I'm feeling gassy

Posted: May 2, 2011 in General

Today, after ringing up $62 filling up the Subaru I started to wonder how high gas prices would have to be to seriously consider buying a new car (and shudder a hybrid*). The Subaru has two strikes against it. First the AWD affects the gas milage quite a bit. If I do a lot of highway driving I might get 24MPG out of a tank, but 19-20 is closer to the reality. Second, it requires premium fuel (which is 91 or higher octane).

So I pulled open a spreadsheet and put together some quantitative analysis. Gas prices would have to reach about $7.50/gal for premium gas for a tank of gas to cost north of $100. I don’t think we’re far from that, and I wouldn’t be surprised if we get there by 2015. Since I drive almost exactly 15k miles each year, that’s about $5k dollars, I can see why public transportation could look pretty good. At that rate you’ll pay the cost of your car over five years (a typical auto loan).

It’s not as though things are a whole lot better right now. At current prices, I’m spending just north of $3k/year for gas. Cara’s Corolla is doing a bit better at about $2k/year.

So the question is, when does it make financial sense to purchase a new car? I’m going to make a few assumptions. Although a 40MPG car sounds pretty good, the reality is that it’s tough to actually find a good car that can achieve that. I set a target of 34MPG running on regular fuel. I jumped to the $7.50/gal premium fuel. My prospective car would cost just under $3k/year to operate. That’s a savings of almost $2k. Not bad, but not really worth the expense to purchase a new car (as a note, the 40MPG car only saves us $500 beyond that).

Skip forward to the dreaded $10/gal gas. My Subaru would now be running up a $7300/year tab. The potential replacement $4,400. Saving almost $3k. Across 5 years that’s $15k, that’s pretty good.

This brings to light one of the important things to remember about gas milage and figuring the cost. The cost of operation starts to level off. At $10/gal the difference between 15MPG and 16MPG (for a year of operation) is $625. The difference between 34MPG and 40MPG is $661. So 1 MPG difference if you have bad gas milage is equal to a 6MPG difference if you have good gas milage.

*Which brings me to hybrids. Toyota is pretty much the “gold standard” when it comes to Hybrids, so I’ll take the Camry as an example. The gasoline Camry is 22/33 the Hybrid is 31/35. I’m going to average the numbers to arrive at 28 for gas, 33 for hybrid. At our $10/gal gas, the gas Camry will cost us $5300, the hybrid $4500. So the hybrid is going to save a whopping $900. The hybrid does cost $7000 more, so you’d have to own the hybrid for almost 8 years and drive it 115,000 miles before it started to save you money.

  1. April says:

    Ha, I remembered writing about this when we bought our car! Turns out I did: http://dr-rini.blogspot.com/2007/06/why-i-didnt-buy-prius.html.

    Funny the only thing I was wrong about was the price of gas. 4 years ago, $4 a gallon seemed pretty unrealistic. Although we haven’t seen it that high here yet. Still very happy with the Rabbit – gas mileage and safety – two crashes and neither of us were hurt at all. Even the EMTs were amazed!

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