Business
Trading for fuel-efficient car may not save you money
July 6, 2008
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Toyota's hybrid Prius is among the most environmentally friendly cars, and many people are tempted to trade in their SUVs for the more fuel-efficient Toyota; however, the savings from the trade-in could be a long time coming.
Thinking about trading in that gas-guzzling sport utility vehicle for a fuel-efficient compact?
Better do the math first, experts say.
As gasoline prices have soared this year, sport utility vehicle values have plummeted - by 7 percent to 8 percent in most cases, according to the Kelley Blue Book car price service - while the prices of used small cars are holding strong or increasing, with some models like the Toyota Prius hybrid unavailable without long waits.
The payback in fuel savings from a trade-in could be a long time coming - and it could quickly be eaten up by new car payments for those hot new compacts.
"Consumers have to take a sharp pencil to a piece of paper and be very careful before they unload their SUVs," said Jack Gillis, a spokesman for the Consumer Federation of America and the author of "The Car Book," a buying guide.
Even before gasoline reached $4 in most of the country, Kelley was warning consumers not to act in haste.
"While it might be tempting to trade in your big SUV after spending $100 to fill the tank," Kelley said, "it's important you take everything into consideration ... or you may end up spending thousands to save hundreds."
For instance, the price of a 2006 Ford Explorer (six-cylinder, two-wheel drive) has dropped by $3,425, or almost 28 percent since January, to $8,875, according to Black Book, another price guide.
At $4.317 a gallon, $3,425 will buy 793 gallons of gasoline - enough for 11,102 miles of driving in the Explorer, even at the EPA's 14-mpg city fuel economy estimate.
By EPA estimates, dumping an Explorer for a used Honda Civic will save a consumer $1,890 a year in fuel costs in 15,000 miles.
But, in addition to losing money on the Explorer sale, the consumer might pay a premium for the Civic, according to Black Book. For example, a 2006 Civic LX sedan sells at dealer auctions for about $13,250 - less as a trade-in, more in a retail sale at a dealership. That's about the same as in January, said Black Book. But under normal circumstances, the value should have dropped in the past six months by at least $1,200. In effect, the purchaser of that Civic is paying a $1,200 premium.
Tom Kontos, chief economist for Indiana-based Adesa Inc., which operates 60 North American dealer actions, said compact cars are worth an average of 10 percent more than they were a year ago.
"They were also 2.5 percent higher in May than they were in April," he said.
The more fuel prices rise and the more miles per year the car is driven, the closer this vehicle swap comes to making sense, all other things being equal. And, notes Paul Taylor, chief economist for the National Automobile Dealers Association, if gasoline prices fall, SUV values are likely to rebound, as they have in the past, so it might make sense to wait.
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6 July 2008
at 4:42 a.m.
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offtotheright (Anonymous) says…
Duh!
6 July 2008
at 7:06 a.m.
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bkgarner (Brent Garner) says…
Am wondering how long before the Greens blast this article and its author.
6 July 2008
at 7:22 a.m.
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BrianR (Anonymous) says…
I put a trailer hitch on my SUV so I can buy a trailer instead of a pickup truck. Does that count?
6 July 2008
at 7:37 a.m.
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scott3460 (Anonymous) says…
Nice ad for the car dealerships trying to unload their vehicles, but isn't a real savings of $1,890 in fuel costs a year in the example above better than the knowledge that you allegedly saved $3,425 in the markup paid for a SUV. The $3,425 isn't real, it's simply the difference between two artificial prices the dealer is trying to convince you to pay. The $1,890 is real savings.
Do people really fall for these articles?
6 July 2008
at 9:21 a.m.
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DEDO (Anonymous) says…
Drive faster, it uses more gas!
6 July 2008
at 9:35 a.m.
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KSA_21_3503 (Anonymous) says…
Whoever wrote this article has no idea what they are talking about. You can't compare the resale value of a Ford Explorer to a Honda Civic over time and miraculously attribute that higher Civic resale value to the fact that it is more fuel efficient. Even before the demand for fuel efficient vehicles was high, Hondas and Toyotas held their value much longer than Fords, GMs, and Chryslers. This is not news. And, it probably doesn't have nearly as much to do with fuel economy as the author would have you believe. It is simply that Honda is a superior brand to Ford and a Honda will last much longer, thus warranting the higher price.
6 July 2008
at 9:51 a.m.
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classclown (Anonymous) says…
This is completely off the grapevine as I have no source to back it up, but I've heard in conversation that there are dealers that are refusing to take SUV's as trade ins. Supposedly because they wouldn't be able to move them due to gas prices.
Has anyone else heard this or able to point out a source to verify it?
6 July 2008
at 1:50 p.m.
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Jimbo (Robert bickers) says…
Classclown: I've heard that anecdotally as well.
My Tacoma was totalled earlier this year so we bought a Camry Hybrid. Between our savings and the rather high insurance value of the 4x4 - and by beating the rush for hybrids - we got a good deal on a VERY nice car. If it weren't for the crash, I would still be driving the truck. $120 / month in gas is better that $75 in gas on top of a $300 car payment.
6 July 2008
at 4:10 p.m.
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BrianR (Anonymous) says…
Actually, I've become quite accustomed to using portkeys. It's only scary the first few times.
6 July 2008
at 4:28 p.m.
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bearded_gnome (Anonymous) says…
danger posed to pedestrians/bicyclists/kids:
quietcars.nfb.org