Is bad gas mileage a good enough reason to purchase a new vehicle? I’ve wrestled with this question many times. The real question comes down to whether gas mileage is a valid reason to purchase a new vehicle, or if it’s simply a justification for wanting a new vehicle? Let’s take an in-depth look at this question—with the help of a little math.
There are a few factors to consider in determining if selling a vehicle in order to purchase a more fuel efficient one is a worthy trade-off—the price of gas, your current gas mileage and the prospective car’s gas mileage. Let’s also add in annual gas mileage to get a full picture of the savings associated with buying a more fuel-efficient vehicle.
Let’s start our calculations assuming that gas costs $2.98/gallon. We’ll pretend your current car gets about 19 mpg on the highway. That means it costs $2.98 to go 19 miles, or 15.68 cents per mile.
What if you were to buy a new vehicle that increased your gas mileage to 30 mpg? Then it would cost you 9.93 cents per mile. If you drive 20,000 miles per year, then you saved $1,150.17 ($95.84/month) per year in fuel costs by switching to a car that gets 30 mpg.
Now let’s try the same equation with different numbers. How about gas at $3.50/gallon? Your current 19 mpg car costs 18.42 cents per mile at $3.50/gallon. If you switch to a new vehicle that gets 30 mpg, then it will cost you 11.67 cents per gallon. Switching cars when gas is $3.50 would save you $1,350.88 in fuel costs if you were to drive 20,000 miles per year.
What if we increased the mileage driven per year? Plug in more miles, and you will see your savings. Put simply, the more you drive, the more money you will save on fuel by switching cars.
Aren’t there more factors that play in to this scenario? Yes. Things like increased maintenance costs and whether or not you are buying a vehicle with cash or an auto loan with interest will play into this cost analysis.
Will the increase in miles per gallon pay for the price of the new car? No. However, if you keep your vehicle long enough, you may save enough in fuel costs to essentially break even. For example, if you buy a vehicle for $10,000 that gets 30 mpg, then after eight years you will have paid for the vehicle with the fuel savings created by owning that vehicle. But you’ll have to do the math according to your own unique situation in order to weigh the savings.
Let me throw one last wrench into the mix. What if we take this hypothetical situation to the extreme? Let’s say you are getting 15 mpg in your current vehicle, and you are switching to a car that gets 42 mpg. Then on top of that, let’s say you are driving 26,000 miles per year. If gas were $3.65/gallon, then you would save $4,067.15 annually! This works out to $339/month. If you were to trade in your vehicle with bad gas mileage for a more fuel-efficient vehicle, then you can more or less drive this newer car for free.
Every scenario is different, but now that you have the equations needed, you can calculate the savings for your exact situation and then make an informed decision.
Peter Dunn, aka Pete the Planner, is an award-winning financial mind who has authored five books, hosts the popular Pete the Planner radio show and travels around the country offering financial education. His signature wit will have you laughing as you learn. For more from Peter, visit www.petetheplanner.com.