Vehicle Downsizing — due to Rising Gasoline Prices — often Does Not Make Financial Sense

© 2013 Peter Free

 

13 August 2013

 

 

Even seemingly rational vehicle change is not always financially sensible

 

What do you do when your big vehicle “ain’t all that bad”, but your needs or whims have changed?

 

Recently, I wrote two short essays about attempting to downsize from a full sized pickup truck to a smaller vehicle — here and here.

 

The rationale for doing considering this change revolved around the fact that my wife’s military career has taken me off the farm and away from quasi-rural living — to more urban situations in which the truck has become a ponderous (and often annoyingly large) way to move air around.

 

However, because I am analytically oriented, I tend to squash impulse buying.  This trait that has left me leaning toward not doing the automotive downsizing that I had envisioned.

 

Let’s use my circumstances as an example that might help you consider your own.

 

 

Is my “big” vehicle somewhat like yours?

 

Mine is a 4.7 liter eight cylinder, 5-speed automatic, 2010 Dodge Ram 1500 — regular cab, long bed, two-wheel drive pickup.  It is rated to tow 7,000 pounds.

 

EPA fuel economy estimates for this combination were 14 miles per gallon city, 19 highway, with a combined average of 15 mpg.

 

In my hands, the truck averages 20 miles per gallon, in mostly a mix of suburban and high altitude Colorado highway driving, where the speed limit usually maxes out at 65.

 

To the degree that I can estimate it, my highway fuel economy (on 60 and 65 mile per hour Rocky Mountain pass roads) is 22 to 23 miles per gallon.

 

 

These facts may make my situation different than yours

 

Notice that the suburban and mountain driving that I am do does not include much congested city driving or travel on 75 mile per hour Interstates.  This means that the Dodge is getting better mileage than more average use of it would.

 

 

How do you substitute for a truck?

 

Perhaps by downsizing to a car that will pull at least 1,000 pounds.  Or in my case, throwing a receiver hitch on my wife’s Subaru — and making do with a less talented econobox for myself.

 

Died in the wool truck people (like me) will find this an unpleasant choice.  But with environmental considerations in mind, it remains difficult to justify a 4,700 pound air mover — now that I am off the farm and out of the frequent hauling contexts in which I first came to rely on pickups.

 

The environmental considerations are what psychologically complicate the downsizing conundrum.

 

 

Rising gasoline costs frequently motivate us to downsize — but we may not be seeing the whole financial picture

 

Buying new “stuff” to replace old objects that still work is almost always financially questionable.

 

Consumer Reports (CR), whether you love or hate it, is right on the money when it comes to pointing out the shortsighted shortcuts that we take in thinking about spending money to save money.

 

Writing for CR, Eric Evarts published a handful of articles on the subject of vehicle downsizing that are “must reads” — at least so, for people, whose minds do not automatically pull out the calculator, while estimating initial cash outlays, loan costs, vehicle depreciation, registration, insurance and so on.

 

The gist of Evarts’ reasoning is that:

 

 

Downsizing now could reduce your out-of-pocket costs in the short term, but over the long haul, you could lose more on the new car’s depreciation than you’re saving in gas.

 

The longer you own a car, the more years you have to amortize the initial purchase, and the cheaper it will be to own.

 

So if your old car is still running well, in the long run you’re usually better off hanging onto the old beast even if it does guzzle fuel.

 

Eric Evarts, Lessons in car downsizing, Consumer Reports (04 May 2011) (paragraph split)

 

You can find charts proving his point in his companion articles:

 

 

Eric Evarts, How to know when it’s time to downsize your car, Consumer Reports (15 April 2011)

 

Eric Evarts, Downsizing your SUV for better mpg--does it make cents?, Consumer Reports (19 April 2011)

 

Eric Evarts, Downsizing: Right-sizing the sedan fuel bill is no easy challenge, Consumer Reports (25 April 2011)

 

Eric Evarts, How higher gas prices impact that appeal of car downsizing, Consumer Reports (09 May 2011)

 

 

The key variables

 

Obviously, the important variables are comparative figures — meaning those regarding the downsized vehicle versus those for your existing larger vehicle:

 

gas mileage

 

miles driven per year

 

loan costs

 

depreciation

 

maintenance and reliability

 

and

 

the worth you put on the overall utility of each vehicle.

 

Truck and large SUV owners will have the most difficulty rationally evaluating that last element.

 

 

Returning to my situation — as an example of how the financial variables interweave

 

In an important sense, my situation revolves around what might be best in “average” circumstances in the future.  This is so because I have no way of guessing where the military is going are going to land us next, geographically.

 

What I am certain of is that I do not like wasting gas moving myself around in a (now) usually empty truck.  And it is unlikely that we will land back in a rural situation in the foreseeable future.

 

Even with pickup’s utility somewhat devalued, the financial conundrum remains because the truck loan is much diminished and I bought the vehicle at a good price.  Being a two-wheel drive, regular cab, it was not a popular choice in this region.

 

It is clear that downsizing into a new vehicle does not make sense.  With the 2014 models either here or about to arrive, a 2010 is depreciating at a lesser clip than a 2014 will.

 

And I will almost certainly not be able to get the “no one else wants it” bargain that I got in buying my undesirable truck.  This means that a new vehicle would bite me twice — (i) negate the money that I saved in buying my truck and (ii) depreciate faster than it is.

 

It is also likely that insuring a new smaller vehicle is going to cost noticeably more than insuring a significantly older work truck.

 

These considerations mean that the downsized replacement has to be pre-owned, but not so much so that major maintenance (like timing belt replacement) is immediately due.

 

 

And this is where it gets complicated

 

Being unable to foretell the future, knowing when to cut one’s possible losses is challenging.

 

For example, if my wife is posted to Texas, my two-wheel drive truck will be worth more there than here.  If to Alaska, less.  If sent to the District of Columbia, the Ram will be a major pain to park, and DC’s congested traffic will force it to guzzle gasoline.

 

The seemingly obvious solution is a gas-efficient used crossover, one capable of light towing.  But, even used, these models cost a premium in these parts — probably because they are such an obvious solution to a common problem.  Which swings us back to thinking about Eric Evarts’ financial warning about spending money to save money.

 

An alternative fix is the econobox that I mentioned at the outset.  A used one of these will be cheaper than the crossover/SUV, perhaps depreciate less (especially if gasoline prices rise), and contribute a noticeable savings in fuel costs — even as compared to the crossover.

 

 

But

 

Many of these econoboxes have such limited ground clearances that they become problematic on the rough Forest Service roads that I drive periodically here.

 

 

The moral? — A lot of people hold onto their fuel-gorging vehicles because some of them do such a wide range of useful things so well

 

My regular cab truck may not fall into that category.  But it lands not far short.  Which means that I was not an idiot to buy it, and now I am paying the price for that bit of bargain shopping — with indecision regarding what to do now.

 

Sometimes, psychologically speaking, it is more pleasing to be thoughtlessly impulsive.  Or rolling in throwaway cash.