Although gas prices are below the heartaching levels they reached in 2005, nationwide they are still high enough to make many drivers wonder if they should trade their SUVs or larger cars for more fuel-efficient vehicles.
And what if you owe more on your car than you can get selling it privately or trading it at a dealership?
That’s the predicament facing Tom Hungate, who lives in Pullman.
Hungate bought a used 2000 Ford Expedition. He wanted it for its roominess and because he does a fair amount of driving in poor weather conditions.
He said he began to second-guess his vehicle choice when gas prices began to rise significantly last year.
Hungate has tried to sell the Expedition privately, but he can’t get enough to pay off his loan. He’s in a situation a lot of car owners find themselves in these days. He’s upside-down on his loan – meaning he owes more on it than the SUV is worth. Hungate wrote to me hoping I could help him figure out what to do. He wanted to know if he should get something more fuel-efficient or keep his “gas-gobbling machine.”
“My wife and I argue over the logic of the situation,” Hungate said.
“She says live with it and use the car when necessary. I say why make payments on a car we don’t use?”
When faced with this type of financial dilemma, there are a number of factors you should consider (fuel economy, maintenance costs, interest rates, insurance, reliability, which car will hold its value better, environmental impact, etc.). But in this case, let’s just look at the one overriding factor that makes Hungate want to get rid of the Expedition – high fuel costs.
Hungate said the Expedition gets about 14 miles per gallon in the city and 17 mpg on the highway.
With that in mind, I did a little computing to see if he should trade or keep his Expedition.
Hungate estimates he’ll pay about $100 a month for fuel at current gas prices. So his car expenses for a month (excluding maintenance and insurance) are $470 ($100 in gas plus a $370 car loan).
Hungate is just three years into a six-year car loan, so he’ll pay that for the next 36 months if he keeps the Expedition. To make this easier, I held constant for gas prices. Obviously, gas prices go up and down and experts are predicting continued jumps in fuel costs in coming years.
However, Hungate estimates he’ll spend about $1,200 a year for fuel for the Expedition.
So let’s look at the costs Hungate would incur if he traded in the Expedition for another vehicle.
He’s considering a Hyundai Tucson with the four-cylinder engine, a compact SUV with better fuel economy (22 mpg in the city, 27 mpg highway by government estimates, which many critics say aren’t accurate. But let’s go with that for this exercise).
Hungate figures he would spend about $50 a month on gas on the Hyundai, for a yearly savings of $600.
With options, he expects to pay about $22,000 for the Hyundai.
However, he may end up financing $24,000, not including tabs, taxes and fees. (I’m trying to keep things simple here.) The extra $2,000 represents the negative equity from the Expedition.
His monthly payment on the Hyundai would then be about $547 based on a 48-month loan at 4.5 percent interest.
Including gas, his new monthly vehicle costs would be $597.
So Hungate’s real costs would go up $127 a month if he purchased the Hyundai.
Let’s take this example out for three years (again, keeping everything constant for simplicity). Over three years he’ll spend an extra $4,572 if he trades the Expedition for the more fuel-efficient Hyundai.
Getting rid of the Expedition also means another year of car payments, which will total $6,564.
Hungate will save on gas driving the Hyundai.
But when you consider the extra car expense for the first three years and the additional 12 months of payments, it would take him almost 19 years to break even ($11,136 divided by $600). In other words, he’ll see savings on gas after he drives the Hyundai for close to two decades.
I know this example is super simple. It is unlikely Hungate will keep the Hyundai for more than two decades. And he may not mind the extra money on the purchase if it means being more fuel efficient, which is great for the environment.
But Hungate likes his Expedition. When he drives it, it perfectly suits his family needs. In this case, he should not trade in the Expedition for a new Hyundai Tucson just based on fuel savings.
Hungate should listen to his wife. Keep the Expedition. And drive it.
Washington Post Writers Group
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