Saturday, May 17, 2008

Car Dollars and Sense

A few years ago when the Prius first came out, I had a discussion with Macon about whether it would be worth paying the extra money for such a car in view of the gas savings one would achieve with the Prius. (We didn't know it then, but gas was cheap!) We concluded it would take a lot of driving the new car in order to make up for the cost of acquiring the Prius when we compared the cost to either keeping the old one or buying a more conventional new car.

With Mary coming home this summer (Yea!!), we may be looking at buying a "new" car (by "new" we mean "new to us"). I have been driving her Nissan Pathfinder, which I love and which has about 84,000 miles on it. So we need a third car among Carol, Mary and me. One question is whether she takes that one back and I get the "new" car or I keep the Pathfinder and she gets the "new" one. But we know we need a third car. So we are coming around again to the question of whether we should pay extra for a car with really good mileage or pay less for a car that is not as thrifty at the gas pump.

Something like this question is addressed at a blog called Frugaldad here. In that post, the question is whether one should buy a truly new car with very good gas mileage or keep the old car that is paid off, working well enough, but is costlier at the gas pump. Frugaldad crunches the numbers, sort of, and concludes that it will be a long time before the gas savings compensates for the extra cost of the new car.

In this calculus, I would also like to introduce the safety element. If the price of gas economy is getting a smaller car, one assumes a certain degree of extra risk . Thus, such risk increases the economic cost of acquiring such a car; the true cost is more than the out of pocket dollars one pays for the car. One could get a larger car that is a "hybrid", but just last week the WSJ auto guy said that such autos sold by GM and Ford were "overpriced", although he gave no details on how he arrived at that conclusion. (Maybe if you discount the price by the risk that one avoids with a larger car, the GM and Ford SUVS to which he refers are not so overpriced.)

This is all very complicated, isn't it? But I think the question is worth some time spent with a spread sheet. But I'm not so interested in an analysis that assumes a car one already owns. For our situation, I would like to compare the cost of a low mileage, safely sized semi-gas guzzler from CarMax with an equally safe but fuel efficient new car, say the Camry hybrid. How many miles will you have to drive the Camry to compensate for its extra cost over the CarMax car? That shouldn't be too hard to figure.

But even with that analysis, there are additional variables that could affect the ultimate cost outcome:

1. If one buys the CarMax, would he be more careful of the miles he puts on it, as compared to the situation if the Camry were purchased? By that I mean, would a Camry owner be less careful about his use of the car and, therefore, put more miles per year on it than would the CarMax driver?

2. Gas prices might go down (probably not, though).

3. Innovation could continue, so that if one had bought the CarMax, several years later he could buy an even more efficient car than the Camry and leapfrog the Camry owner in terms of overall savings. (This reminds me of the question of when one should buy a new computer.)

Any ideas out there? Anyone have a good, safe used car for sale?


mary said...

Good thoughts, dad. And I'm glad you've enjoyed my car! It's a good one.

I get a third bag for free on British Airways, as part of a special missionary fare. I wonder if CarMax has a similar deal on a third car.

Paul said...

We'll be sure to ask!

Kellsey said...

We have been asking the same questions as our 4Runner gets older and older. It is now 12.5 years old and has 150,000+ miles on it. It is still a great car and we enjoy it, but we wonder how much longer it will last and what we should be looking at to replace it.
I have come to the conclusion that I might want to go with a Toyota RAV4 or Honda's CR-V. I would not want to go with previous models on either, though, as they each have been through some radical changes in recent years.

You can get a used recent model of either at carmax for a pretty decent price. I would not go with earlier than a 2006 on the RAV4 or with earlier than an '07 on the CR-V. The RAV4 gets up to 30mpg and the CR-V gets up to 27. This is not as high as a camry, but it is as high or close to as high as some SUV hiybrids without the extra cost. Plus, you get the added safety of a somewhat larger size.
Granted, these are not as inexpensive as a used camry might be since you would have to get a newer model of each, but either would be less expensive than a hybrid. (unless you get a really basic Prius..I believe a new one goes for around $22K and would get you 45 mpg at least. Plus, it is not as small as many a car out there. In fact, it is very similar in size to our Matrix. It is larger than a civic and perhaps it is actually comparable to a camry, but I haven't looked up the specs on that lately, so my memory may be incorrect on that one.)

I wish you luck in your venture!

Kellsey said...

oops, I was wrong to say you could either for less than a hybrid except a basic prius. I didn't mean to say that. Of course, a new prius costs more than either used model I was talking about. I have seen good used RAV4's and CR-V's for around $17 to $19k. This is not inexpensive, but considering all the variables, I think it is pretty good.

Emilie said...

I know very little about gas mileage etc. but will weigh in on the CR-V. We have a 2003 CR-V which we generally love. My only complaint is that, because I'm somewhat short (5'6"), it has a lot of blindspots... Perhaps they've fixed the "too-much-plastic-blocking-sight-lines" problem in the newer models? Of course, some of you are taller than me and would not have this issue... :)

My parents now own two Priuses and love them both. They just traded in their old minivan for the second one. It is surprisingly roomy and comfortable, and has an unexpectedly large trunk. It's fun to drive, too - makes me feel hip.

Scott said...

Don't forget the $3,000 federal tax credit one receives on a new (as in brand new) hybrid. Also, some major corporations (including my own) offer Associate incentives/discounts/rebates towards the purchase of hybrids. Complicated indeed.

Safety is indeed a concern. I've seen lots of Smart Car marketing towards it's safety even though it would fit in the back of my F150 and undoubtedly seem like nothing more than a pothole were I to run over it.

Paul said...

Thanks, Scott.

Paul said...

And thanks, Emilie. We looked at the CRV at CarMax last week, along with some Civics and some Corollas. We liked the CRV. But we came up with the best idea of all, though! We are going to wait till Mary gets home, and let her deal with it.