Now that gas is more expensive than it used to be, I’ve decided to upgrade to a Sport Utility Vehicle. I made the decision about a month ago, and almost everyone I know thinks I’m crazy. I’m not crazy, but I do think I’m noticing something a lot of people are ignoring. I’ve noticed that because the price of gas went up, SUVs are cheaper.
As anyone who’s watched TV or driven by a car dealer in the past few months knows, hybrids and other fuel-efficient vehicles are quite popular these days. An oft-unnoticed result of the rising demand for fuel-efficient vehicles is the plummeting demand for their substitute, gas-guzzling vehicles. Naturally, the price of gas guzzlers has dropped. Eventually, it dropped enough to make gas guzzling cheaper than fuel efficiency.
I’ll actually save more money by buying a (now relatively cheap) SUV than I would by purchasing a more fuel-efficient car. The savings on the purchase price of an SUV will more than offset the extra money I’ll be spending on gas to drive it.
However, this has not been one of my more popular decisions.
When I mentioned my purchasing plans to my acquaintances and coworkers, they were aghast at what they considered to be my disregard for the environment. I don’t think I’ve ever felt such strong peer pressure before. (Lucky for me I have such little regard for my peers’ opinions.) Almost everyone I know has tried to convince me not to trade in my car for a truck. When I explained my strong desire for cargo room (come on, folks, I really can’t take the dog camping in the back of a sedan!), they suggested that I buy a hybrid SUV and reduce my “carbon footprint.” (Environmental Bigfoot, that’s me all the way.) Then somebody who knew me better made a different argument – she suggested I’d save money if I bought a more fuel-efficient vehicle. (Ah-ha. Now there’s a way to convince people to help the environment. Give them a financial incentive.)
So I sat down and did some math. I’m not especially good at math, so it took me longer than it probably would have taken you, and my results might not be perfect, but here’s what I figured out:
A more fuel-efficient vehicle would cost me more, in both the short and the long run.
I started by playing “Let’s Pretend:” Let’s pretend the price of gas will stay at an even $3 over the coming years (a ridiculous assumption, I know, but we have to assume something or I can’t do the math). Let’s also pretend that my dream car is a certain 4WD, 8-seater, has-space-for-the-dog-in-the-back, gasoline engine SUV that averages 19 mpg. I’m going to call it the Tortoise. My eco-friendly alternative is a hybrid SUV which gets 32 mpg. I’ll call the hybrid a Hare. Finally, I’m going to say that the Tortoise and the Hare are comparable vehicles other than their fuel consumption – each has a similar amount of cargo room, in-dash GPS, leather, and the same amount of miles (I’m shopping in the used market, of course). The only legitimate difference between these two vehicles is that the Hare is relatively fuel-efficient, and the Tortoise burns gas like a panda eats bamboo.
Now for the Not-Pretend part: I drive at least 250 miles each week. (That should make me a good candidate for a hybrid, right?) This means that if I buy the Tortoise, I will spend about $1970 on gas in the first year. (Ouch.) If I buy the Hare, I will spend about $1170 (Smaller Ouch). In other words, in the first year, I would save $800 in gas by purchasing the hybrid Hare (or if the price of gas goes up, I’ll save more).
That sounds nice, I admit. But I remember Bastiat’s advice fairly clearly, and now it’s time to go looking for That Which Is Unseen. In this case, the key piece of the puzzle is that hybrids are more expensive than their less trendy counterparts. Substantially more expensive.
The Hare costs me about $29,000. The Tortoise costs me about $16,000. That is a thirteen thousand dollar difference. If I’m saving $800 a year in gas money, it would take 16.25 years to make up the difference.
That Which Is Unseen, Item #2: I want a third row of seats. Can’t get that in a hybrid. How much is that worth to me? When I did my initial shopping for this purchase I decided it was worth $1000 to me to have a third row, since $1000 is the extra amount I’m willing to pay, given two vehicles that are otherwise identical. (Sometimes I have to pretend I’m really going to buy something before I can tell what my true preferences are – when I pretended to myself that I was going to buy a car without a third row, my pretend self was unhappy enough to spend about a thousand pretend dollars to make it better, but not unhappy enough to spend two thousand pretend dollars. So I figure I can price this preference at a minimum of one thousand dollars. Not a very scientific method, but it works for me.)
Unseen #3: Hybrids have expensive batteries to replace down the line (before that sixteen-year payoff mark).
Unseen #4: The extra money that I spend on the Hare ($13,000) is no longer available to me as a source of interest income. That lengthens the payoff period in a very real sense.
Unseen #5: I don’t feel as safe in a hybrid. I drive one at work, as it happens, and I constantly have this feeling like I’ll be squished between two semi trucks before the poor little engine can get me out of the way. Putting a price on this preference is tough… but I’m willing to pay at least $500 to drive a Tortoise instead of a Hare.
The bottom line is that it would be at least sixteen years before the money I save in gas offsets the extra cost of the truck. Do I really want to spend ten years trying to make up for a purchase that I’m not in love with in the first place? No.
We’re back to square one: I like the Tortoise better, and it’s cheaper. Therefore, I will purchase it.
Ironically enough, I think I can thank the trendy hybrid drivers for making my Tortoise so relatively cheap. A year ago I couldn’t get a Tortoise for less than $23,000. It wasn’t until trucks were shunned that they became so affordable.
Gas-Guzzlers R Us, here I come.
November 14, 2008