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Trade a Gas-Guzzler for One With Better Fuel Economy — Will You Save Money?

Written by: Kristy Welsh

Last Updated:  July 13, 2010

It's the million dollar question many of us are facing with gas costs prices hovering around $3 to $4 a gallon — will trading in my gas guzzler save me money in the long run?

Take me for example - I drive a 3/4 ton Chevy Silverado with a towing package and it is my only vehicle and did I mention it gets 12 mpg.  Ouch.  And, given my lifestyle includes a wide array of outdoor activities requiring a truck, it is not an option for me to not own some type of pick up truck. Does it make sense for me to buy a fuel efficient car and sell my truck, simply park my 10 year old truck aside for monthly camping or hauling trips and invest in a second fuel-efficient car, or does it make more economic sense to continue as a "one truck" family?

For many of our readers, their situation is fairly similar. I paid cash for my truck initially, so I do not have to account for depreciation or money owed on it, so some of you may have a slightly different scenario. If you've purchased your SUV or truck in the past several years and have a outstanding loan balance, it is likely you owe more than the vehicle is worth, considering the high depreciation that comes with the first few years of ownership, combined with the fact that these gas guzzling vehicles are just not in demand right now. In fact, according to a recent article in the Wall Street Journal, a 3 year old large SUV today is worth about $2,000 to $3,000 less at trade-in than a three-year-old large SUV would have been, before gas prices began to soar. A three-year old Chevy Tahoe that might have fetched $19,700, may only be worth $16,400 at trade-in. This equates to an additional loss of approximately 16 percent, on top of "typical" depreciation.

Where Do You Start This Analysis?

After reading a lot of articles on the internet, I think the most helpful and easiest strategy to understand is to use a concept called "True Cost to Own," or TCO. This is all of the ownership and operation costs for a given vehicle for five years, including depreciation, financing, insurance, taxes and fees, fuel, maintenance and repairs. We found several automobile websites that used this or similar analysis tools to help consumers compare these costs for different vehicles, circumstances, etc. These sites include Kelley Blue Book, Consumer Reports, and Edmunds. You can define your situation and needs and using these or other online tools, and make some useful comparisons.

First, let's define each of the variables that need to be considered in calculating the cost of ownership of any given vehicle:

  • Depreciation - Depreciation is the decline in a car's value over the course of its useful life. The standard rule of thumb for used cars is that they lose approximately 15 percent to 20 percent of their value each year. This is the largest ownership cost and according to Consumer Reports, a typical new vehicle depreciates about 65 percent over five years.
  • Fuel Costs - No need to stress the fact that these have become extremely significant; and are probably the second largest cost for an average driver. Calculations will vary based on the annual mileage traveled, typical assumptions are 12 to 15 thousand miles per year.
  • Interest - Interest accounts for about 12 percent of five-year ownership costs. It is typically calculated based on a five-year loan, with a 15 percent down payment, because that is how many people buy cars.
  • Insurance:Insurance costs vary depending on many factors, including your age, location, and driving record. And they can dramatically boost the ownership costs of models that otherwise would seem affordable.
  • Maintenance - Maintenance and repair costs make up 4 percent of ownership costs over (the first) five years on average, according to data from Consumer Reports.
  • Sales Tax and other fees - Sales tax costs owners an average of 4.83 percent.

What is Next?

If you want to compare the cost to own of any vehicle,  the website tools we listed above are easy to use and you just have to input your specific information such as the zip code you drive/live in, and the statistics about your existing (or desired) vehicle. You will be provided a "TCO" figure, an estimate of all of the ownership and operation costs for five years. Additionally, a "cost to own" detail giving a breakdown of how the car's expenses change over the five-year period. With these tools, you can compare similar vehicles or a new versus used vehicle. Surprisingly, you may find that the purchase cost of a particular car appears to be a bargain, while the ensuing costs make it prohibitive for your budget.

Edmunds also gives a nice comparison statistic in it's "cost per mile" to drive value. For example, it may be common knowledge that a Honda Civic is a good value for the money. With TCO, you can confirm this: The cost per mile is about 28 cents (I presume this is for a newer model), one of the lowest of any vehicle.

Well, I'm still trying to decide whether it's beneficial to replace my old truck. There is not a "canned" program out there that is going to clarify this for me easily. Seems maybe I'll just have to do old fashioned math with my own assumptions to figure this out. I think I'll use the Honda Civic as my proposed replacement/second car.

So for a used Honda Civic in my zip code (I chose a used 2003, did not specify a model) the TCO was 38 cents a mile and $28,182 for the next 5 years. If I don't finance, or my mileage is different than the 15,000 a year they estimate, I can modify the numbers accordingly (manually, just remove financing costs completely and increase or decrease gas costs accordingly). Also, if you don't buy from a dealer, you can reduce your sales tax as well.

So, the TCO for continuing to use my 1999 Chevy Silverado the next 5 years that has $140,000 miles on it is as follows. I'm going to have to use actual figures or manually calculate as the sites I've found don't look back that far:

  • Depreciation:  Not sure it's worth much of anything now, but according to KBB used car tool it's value is approximately $6500. So, 10 percent a year for the next 5 years averages out to about $600/year.
  • Fuel Costs: 15,000 miles per year at 12 mpg and gas I'm going to use $4/gallon (I'm not sure the websites have factored in recent jumps into their algorithms yet) thus $5000/year for fuel.
  • Interest:  Zero, the car is paid off.
  • Insurance:  Pretty low, older vehicle, good driving record, I'll estimate an average of $600 a year based on what I now pay.
  • Maintenance:  This is probably not going to be good. I could not find anyone giving estimates on a vehicle this old, so I'll use my records from the last several years on this and say $1500/year.
  • Taxes and other fees:  Vehicle license tax and emissions fees are approximately $75/year average for my older vehicle.


How did I come out? Estimated TCO for my paid off gas guzzler is $38,875 or 52 cents a mile.  At the end of the 5 years, I don't think there is any value left on the vehicle, either. Yikes, the Honda Civic estimate gave me 38 cents a mile and $28,182, a difference of close to 30 percent, not to mention it is still estimated to be worth about $5,000 after driving it 5 more years.

Now my analysis is unique, remember, I used a highly rated economy car to compare, and my truck gets the worst mileage possible I think. If you have an earlier model SUV particularly if you are in the first several years of the depreciation curve, the figures may look completely different. The purpose of the article is simply to point out the variables that you need to consider when evaluating your own specific situation, and to share links to sites that can provide easy calculating tools and information to help you. Good luck!

So what to do? I've some ideas. RENT a truck when you need it. Hey, how about a joint venture with multiple families where you cost-share in a truck? Maybe find a boyfriend/girlfriend who owns a truck? Might be tricky, but just some thoughts... Clearly, there needs to be some answers especially with single and 1-car families that must make a choice between economy and need.

For information from the FTC regarding Facts for consumers when buying and researching a used car, click here.