Don't get me wrong -- I'm all for cutting back on gas consumption. Finding new ways to rein in gasoline's soaring cost is one of the only ways you can hope to save your budget in the new energy world. You can't count on OPEC, you can't count on the government, and you can't count on oil companies to solve your own problems. If you really want to plow a new trail to energy independence, your first step is figuring out ways to personally cut your own gas consumption.
No wonder hybrid vehicles have become a runaway hit in recent years. Nearly every major car manufacturer -- from Toyota (NYSE:TM), Honda (NYSE:HMC), and Nissan (NASDAQ:NSANY) to GM (NYSE:GM) and Ford (NYSE:F) -- has exploited hybrid vehicles to take advantage of consumers who'd rather be beaten with sticks than suffer another $100-plus tab at the gas station.
Of course, that's a move in the right direction, especially if you're stuck with an SUV that more resembles a dump truck on steroids. But if saving money is your entire rationale for trading your gas-guzzling SUV for a hybrid, crunching a few numbers might give you quite a wakeup call regarding how much you're actually "saving."
SUV, meet efficient markets.
Like any market under the grips of supply and demand, the price of SUVs has tanked to reflect the public's newfound disinterest in such gigantic gas-guzzlers. According to Kelley Blue Book, used SUV prices have dropped on average between $2,300 and $3,400 just since last fall. Contrast that with demand for hybrids, which has become so intense that manufacturers like Toyota have struggled to keep up production levels. As a result, the benefits of a hybrid over an SUV can turn out to be small potatoes, in some cases.
Suppose you're currently cruising around town in a 2003 Chevy Suburban -- a beast that slurps gas at around 13 miles per gallon. Fed up of forking over a small fortune after every visit to the gas pump, you decide to trade in your old 'burb for a much more economical Honda Civic Hybrid. Finally, the pain and suffering that comes along with driving will be eased for good, right?
Well, not entirely. Your 2003 Suburban has lost so much love that it'll only fetch around $9,000 as a trade-in, if you're lucky. That's down from the $39,000 or so you shucked out five years ago. Ouch. The new Honda Civic Hybrid? That sleek new ride -- sipping gas at as much as 45 mpg -- will run you about $25,000. Once you've crossed the Ts and dotted the Is, the new hybrid has set you back some $16,000. But what do you care? It's all about cheaper gas bills, baby!
Not so fast
If you're driving 10,000 miles per year, your old Suburban consumed around 769 gallons of gas annually. The new hybrid takes that number down to as little as 222 gallons per year. With $4-a-gallon gas, that's a savings of almost $2,200 every year.
That sounds like a great investment, and for many people it is. After all, you'd have a brand new car instead of a five-year-old SUV, with the extra maintenance costs that older vehicles can bring.
But just as millions of homeowners trying to sell their homes in order to ditch rising mortgage payments have found out, the amount you owe on a loan can be greater than what you receive from a sale. According to the Power Information Network, around 36% of those trading in big SUVs in May found themselves underwater on their car loans, with their trade-in not giving them enough to pay off their loans.
Even if you owned the Suburban in our example outright, it'd take seven years to break even with the new hybrid. If your trade-in can't cover your entire loan, getting back to even could take considerably longer than that.
Do the math
None of this is to say hybrids aren't worth your money. Far from it. Still, it's increasingly important to weigh all the financial factors involved before you get too hyped up about how much you'll save at the pump.
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