Then you will need to pay $3,457.00 to cover tax, title and license. But there is still no down payment. Of course, that means the little critter’s price has just escalated to $23,452.00. Even after making the down payment that isn’t a down payment, you’re still on the hook for $333.25 per month for the next 60 months…and that’s at 0% interest. At today’s (June 19, 2009) price of $2.59 a gallon for regular, that’ll pay for 128 gallons. Per month. At 20mpg, you’d be able to travel 2,560 miles for the price of that monthly payment. Your gas-guzzler that gives you 15mpg? You’d only be able to go 1,920 miles on the same amount of money. However, throw in the monthly payment and your fuel efficient economy car is costing you $666.50 a month, making your effective fuel cost $5.18 a gallon to travel those same 2,560 miles per month or 26 cents a mile. Since you have no monthly payment on the gas guzzler, you’re still spending $333.25 to travel 1,920 miles or 17 cents a mile.
“But I can drive a lot farther for the money,” you say, “so I’m still saving money.” Well, it’s true that you’re driving 33.3% farther on the same amount of gas…or using 25% less gas if you prefer to think of it that way… but your cost per mile tells a different story. Project the cost of fuel for that gas-guzzler by 33.3% and the resulting price of fuel is $444.22. Still 1/3 less than the combined monthly payment/fuel cost of your sipmobile to travel the same number of miles. Now what’s the fuel cost per gallon for the gas guzzler? $3.45. And the fuel cost per mile to drive 2,560 miles at 15mpg? The same 17 cents per mile that it cost to drive 1,920 miles. As long as you’re making a monthly payment, the cost per mile for your econobox will always be at least 9 cents more than the gas-guzzler. Why do I say ‘at least’? Because if you pay any interest at all, your monthly payment will, obviously, go up. As will your fuel cost per mile.
Odds are that your old gas-guzzler has been paid off for some time, so your only expense is maintenance, insurance and the cost of gas. Unless you drive 5,000 miles a month AND rebuild the entire car from the front bumper to the rear bumper with new parts, there’s no way you will spend as much money on your gas-guzzler in the next five years as you will that nice, shiny sipmobile. Additionally, Our beloved old beasts are built to last as well as to survive crashes. Incidentally, insurance on your environmentally friendly economy car will be substantially more than your gas-guzzler.
To give you an idea of how little knowledge exists on this level, you might find an experience I had in the 1970s to be instructive. One day, a man knocked on my door. He was looking for scrap cars that he could buy and then sell them to the junkyard to make a few bucks. He saw my old car in the driveway and wanted to know if I wanted to sell it. Of course I didn’t. But in the course of the conversation, he mentioned that a few days earlier he had gotten a car from an elderly couple. It was a virtually new Buick station wagon, less than a year old. Garaged at all times and with less than a 100 miles or so on the odometer each month. According to him, it still had the new car smell.
Believe it or not, the old couple had told him to come and get it…they GAVE it to him…because it used too much gas and they were going to buy an economy car to save money! If that wasn’t bad enough, he spent the next several days trying to sell that car for $100…and no one was interested. In the end he sold it, the day before he visited my house, to a scrapyard for $75, whereupon the scrapyard crushed it for scrap metal. I could’ve cried!
What’s the moral of all this? Just because that nice, new economy car gets 30mpg on the highway, that doesn’t necessarily make it an economy car. As you’ve read, there are many more factors involved.
Me? I’d rather have a big, old, comfortable, safe car (such as my ‘93 Buick Roadmaster Estate Wagon) than one made from tin foil that they’ll have to cut me out of with a pair of scissors if I have a minor accident.
What about you?
Regards,
Richard Marmo
June 24, 2009
Excellent analysis. Another myth to justify buying new cars is that it is cheaper to buy a new car than to fix an old one. Unless it is a total lemon that has been shamelessly mistreated, it is almost always cheaper to repair an old car than to buy a new one. The problem is, it is much easier for Joe Six-pack to get a loan to buy a new car than to fix his old one.
You’ve hit the nail on the head. The entire system is rigged against driving and/or repairing old cars and in favor of purchasing new cars. This includes availability of parts, insurance (comprehensive insurance is pointless on old cars) and warranties. Our culture has been geared to the idea that you trade your current car for a new one every three years, though that has stretched somewhat today due to the increases in the prices of new cars. Still, you basically buy another car before the warranty expires or the odometer hits 100,000 miles, whichever comes first.
As far as getting a loan to repair an old car, you don’t The only way to do it is a personal loan for X amount of dollars that you can then use any way you wish. Either that or stash a few bucks now and again into your nearest posthole bank for a rainy day.
One other very important thing that the short/ narrow sighted environmentalists miss is the energy and environmental damage that went into making that new “sip mobile”. The act of extracting metals, materials and the energy used in making a car are far from easy on the environment. The damage from making an old car is already done. The environmental price has long since been paid. Not so with a new car. Creating a huge demand for new cars also creates a huge new price on the environment (even if it the thing gets fantastic mileage, or is even electric). I am not sure on this, but I remember reading somewhere that once this fact is taken into account, it is by far better for the environment overall (again, I am talking the big picture here, not the narrow aspects of air quality in a large city, amount of actual oil we may have to import and such) to keep the old cars going for as long as possible.
Excellent points. I would suggest that anyone who cares anything about their health is an environmentalist, but environmentalism is not a one size fits all proposition. It may be that it makes more sense to focus on hybrid or electric cars in areas where they are truly practical. Same goes for vehicle size and public transportation. But when you are traveling from the Sabine River (Texas/Louisiana border) to El Paso, Texas, that is a solid 900 miles with much of it in the middle of nowhere. A large, comfortable car with substantial power is a virtual necessity. That doesn’t mean it has to be a gas hog. As big and heavy as it is, my Buick Estate Wagon gets 24mpg on long haul driving and it’s a heckuva lot more comfortable than a Kia Rio, Smart car or the soon to be available Chrysler/Fiat 500.
There isn’t a thing wrong with wanting to protect the environment. After all, every one of us has to breathe. But there’s also nothing wrong with applying common sense to our environmental practices. Is there?
One thing I have never seen are those slow motion crash tests on a Smart car or Mini-Coop. As far as safety is concerned, the environmentalists don’t mind if we sstart offing ourselves in small, unsafe vehicles. Less humans means less of us to “destroy” Mother Earth. If liberals want to drive around in small death traps and feel good abotu it let them. When I t-bone one of them in my F-250, I’ll be walking away from the accident, but I doubt they will. One less enviro-whacko to preach to me about global warming.
Now you’ve got it! Remember, CO2 (which we all exhale with each breath) has been officially classified as a pollutant. Since the administration has established a goal of reducing the emissions of CO2 by 2050 to 17% of current levels………….
Got whacked last summer in my 2004 F-250 SD. Rear ended by a 2000 Toyota Tundra. Worst crash I’ve ever been in, I’m 55, and have been driving for quite a while. Not only did I walk away, I also drove away. The Tundra didn’t. Neither one of us was really injured (except for one of her dogs). Had I been in some econobox sipmobile (I like that one, haven’t heard it before) I most assuredly would have been transported to a hospital, and to the subsequent nightmares. The crash rang my chimes, but, I did walk, and drive away.
While not stellar gas mileage, this truck does get 16 mpg on the highway, due to the 3:73 differential ratio, with the 5.4 V-8. That does however limit how much trailer you can pull.
Great, Richard. I love where you went with facts and figures and the terrific comments Jack, B, and N added. The “use it once and throw it away” mentality impoverishes all who practice it. Preach on, guys! You’ve got a grand discussion going.
Linda
Linda,
Jack, B and N added much to the discussion. Jack, in particular, hit the nail on the head. What intrigues me is that members of the great unwashed simply refuse to see what is so obvious.
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Hi, I live in Poland, where there are only small cars and gasoline is expensive as hell. BTW, what you consider a small car is probably BIG for european people. And I entirely agree with you that buying a new car to replace a still functional one is irrational and economically stupid (I live in Poland, remember, ‘pollacks’ are the biggest importers of used cars from western Europe). But regarding the safety, I want to point out one thing: yes, you are much safer in a big car. On the other side, if you have a collision, better have it with a similar car and not with a truck. Europeans use small cars and any US-sized car looks like truck to us, two times bigger and heavier than average family car here – and I think it’s also more dangerous to other drivers in effect worsening the road safety. This is, hovewer, not the case for USA – when visiting US I was driving a Ford Expedition – a big (huge) car, but the roads in US are full of such cars so it doesn’t feel too big. If I were driving something european I would be afraid other drivers won’t see me. Having a small car in America is much more dangerous than it seems, if you need to buy one wait until there are more ‘econoboxes’ on the streets.
Hi, Rafal:
Is driving in Poland like driving in Italy?! The secret in Italia is to refuse to make eye contact. If I don’t admit I see you, you aren’t there. Line dividers are suggestions.
If shipping and import duties weren’t so high Texas is a great place to buy big, beautiful, good used cars. We just bought an ‘83 Mercedes Benz 300 SD for a thousand dollars! It needs new seat covers…which will cost 3/4 as much as the car did. Funny world. She is a diesel, of course, and gets 30 mpg. She was in daily use and came home a hundred miles driven at 70. Nice old beast, navy blue. We just ordered the seat covers which will match the original leather, silvery gray.
Hope you can visit again. Come before the new tax bill makes our gas as expensive as yours.
Regards, LBT
Somebody enlighten me, please? The last I heard trees breath carbon dioxide and “exhale” oxygen, while we breath oxygen and emit CO2. What part of that don’t the Greenies get?
Hi RancherLady
Driving in Poland – well, it’s specific to Eastern Europe block. I mean: ignore laws and safety rules, show total disrespect to other drivers and treat them like some inferior life forms that don’t deserve to occupy your piece of asphalt. You can do almost anything and there’s little chance you get caught by police. Sometimes its fun to watch, but daily commute gets very exhausting if you have to fight for your position at every traffic lights
PS I exxagerated a bit, the description above applies to a group of drivers only, but the group is big enough to piss off everyone trying to drive like a human among humans
Dear Rafal:
I’m laughing delightedly over your descriptions. I have considerable experience in Germany (where sheer terror is a Porsche blinking his lights shrieking “GET OUT OF MY WAY!” as he zooms forward at 125 MPH, not to be confused with 125K, and the law says I have to shoehorn myself into wall-to-wall enormous trucks in the other lane. Fortunately, it also says–or said–that if I hit the trucks it is THEIR fault for not getting out of MY way, for what consolation that would have been) and Italy and Mexico, where the rule is as I said. If I don’t “see” them they aren’t there, road signs and markings are suggestions no one takes seriously, and the way to cross the Via Nazionale in Rome, 8 lanes wide, is just to pull out into traffic! Slide down into racing position, imagine you’re in a Lotus, and go proove you own the road. Funny? I observed a traffic accident outside Roma. The drivers boiled out, screaming at each other. The next six cars to arrive hadn’t seen the crunch, but every last driver jumped out and joined the fray on one side or another!
Gosh you speak great English. How I envy you. How about a report on conditions in Poland? Tell us what you do and what you think about where the EU and the USA are headed, please.
Warm regards,
Linda (Brady Traynham)
Dear Rafal:
This is an experiment to see if it gets posted. You can write me personally at ranchLT 4 at gmail. com. Shove it all together, of course. Linda
Hi Linda,
If you are asking about economic conditions in Poland, I can only give you a personal opinion: After all the media started talking about world wide crisis, in Poland we were thinking ‘what the hell are they talking about’ – 2007 and 2008 were great years for polish companies and people were extremely optimistic about their economic conditions. Only stock investors were affected. At the beginning of 2009 the situation had worsened – companies started to lay off people, real estate market ground to a halt and many businesses have suffered losses. Hovewer, it still doesn’t feel that bad, there were no banking sector problems and no spectacular bankruptcies or government bailouts (even the automotive sector has seen an increase in sales). There was a significant devaluation of polish currency at the beginning of 2009, I think it helped many exporters businesses survive and saved many jobs as Poland has again become a cheap country. Now the biggest problem I see is a huge national budget gap and overly optimistic government – they probably will have some bad news for us at the end of the year. And finally, last week I had to leave my full-time job and started to work as an individual contractor – all because my company needed to cut employment costs. However, I think this is a step in a right direction for me, hope I’ll never have to come back to full-time. Maybe this sounds overly optimistic, but remember Poland is still recovering from the years of communism so this crisis does not look that bad compared to the past.
Now, regarding the EU and USA situation, I’m rather pessimistic because I think many people will suffer when they will have to pay for governments spending and financial corporation excesses. I don’t know where we are headed, but certainly governments do a lot to get us deeper into this mess. EU will not revive the economy with more bureaucracy and central regulations and USA has fundamental economical problems that are hidden by government rather than solved. Hope it doesn’t end with even a bigger crisis.
Best regards and thanks for interesting read at this blog
Rafal
Why aren’t you including the trade-in value of the ‘old clunker’, which value will be seriously inflated by this new bill, into the calculations? It still doesn’t make economic sense to make the move to the new (and probably safer, because of rising safety standards) economy car, but your numbers aren’t come by honestly.
I could write a book on this but at my age, I’d never get it finished… course were I 40 years younger I probably wouldn’t either.
I believe in purchasing a vehicle that gets good mileage when warranted. My wife drives a Prius which really does get nearly 50 MPG average. If I drive it in a manner to save gas I can get much better, but that is really beside the point. We didn’t purchase our cars to save money. A new car is the worst investment you can make. OTOH we did get the Prius to save gas which has nothing to do with saving money. (I agree with Richard). I happen to drive a 10 year old 4-WD mid size SUV to haul *stuff* that is too large, too heavy, to sharp, to greasy, or otherwise wouldn’t fit into the Prius.
Big against little. My car prior to the SUV was a TransAm with the corvette engine. A kid in a GMC Jimmy pulled out in front of me with all 4 burning. I had a chance to leave 12′ of skid marks before “T-boning” it. The TA stopped so quick all the antennas were pointed straight forward, The firewall bas back against the dash all the way across and the right front tire was against the right front seat. I wrapped the steering wheel right around the column. Me? I didn’t even get hurt, nor was I sore the next day. The kid in that big SUV ended up in the hospital.
I happen to believe in anthropogenic global warming, but also in taking a common sense approach to it as I’ve been an investor for nigh onto 3 decades and I did the best with coal.
However I do find fault with those who are worried about the costs of mitigating pollution. We’ve either passed the peak or it’s coming up real soon for the world production of oil, regardless of what we have for reserves which is either deep, (expensive to get) or heavy (expensive to process) the price of gas is going to go up and I’d wager within two years it’ll make the $4 to $4.50 we had a year ago look real attractive.
Investors seem to forget about supply and demand while the so called “man on the street” has no idea as to how it works. They continue to burn it as if it were an endless commodity and then complain about the price going up because they use so much. Regardless of what we use for fuel (including electric) it is going to get expensive when we start using a lot. Electric in particular is troublesome as the electric grid is the limiting factor no matter how much we can produce from what ever source. When we start using it in quantity for cars it’s going to get really expensive for home and industry as well. There are a number of alternative sources, but they are either expensive to implement, don’t scale well, are a long way from the consumers, has drastic side effects (removing crop land from producing food), or a combination of all.
When we reach that point I don’t think it’s going to matter much whether people believe in global warming or not. They will be cutting back and purchasing cars that get high mileage, that is when and if they can afford one.
It does make sense to use as little oil as necessary to reduce, or eliminate our (US) dependence on foreign oil. Probably the most sensible approach for the average citizen is to stop living on credit. IOW stop trying to live as if you are part of the upper class…even if you are. We had one multimillionaire here in town who drove old cars most of his life when he could pay cash for a corporate jet.
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