Background – Save Money Buying A Car
My car is a 1997 model Crown Victoria LX with 253,000 miles on the odometer. I have owned it for about 13 years. A few years back (when gas prices were hovering around $4.00 a gallow) I decided to not buy a new car until I was making money by purchasing a car. Let me clarify what that means. Modern cars are much more efficient than older cars with regards to gasoline. Further gas prices keep (or at least have kept) increasing (fracking and domestic oil production may change this trend). In order to make money buying a car, I need to be putting money in my pocket in exchange for the purchase.
The easiest way to determine how much money is going into my pocket is to first determine how much money it costs to operate my car during the course of a year. This includes regular maintenance (oil change for instance), unscheduled maintenance (transmission explodes), and of course gasoline. Regular maintenance can be easily estimated by taking your records for the last several years and averaging them into a cost per year. Unscheduled maintenance is more difficult to determine but a long term average per year and reading reports on other cars of the same make and model may get you into the ballpark area. I also do not examine this aspect. The third and final aspect (the one most interesting to me) is fuel cost savings.
The Problem – Should I replace my car?
The problem requires solving several problems which effectively make up a cost/benefit analysis specific to MPG when comparing two vehicles (mine and the one I want to buy). First, the annual consumption of my car must be determined. Second, the predicted annual consumption of the proposed new car must be determined. To determine these values it must also be determined how much is driven annually.
The Solution – A comparative analysis in excel
This is a complicated enough analysis that I decided to use an excel sheet to assist with the calculations (plus I can share it with you all easily). For my analysis I determine that I drive 30 miles to and from work each day. Then I determined about how much driving I do on a weekly basis in addition to my work commute. Finally I included the amount of driving I do on vacation weeks and how many vacation week I take in a year. Don’t laugh I don’t get a lot of vacation and earn pennies. This calculation approximates how much driving I conduct on a yearly basis. Its probably fairly accurate but only an estimate. A better measure might be to call you mechanic and get your milage on various dates when you changed your oil and extrapolating that data into an annual milage number.
OK, we have determined the milage (just fill in the yellow boxes on the spreadsheet it’s really simple) driven in a year. The next step is to determine how much that milage costs in fuel. For this calculation we need to compare the vehicle currently being driven and the vehicle that might be a desirable purchase. I will compare my car to a Toyota Prius Hybrid (it has a MSRP of about $19,000 currently and gets 60 MPG) because its low cost and great effeciency make it a good candidate for a replacement.
MPG can be acquired from fuel economy.gov or you can calculate your own independently. For my car it lists at 18 mpg, but I measure it closer to 15 mpg (possibly my driving? Or I need a tune up?). The mpg is divided by the annual miles to determine the gallons of fuel required per year. This is multiplied by the cost of gasoline to determine the fuel expense. The same calculation is done on both vehicles and the trade in value and purchase price are considered to determine the actual cost/savings each month. You can compare that number to your actual loan to determine what effect the purchase will have on your monthly budget. My goal is to increase my monthly budget by purchasing a new car and I am still waiting for cars to be efficient enough, my commute to work long enough and the cost of gas high enough to justify the purchase (Bluetooth connectivity will be a great upgrade from my tape deck).
Conclusion – Some Additional Conaiderations
I have heard and I suspect it is true that the purchase of a new car is worse for the environment than continuing to drive a much less efficient vehicle. This would be caused by several factors including pollution and energy use in the manufacturing process and creation of new materials, such as plastics etc for the car itself. Perhaps one article I will examine that aspect. From a financial perspective I think the mpg and maintenance are the primary factors to consider and will give a buyer adequate information to make a well informed decision. Happy car buying.
Update I Made An Auto Calculator:
I made a auto calculator for you all so that you do not need to use the spreadsheet any longer. This calculator will determine the savings yoo could see based on your input. Please remember prices can change and other variables also can impact these values.