Trading in your gas guzzler

Gas prices over $4 per gallon are displayed at a Shell station in San Mateo, Calif., on March 13, 2008.

TEXT OF STORY

Tess Vigeland: You heard that mention of gas prices forcing people to choose between buying food and driving to work. Well, one solution if you've got a gas-guzzler might be to downsize to a smaller, more fuel efficient car.

But Marketplace's John Dimsdale cautions you need to look carefully at all the costs and benefits.


John Dimsdale: Mike Graff is the used car manager at Page Toyota outside Detroit. He's seen the look on the faces of customers tired of paying $150 to fill up.

Mike Graff: You know when somebody pulls in in a truck they're trying to get out of the truck. You know, they're just spending so much money.

Graf says he's happy to help customers out. The problem, though, is that the value of used trucks and SUVs is dropping fast. There's little demand for them and since car dealers are offering huge discounts on brand new ones, used ones are even cheaper.

Graff says owners who are still paying off a car loan frequently owe more than they'll get from a trade-in.

Graff: You're talking sometimes $8-9,000 difference between what the payoff is and what the car's worth.

Plus there's the rising cost of hard-to-find fuel efficient cars. Toyota dealers say there's a six-month wait for a Prius and some are tacking on $2,000 or $3,000 to the $24,000 list price.

Tempting though it may be to unload that big car for a more fuel efficient model as soon as possible, it may not be the best financial decision, says Jeff Bartlett, the deputy editor for ConsumerReports.org.

Jeff Bartlett: There are a couple somewhat hidden costs to owning a car that people looking to downsize may not see. They include depreciation, which is greatest in the first year. The other is the interest that would be paid on the loan. So while you may save $1,000 or even more in exchanging for a more fuel efficient vehicle, that vehicle may depreciate thousands of dollars.

According to Consumer Reports, depreciation makes up nearly half of an average new car's costs while fuel, even at today's prices, averages only a fifth of a new car's costs. That means the longer you keep your car, the better.

One way to avoid the cost of depreciation is to buy a used car instead. Bartlett says you'd have to drive a new Prius 100,000 miles before it became more cost effective than buying a used Toyota Tercel.

Bartlett: Buying used is always a smart economic choice as long as you're buying a model that's new enough to have good reliability and the latest safety features and still perform well. There are many used models that have very good fuel efficiency. You may give up a mile or two per gallon versus the latest model, but you'll be saving your money in other ways.

A used smaller car may save money, but not if it's too used, says Clarence Ditlow at the Center for Auto Safety.

Clarence Ditlow: We wouldn't support going to a 10-year-old small car simply because the ones being built over the last two or three years are much better vehicles.

Ditlow says don't let high gas prices drive you into an unsafe small car.

Ditlow: You need to have electronic stability control, you need to have side curtain airbags, need to have strong, well-engineered occupant compartment integrity. Those were not primary design concerns on the small cars that were built in the mid-1990s to 2000.

Consumer Reports has developed a way to compare the cost of fuel efficiency by dividing the new car price by the miles per gallon. Topping the list of price per miles per gallon is the Honda Fit Sport with a manual transmission. The Prius and Honda Civic Hybrid with their much higher prices are farther down the list.

In Washington, I'm John Dimsdale for Marketplace Money.

About the author

As head of Marketplace’s Washington, D.C. bureau, John Dimsdale provides insightful commentary on the intersection of government and money for the entire Marketplace portfolio.

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