Yonkers, New York – Many consumers are trying to trade their current vehicles for smaller, more fuel-efficient ones in the wake of fuel prices, but a new study from Consumer Reports warns drivers that downsizing too soon can cost more in other areas than they’ll save at the pump.
An analysis of Consumer Reports’ owner-cost data found that it often doesn’t pay to downsize if you’ve only owned your vehicle for three years or less and haven’t paid off the loan, even if the new car’s fuel economy is much better. The magazine reports that consumers should typically hold onto their cars for at least four or five years to minimize the financial effect of depreciation and finance charges.
According to Consumer Reports’ calculations, depreciation makes up about 48 per cent of an average owner’s total vehicle costs in the first five years of ownership, but fuel averages only about 21 per cent of total costs. For a typical owner with a 60-month loan, trading in a three-year-old vehicle will cost more in depreciation than what would be saved in gasoline with the new car.
“These hidden costs may be the factors you are least likely to focus on when downsizing,” said Rik Paul, automotive editor. “After all, depreciation and interest are less tangible costs than the high price for a gallon of gas that slaps drivers in the face with each fill-up.”
Using U.S. gallons and prices, the magazine found that a 2005 Ford Five Hundred SEL V6 sedan got 21 mpg overall, while the 2008 Toyota Prius got 44. Assuming 12,000 miles per year at $3.75 per gallon, the Ford will cost about $2,000 in gas this year, the Toyota $1,000. But factoring in all owner costs of trading the Five Hundred, the Toyota will cost about $9,000 to own for the first twelve months, while the Ford costs $6,000, a difference of about 23 cents per mile.
“Based on today’s numbers, it’s less expensive to tough out another year or two with a gas guzzler than trade in too early,” Paul said. “However, if gas prices rise past $5.00 per gallon, large vehicles may see their depreciation accelerate, and owners could face new challenges in selling their old model.”