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?