You Got to Be Kidding Me!

The Economics of MPG

Posted in Economics, Four Wheels, Going Green by Stacy McMahon on August 3, 2008

Instapundit is linking to an article in the NYT (of all places) on why it doesn’t make sense to replace your car just to get better gas mileage. I ran these numbers myself last year and came to the same conclusion. Actually I didn’t even need to run the numbers, because I did that years ago for other reasons and realized that gas is a tiny, tiny part of the TCO for any vehicle. The purchase price, interest (if you financed it), insurance, taxes, maintenance and consumables (fluids, oil, tires) are something like 90% of the lifetime cost, even with $4 gas. I say “vehicle” because that analysis holds up for full-size SUVs, large cars, small cars, motorcycles and scooters. For the 5-8 year normal service life of a personal vehicle, the purchase price has to be in the $2000 range before you see a return in gas savings.

So, as I reluctantly decided this spring, the most economical thing to do is keep my current car, even though it takes premium and gets a mediocre 25 mpg. On the other hand, for a variety of reasons gas is sure to keep getting more expensive. If you’re buying a vehicle today, it pays to remember that in just a couple years you’re likely to be weighing its gas mileage against $5-6 for a gallon of gas.


2 Responses

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  1. Josh Maxwell said, on August 3, 2008 at 11:00 pm

    Would you be interested in exchanging blogrolls links with my site? Please email me if you are interested

  2. Clint said, on August 5, 2008 at 5:26 pm

    Yea — couldn’t agree more. I think it’s silly when people start talking about selling their car and getting a hybrid, as if they will save money. the hybrid will cost a lot more, and they’ll lose more in interest in the new loan than they’d save in gas anytime soon 🙂 They’re really just looking for an excuse to consume a shiny new object that they can show their friends as a temporary status symbol 🙂

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