Energy Smart Car Buying
Cars are expensive to run. Lowering these operating costs by choosing a super fuel-efficient vehicle like the Chevy Volt is not always a simple decision.
Household gasoline costs alone are around $3,000 per year on average according to the Bureau of Labor Statistics (BLS), Consumer Expenditure Survey. This basically equates to a taxation for the privilege of transportation. Fuel expenses hit us all equally, or unequally depending on your perspective. This cost represents just 4% of average household income, but equates to around 11% for lower-income households.
Worried About Oil, No You’re Not
BLS survey results also reveal that most of us are concerned about the price of oil and gasoline. But recent auto sales tell a different story, at least in the short-term.
Gas prices have dropped by 50 cents per gallon since January, around 13%. During this period there has been an auto sector sales explosion, driven by SUV and pickup trucks. It seems that the slight reduction in fuel prices gives the green light to go large again.
I don’t like the direction of the market but I can understand why this happens. Large powerful vehicles are appealing for their utility, and the status symbol they represent. The modest stock market gains, leveling of home prices, and all the bills presumably paid from last holiday season give people justification to buy 204% more Ford Explorers and 38% more GM SUV’s and trucks than last year.
Justifying Fuel Efficiency
It’s easy to argue against choosing fuel-efficient car buying options with little financial justification. But I want to warn against this short-term approach. Let’s run some numbers for my favorite fuel-efficient car and car of the year, the Chevy Volt. Assumptions: daily commute of 35 miles, conventional cars average 25 MPG, Gas costs $3.43 per gallon
- Chevy Volt purchase premium is $10,000 compared to conventional cars like the Chevy Malibu or Ford Fusion.
- Volt costs $1.50 per day to charge compared to $4.80 for gas
- Volt costs $550 per year to charge compared to $1,750 for gas
- Volt annual fuel savings of $1,200 would take 8.3 years to recoup the purchase premium cost…at today’s fuel price of $3.43 per gallon
- Volt annual fuel savings of $1,700 would take 5.9 years to recoup the purchase premium cost…at fuel price of $4.43 per gallon
- Volt annual fuel savings of $2,225 would take 4.5 years to recoup the purchase premium cost…at fuel price of $5.43 per gallon
Clearly, the more expensive gas is, the faster you will recoup the fuel-efficient car purchase price premium.
See Value Where Others Don’t
The problem with forecasts, cost benefit analysis, or any type of financial planning is that it’s heavily based upon assumptions. Truck and SUV buyers are assuming gas prices are going to remain stable for the next five years or so. If they are correct then their choice today will prove to be a good one.
I prefer to take the road less travelled. I’ll happily take a risk on oil price volatility like we have never seen before at some point over the next five years that makes the electric, hybrid, or otherwise super fuel-efficient car purchase today seem like a great decision, even with a several thousand dollar price premium.
I don’t want to enter into a big debate here on peak oil or whether Saudi oil reserves are overstated. But, looking at the price of oil alone, we’ve seen two major oil price peaks over the last five years. We just don’t know what wild swings this commodity will throw at us.
Given this uncertainty, and my conservative nature. I would take a risk on a Chevy Volt or Ford’s new C-Max plugin hybrid in a heartbeat.
Are you ready to risk a hybrid?
Tagged with: barrel • C-MAX Energi • car • Chevy Volt • Ford • fuel-efficient • General Motors • GM • oil
14 Responses to Energy Smart Car Buying
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I am waiting on the hybrid because it is stilltoo expensive. Also, the battery replacement is very expensive. I like holding on to the car for at least 10-15 years. I am seriously thinking of go against the tide and buy a car that is out of favor. My wife and I drive less than 15,000 miles a year (total). My only hesitation is my frugality. Can I stand the higher gas bills every time I fill up?
The hybrid is steep, but coming down all the time. The Honda Insight at $19,000 is only marginally more expensine than comparable gasoline models. Conventional cars are becomeing more fuel efficient too, especially on the highway.
Hey, did you see my post on how much we spend on driving?
http://retireby40.org/2011/10/spend-driving/
I doubt we will see cheap gas again. That’s why we try to minimize driving and are walking and taking more public transportation.
I hate paying premium though so I haven’t consider an electric/hybrid vehicle yet.
Yes, I read your post. He needs to sell that car. These things are SO expensive.
I can’t believe people. When gas was high they cursed their large gas-guzzlers, and now because the price of gas has dropped a little, they’re back on the bandwagon. Are they that ignorant as to think that it will keep declining over time? Or are they simply so stuck in the mind-set that bigger is better?
Personally, I’m not ready to make the switch. Florida legislation just approved an increase in energy billing for next year, which, although not a very large increase, will still push up the cost of maintaining the hybrid. Plus, I’m not exactly sure how people who live in condos and apartments will charge them without garages and/or direct access to an electrical outlet (and those GE charging stations still not widely available)
I understand your reluctance to jump in Eric. The electric charging infrastructure still has a long way to go…now there’s an industry set to explode.
Consumers have very short-term memories and are easily swayed by sexy advertising. All those massive SUV’s will be parked by the side of the road the next time we have an oil crunch.
I still remember watching the interviews on the news after some of the major hurricanes that hit us in S. Florida. People in huge 3-row SUVs complaining about how expensive it was to fill up their trucks since the supply was short (due to inability of tankers to reach the stations). The funny thing was that so many of them didn’t have car seats or weren’t packed full of work supplies or anything of that nature. It certainly made me wonder what they were thinking when they made the purchase, if they were thinking at all!
Peak oil! Just kidding.
You should also consider changes in $/kWh in your calculation – there is some correlation with fuel prices, especially if you have a coal/oil driven power plant. Electricity costs also tend to increase with inflation.
I still think that the cost benefit will eventually turn to the electric car, but the initial costs are still a bit sketchy. Subsidies help some, but I don’t trust a product that relies on them. As an engineer, I would guess that battery technology is the next shoe to drop – with better batteries the choice will eventually become a no-brainer.
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Hey Hunter, One other cost point to add to your list is any retrofitting you need to do to your garage to be able to charge properly. I actually saw a kit this weekend at Home Depot and it ran about $1000, so definitely not something to overlook. Great analysis though!
Great point! Yes, I’ll be the first to admit that this analysis is simplistic. The garage charger costs are significant and should be factored in. I believe Nissan are offering a similar service at the point of sale, although I think they are asking even more than $1,000. The $10,000 purchase premium for the volt is based on a similarly sized car. However, the Volt retails for about $31,000 after tax credits. It is very easy to spend $30,000 on a conventional car. The purchase premium here may very well be overstated.
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