Before you trade gas hog

With gasoline prices soaring, owners of trucks and sport utility vehicles are likely asking the same question: "Should I trade my gas hog for a new fuel-efficient car?"

You'll have to do the math, but if you do it right the answer is likely to be "No" from strictly a money standpoint. It's often not worth dumping a large vehicle for a smaller one, especially a new car. You just won't make up in gas savings what you spend on a new car, mostly because of the hidden costs.


"You have to look at the big financial picture and weigh all the ownership costs, not just the fuel-usage cost," said Rik Paul, Consumer Reports automotive editor. "If you're trading in early in your ownership cycle, it might not pay. You'll take more of a hit in total ownership costs than you'll get in better fuel economy."

Here are considerations:


*A rule of thumb: If your gas-guzzler is five years old or younger, it probably won't pay to buy a new fuel-efficient car of similar size, according to a recent study by Consumer Reports.

*Heed the hidden costs: Ignored in some consumers' calculations is the cost of depreciation, which is the plummeting value of a new, or nearly new, car. A new car typically loses 30 percent of its value in the first year of ownership.

"Depreciation, of course, is the biggest factor," Paul said. In fact, during the first five years, depreciation accounts for nearly half the cost of owning the vehicle. The mistake many people make is to calculate gas savings from the smaller car and compare it to the monthly payments on a new one. The math is a bit more complicated when you consider depreciation and other costs.

*Hidden costs II: If you're still making payments on a young vehicle, you've paid mostly interest and little principal. So, you won't have much equity in the vehicle. That means when you sell it early, you won't get much money out of it to use as a down payment on a new one. Moreover, because fuel-efficient vehicles are in demand, you might have trouble finding one you want and you'll have little negotiating leverage.

*Hidden costs III: New vehicles cost more to insure. And when you buy a vehicle, you have to pay state sales tax. If sales tax is 6 percent, for example, the tax is $1,200 on a $20,000 vehicle. That equals 20 fill-ups of $60 each just in sales tax.

*An example: Consumer Reports considered trading in a 2005 Ford Five Hundred SEL V6 sedan that gets 21 mpg for a new car with better fuel economy. But that turned out to be a very expensive move. If gas cost $3.75 per gallon, trading to a new four-cylinder 2008 Toyota Camry, a Camry hybrid or a Toyota Prius all cost thousands of dollars more in the first year. Even if gas went up to $5 per gallon, the numbers didn't come close to evening out.

While the basic hybrid Prius would save $1,000 in gasoline costs per year over the Ford, the total ownership cost of the new Prius for a year was $3,000 higher, a net loss of $2,000. The biggest factors in that gap were the new car's depreciation and financing costs, which assumed a five-year loan term for each vehicle.

An online calculator that can help you decide is at: http://politicalcalculations.blogspot .com/2006/04/should-you-trade-in-your-ga s-guzzler.html.


Of course, trading from a large truck or SUV to a sedan improves the math, but Consumer Reports assumed that if you had a large vehicle your new vehicle would need similar capacity.

*Trade for used: You can mitigate the cost of downsizing if you can minimize the depreciation loss. That means buying a used car whose previous owner already suffered that tremendous wallet-draining depreciation.

"If you're trading for a used car it makes a whole lot more sense because you've already gotten the initial depreciation hit behind you," Paul said.

*What if I have an older vehicle? The math starts turning around for paid-off older vehicles, five years or older, because depreciation is less a factor and gasoline accounts for a greater portion of your overall ownership costs, Paul said. "At that point, it makes a lot more sense to move into a more fuel-efficient car," he said.

*Other reasons: If you want to trade in a gas hog for other reasons - to help the environment or help reduce America's dependence on foreign oil - that's fine. Just know what it's costing you. And pay attention to factors other than gas mileage, such as quality, reliability, safety and a vehicle that fits your needs.


Gregory Karp writes for The Morning Call in Allentown, Pa.