August 2008

SUV Pain at the Pump

Author: Jim McCaffrey

Does your SUV cost a fortune at the gasoline pump? It was expensive when you bought it, followed by repairs, maintenance, insurance and taxes. Then came higher gasoline prices and a severe drop in re-sale value. A double whammy!

What next? Yes, it’s an expensive ride, but past costs are “sunk” costs. Can’t change ’em. How about minimizing costs for the next five years?

Families have budget problems. Owning a giant SUV slams you at every fill up. You may be ready to dump the guzzler for something cheaper. Hold it! SUV residual prices have declined. You can take a large bath on the SUV and buy a replacement vehicle that could actually cost more than keeping the SUV.

Before you trade, figure a more economical way to operate the SUV. That could include driving fewer miles, slower, smoother, etc. and fewer “in city” slow/fast, stop/ start impulse trips. Buy gasoline early in the day at the lowest cost station convenient on your route. Practice good maintenance habits such as proper tire inflation, clean oil and filters, tune ups, etc. In sum, this is a “keeper” plan and can lower your gasoline usage. With pump prices at an all-time high and rising, remember, if you buy gasoline containing ethanol you will get at least three to five percent lower mileage per gallon because gasohol, as it is called, has a lower BTU energy content.

With the keeper plan, you’re ready to compare its costs, say over five years, to a replacement vehicle. The replacement has to fit your budget—something practical and affordable, and it sure won’t be an SUV that you just want because it’s big and cool.

Define your needs
Maybe downsizing shock could be curbed with a nice four-cylinder, mid-sized sedan or station wagon, but not an econo-box with little cargo space. Don’t dump the guzzler and learn in a few months you’ve made another serious mistake. Look into choices such as leasing a vehicle, buying a low-mileage used car, or timing your purchase of a new vehicle off the lot when the next year model comes in.

Leasing has its own set of economics and trade-offs, e.g., drive a new car every three years at a certain cost. Remember, the leasing company has costs to cover and will face market risk at the end. Ownership over long periods can be less expensive, but this is a separate analysis.

Having made a potential replacement choice, compare it to the keeper plan. Don’t be discouraged about accurate data, because it is easy to find. Attack. Get the figures to make an informed decision. For simplification (as there are many choices), we compare a representative SUV Chevy Suburban to a typical mid-sized, four-cylinder Chevy Malibu.

A significant fact to remember is that your first five years’ depreciation costs for the SUV have been severe. Now the next five will be much less. A Chevy Suburban costing $38,280 is expected to have a resale value of only 31 percent in five years. That value is $11,867 after depreciation of $26,413 ($5,283 per year). If you hold on to the SUV and get $2000 at the end of 10 years, that’s $9,867 further loss (only $1,973 per year). So your depreciation cost in years six-ten will be there, but it’s a rate of decline much easier to take. You’ve already taken the big hit.

Following are example assumptions for the next five years comparing your five-year-old SUV to a reasonable down-sized car—not an econo-box:

1. You will pay $20,995 for a new Chevy Malibu four-door sedan. Extra costs of financing, leasing, down payment opportunity cost, etc., are not included. Savings from buying a three-year old used Malibu would lower the buy price to about $12,600. Original cost for your old SUV is not included since we’re only looking five years ahead.

One other point. Don’t let the joy of dumping the old guzzler blind you to your cost-savings goal when choosing another vehicle. If not careful, you could spend $5,000-$10,000 more than the Chevy on a spiffy station wagon, minivan or hybrid.

2. Sale of your SUV to a dealer can result in a 30-40 percent discount from industry-quoted $11,867 private “retail” sales. Here we use the worst case, i.e. your SUV brings in $7,120 trade-in since it is five years old ($38,280 × 31% = $11, 867 × 60% = $7120).

3. Malibu residual value of $7,978 in 5 years is 38 percent of original price. Suburban residual value at 10 years old, assumed at $2,000.

4. Gasoline is calculated at $4.50 a gallon over 12,000 miles/year. Malibu four-cylinder 22/30 average 26 mpg. Suburban eight-cylinder 14/20 averages 17mpg. Who knows? In five years, the gasoline average price could go into the $5.00-$6.00 range, so do the best you can on mileage improvement. This is why you are doing this exercise! If your yearly mileage is high, e.g. 25,000 miles, the smaller vehicle looks real good, real quick!

5. All other costs: service, insurance, repairs, tires and taxes. Industry sources put the operating costs for the new Malibu at $11,649 and the Suburban at $11, 715 over five years (excluding gasoline depreciation, and financing costs).

An interesting result here: The old SUV, for the next 5 years, would cost $2,344 less (about nine percent) than the Malibu. The lesson is this: There are too many assumptions to be dead-on accurate over five future years. The dealer trade-in amount of $7,120 could easily be $3,000 to $4,000 low if you are lucky enough to sell the SUV yourself at retail. This is only one example. It could well be that your group of assumptions will collectively point to the true lower-cost choice. When you apply your specific situation to this model, try for the most reliable data sources and check them against each other if possible.

If the math is too close to call, your SUV’s cargo space or other features may lead to the best decision for your family. It goes without saying that if you “want” (not need) a $30,000 sport wagon or a little hybrid, then economics probably are out the window as you’ll likely pay out too much to recover in gasoline savings and/or sacrifice too much to drive that new mini-car.

Good luck.

Will Trade Totally Loaded V-8 SUV for Golf Cart, Four Seater
By Paul deVere

How would you like to reduce your fuel costs to about a dollar a day? No, this is not from one of the stupid e-mails that somehow got through your spam filter, nor a (sub) urban legend. Welcome to the world of the GOLF CART. Not only are they environmentally friendly, that dollar a day is definitely pocketbook friendly as well.

Folks on Daufuskie Island, especially Haig Point (no cars allowed—just golf carts) have been laughing for years. So have Sun City residents, and those at Berkeley Hall, Belfair, Colleton River, Indigo Run, Windmill Harbour, Tradition, the list goes on. According to Don Barth of Club Car (1202 Fording Island Road, Bluffton), one of the leaders of the golf cart industry, “Normal use is four to five hours. It would cost you less than a buck to charge it.”

Heather Schwank of E-Z-GO (off Simmonsville Road on Fuller Court, Bluffton), another major manufacturer, said, “Residents of Belfair can go up to Kroger, that whole area. If the road is posted at 30 miles per hour, you can ride your cart.”

Margie Donley of Coastal Custom Carts, a Yamaha dealer (22 Plantation Park, Bluffton), said that many of her customers are selling their second cars and buying golf carts. Her customers in Sun City were spending $50 a month on gas, just driving around the development. Donley’s company specializes in customizing carts and has a shop with five mechanics on Burnt Church Road. She also admits, owners think golf carts are fun to drive. “One of them told me it’s like having a front porch on wheels.”

That seems to be the case for Erin Reichert and husband Mark, who drive around Old Town Bluffton in a golf cart just because they can. She said it wasn’t so much for saving on gas, but more for fun. “A lot of the people in the neighborhood have one. We’ll drive down to the Old Oyster Factory for seafood, or go down to the river and watch sunsets,” she said.

Club Car’s Barth said, “Activity has definitely picked up. More people are buying; more people are investigating (the possibility). The price of gas very probably pushed people over the edge.”

And safety concerns? Barth said, “The vehicles will only go 20 miles per hour. Twenty miles an hour is safe and efficient. These people should be relaxing anyway.”

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