We've been watching gas prices hovering around $4 a gallon for over
a month now, and at last (in my neighborhood, at least), the price of
regular unleaded finally jumped all the way up over to $4.50. It's enough to make a
commuter cry. An increase of a dollar a gallon in the last year means
each tank is costing $15 to $20 more, or $60 to $80 per month if you
fill up weekly.
Sales
of trucks and SUVs have already slowed, and small cars hybrids are
selling faster than hotcakes. In fact, many hybrids now commanding a
premium over the suggested retail price. It only seems natural that
drivers are considering trading in their larger gas-guzzling models for
something smaller with better fuel economy.
Well, according to a report at Consumer Reports
that might not be the best action! In fact, their study shows that it
might not pay to downsize if you've only owned your vehicle for three
years or less. Pointing out that the hidden costs of car ownership
might be the factors owners are least likely to focus on when driven to
downsize, Consumer Reports reminds drivers that those hidden costs can
have a major effect on your finances down the road. Two important
factors to consider when trading in for a new car: your finance charges
and the cars' depreciation.
As CR explains, "with a traditional loan, interest makes up a larger
percentage of your monthly payment initially, scaling down over time.
Consequently, less is paid to the principal of the loan in the first
year than the last. If you trade in partway through your loan period,
you may find you have less equity, or trade-in value, in the model than
expected--limiting the potential down payment on the new vehicle."
Depending how much you still owe on your vehicle loan, it might not be
worth downsizing to a smaller vehicle after only three years, even if
the new car's fuel economy is much greater.
Another thing to consider is depreciation: According to CR's owner-cost
estimates, "depreciation makes up, on average, about 48 percent of an
owner's total vehicle costs in the first five years. Fuel costs are
only about 21 percent, on average. And the greatest depreciation occurs
in the first three years. After that, depreciation begins leveling
off." So in most cases, depreciation on a new car costs more than the
fuel you're putting into it.
Consumer
Reports evaluated a variety of sedans, SUVs, and pickup trucks while
considering several factors, including depreciation, fuel costs, and
interest as financing. They also took into account such other hidden
costs as the change in insurance costs, maintenance and repair, and
sales tax to establish a total cost of ownership per mile.
To begin, Consumer Reports evaluated the 12-month costs of ownership
for three-year-old Ford Five Hundred and Chrysler 300C sedans, Ford
Explorer and Chevy Tahoe SUVs, and a Ford F-150 pickup truck, and
compared them against smaller 2008 Toyota Camry, Nissan Altima, Honda
Accord, Honda Pilot, Toyota Rav4, Nissan Frontier, and Toyota Tacoma.
They also tossed in cost-of-ownership figures for 2008 Hybrid Camry and
Prius. In almost every situation, the comparison of buying a newer
vehicle reveals a higher cost-of-ownership per mile than just keeping
the older, less-economical vehicle.
It's complicated, I know. But if you review the detailed charts over at
Consumer Reports, and calculate the actual cost per mile, you can
definitely see that it might not make financial sense to trade in your
three-year-old vehicle for something smaller.
Their
advice? "Buy the highest-rated, most reliable, and safest model with
good fuel economy that suits your needs... Just make sure you
understand the full picture and make sure you are doing it when the
time, and finances, are right for you."
By Brandy Schaffels
Editor, AskPatty.com
automotive advice for women
