With gas prices at $4 a gallon and no decrease in sight, more and more consumers are considering trading in their vehicles (especially if they own a gas guzzling truck or SUV), for smaller, more gas efficient vehicles.
But financially, is this a good idea? Generally not. Why? Because in most cases, the cost of trading in a still viable vehicle for a smaller, more gas efficient one is not offset by the savings realized in fuel costs.
What should you look at when considering trading for a smaller, more gas efficient vehicle?
· Most importantly, decide whether your current vehicle is still “viable”.
· What constitutes a viable vehicle? One that is safe, reliable, and does not “nickel
and dime you to death” with the need for constant repairs. And, indeed, most
vehicles today should remain viable for at least 100,000 miles (and, many, 150,000 miles
or more). Which means, most people should get at least 5 or 6, and often 7, 8, 9 or possibly
more good years out of their vehicle. And, again, as long as your vehicle is still viable,
financially, your best bet is to keep and run it until it no longer is viable, high gas prices or
OK. What if your vehicle is still viable, but its getting “long in the tooth”, and you know that you’ll likely have to trade it in within the next year, 2 or 3? In this situation, is it worth trading for a more gas efficient vehicle “early” so as to save on fuel costs? Here, there are two basic factors to consider:
· How many miles do you drive each year? If you don’t drive at least 15,000 –
20,000 per year, any savings in fuel costs on the more gas efficient replacement vehicle in
most cases won’t cover the monies you’ll lose by trading in a viable vehicle early.
· How much do you owe on your current vehicle compared to how much its
worth? Bottom line – if you owe more on your current vehicle than its worth in trade
(i.e. – “upside down on your car loan”, as many people are) there is virtually no way that
the savings on fuel costs on a more gas efficient vehicle will offset the loss (and, in many
such cases, a big loss) that you’ll take when you sell or trade in your current vehicle early.
Finally, what if you really do have to replace your current vehicle because it’s no longer viable, or you have to buy a vehicle because you currently don’t have one? Here, while it should not be the only factor you weigh in deciding on what new (or, better yet, a slightly used vehicle, or a “new” vehicle that is last year’s model but still left over on a dealer’s lot) to buy, the fuel efficiency of the vehicle you choose is one of the factors to consider.
However, even in these situations, be careful. Many people, when looking for gas efficient vehicles these days, are gravitating towards hybrids, which are designed to be very fuel-efficient. The problem is, hybrids generally cost 2, 3, or even $4,000 more than a similar, non-hybrid vehicle. And, once again, unless you drive a lot of miles each year, its unlikely the fuel savings from the hybrid will make up for the higher cost you pay up front for the vehicle.