Help me calculate if it's a good financial decision to buy a new car considering today's gas prices?

May 22, 2007 2:51 PM

Help me calculate if it's a good financial decision to buy a new car considering today's gas prices?

Here are the facts:

Own a paid off S10 pickup truck, 92k miles, no serious mechanical problems, body has dings, could probably trade in for $500 or so. It gets around 18 mpg.

I drive about 115 highway miles per day for work. I figure that's about 2500 miles of driving per month, including some misc weekend driving. With 18 mpg (my estimate from fill-ups while measuring distance), that's 139 gallons per month.

Assuming $3.50 per gallon (approximate cost in our area), that's about $485 in gas per month.

I've been looking at cars like the Toyota Yaris. It gets 40 mpg highway. Lets assume a more realistic 36 mpg (traffic on the highway, etc). That's double the mpg of my truck.

So I'd be spending 1/2 of my monthly gas costs, or saving $242.50 per month.

I will pay cash for the next car (the cash is in an account getting 5% interest), and the Yaris looks to be somewhere around $13,500.

Conclusion: I want to see if I should just wait until the truck dies to purchase the car, or if I should just trade in & buy a new car now. Anyone happen to know a good way to do the math? For example, 2 years from now, would I have saved money or lost money, and how much?

I'm thinking the depreciation on the new car would kill any gas savings, but I'd like to see if others confirm this. I think that since I'm driving a $500 valued truck, I may as well drive it into the ground, even if I'm paying more in gas?

posted by ceberon to Travel & Transportation (17 answers total)

Well, that 13k in the account is earning you about $55/month. You'll save $242.50/month in gas money. That makes $187.50/month that you save by getting the Yaris. The savings payoff the Yaris in about 70 months, let's just say six years.

If in six years, the Yaris is worth more than $500, you came out ahead. A 2001 Corolla has depreciated to about 35% of it's value in the last six years. If you apply that to the Yaris, it will be worth about $4,725.

If you won't miss the cash, I think it's a no brainer. Of course that doesn't take into account changes in the interest rate or gas prices, but I think it would have to change pretty dramatically for this to become a bad decision.
posted by AaRdVarK at 3:00 PM on May 22, 2007

BTW, a friend of mine recently got a Honda Fit, which is similar to the Yaris, and absolutely loves it.
posted by AaRdVarK at 3:01 PM on May 22, 2007

Is it EVER a good idea to get a brand new car? Why not just spend less on something just as nice, but 3 years older?
posted by clango at 3:02 PM on May 22, 2007 [1 favorite]

The biggest consideration is whether gas prices will increase (more likely) or decrease (less likely). If you know this answer you should invest it in the futures market and not the Yaris.

What about insurance prices? It will probably cost more for a new Yaris than an old truck. That will eat into your savings.

What about repairs that you will have to do to the truck to keep it running? Will you pay $50 to repair a broken widget right now? What about $250? Is there anything you know you will need in the near future such as brakes or tires? If so could you drive it until that major thing needs to be replaced, then get the new car?
posted by iurodivii at 3:10 PM on May 22, 2007

clango: In the case of Japanese cars in the sub-15k range, I don't think purchasing a 2-3 year old used car is that beneficial. They just don't depreciate that much. In the case of the Corolla, a 2004 depreciated 24% in that time, which accounts to $3000. For that $3000 you get a bumper-to-bumper warranty and a known driving history for the car. And quite frankly, new car smell has to be worth something.

Now if I were buying a luxury car or any American car, two years used is the way to go.
posted by AaRdVarK at 3:14 PM on May 22, 2007

Over the lifetime you're considering, $3.50 is probably a low figure for the average price of gas. Also note that savings interest is taxable income, so it's probably more like $40/month rather than $55, depending on your tax rate.
posted by 0xFCAF at 3:32 PM on May 22, 2007

How old is that truck? A running pickup with under 100k surely has to be worth more than $500 to somebody.
posted by bhayes82 at 3:50 PM on May 22, 2007

I've taken the liberty of making you a small spreadsheet to help with the calculations. You don't provide enough data to cover all the costs, but from what you have provided, you should save $20 a month (and, of course, have a new car).

According to this the depreciation on a Toyota Corolla is 56% over five years, or 15% per year (assuming you keep it for five years). I imagine the Yaris will have a similar rate of depreciation, so I've used that figure in the spreadsheet. I've put 0% depreciation for the truck, although that isn't strictly true.

The two big variables will be insurance and maintenance and repairs. The repair cost on the Yaris should be zero while it is under warranty and the maintenance cost will be very low. I imagine your truck is much more expensive in that respect, but you'll have to put in the numbers. The other factor is insurance: you'll probably pay more for the Yaris, but you'll need to find that number out as well (just call you insurance company). I'd also urge you to consider the environmental benefit of driving the more fuel efficient car: you drive quite a lot and you are looking at reducing your carbon dioxide emmisions by half and reducing your emmisions of other pollutants by much more than that (since newer cars are far better for other pollutants). If you sell someone else your truck, chances are they will drive it much less than you do.

You'll have to send along your email address to be added as a collaborator on the spreadsheet.
posted by ssg at 4:00 PM on May 22, 2007

How old is that truck? A running pickup with under 100k surely has to be worth more than $500 to somebody.

Yeah. I might know a guy who'll give you $600 for it.
posted by notyou at 4:00 PM on May 22, 2007

18 mpg for an S10, even with the V6 and an auto trans, is pretty bad. Consider getting it tuned up, checking the tire pressure, changing the fluids (trans and differential), and doing the mileage runs again. My 2001 S10, with a 4 cyl/5 speed, gets more like 28/29 mpg on the road.
posted by paulsc at 4:42 PM on May 22, 2007

There are other intangible benefits you should consider - newer cars tend to be safer, what with ABS, ESC, etc, and there may be an enjoyment factor, i.e., comfort, sound system, A/C, etc. You may also derive some psychic income from lower pollution.
posted by grateful at 5:40 PM on May 22, 2007

AaRdVarK: I dig ya, never looked at it that way.
posted by clango at 8:28 PM on May 22, 2007

I would never advise buying a new car, if you're talking about bottom line. You could quite quite easily buy an older user car, take it to a (trusted) repair shop and have them give it a workover, and be more than well off (in the thousands, if not tens of) in the long run -- in pretty much every case -- than buying a new car at new car prices. Even if you had to get an engine and transmission replaced (a matter of $2-3k, here), the cost of the $5k car (which is my personal limit on car purchases, you can find real steals if you look hard enough and are hardnosed enough with the salesdude), that'd run a grand total of like $8k, and no new car costs $8k. Consider the crazy amount of payments you'd be making for years upon years with a new one, with the relative few for used...
posted by Quarter Pincher at 9:43 PM on May 22, 2007

I would advise HEAVILY here to pick up a used Jetta, golf, or passat TDI.

Why?

Well, they get more like 45-55 mpg.

They're diesels...so 350k miles is a low-end lifetime. Easy maintainence, sporty, fun little cars.

Diesel is, right now, cheaper than gas.

You can make your own diesel if you'd like.

Waaaaaaaaaay nicer than a Yaris, or anything Toyota for that matter.

Really, REALLY good resale value.

And, you should definately be able to get a 200-2003 for the same price as a new Yaris.
posted by TomMelee at 5:26 AM on May 23, 2007

Anecdotal evidence:
We got a 2007 Yaris. First road trip (Montpelier VT- Bar Harbor ME - mostly US 2, some interstate) -got 44 MPG
posted by MtDewd at 6:00 AM on May 23, 2007

TomMelee: "I would advise HEAVILY here to pick up a used Jetta, golf, or passat TDI.

Why?

Well, they get more like 45-55 mpg.

They're diesels...so 350k miles is a low-end lifetime. Easy maintainence, sporty, fun little cars.

Diesel is, right now, cheaper than gas.

You can make your own diesel if you'd like.

Waaaaaaaaaay nicer than a Yaris, or anything Toyota for that matter.

Really, REALLY good resale value.

And, you should definately be able to get a 200-2003 for the same price as a new Yaris."

+1 on this one. I'm a VW guy and the TDI engines are award-winning and renowned as the best non-commercial diesel engines in the world. The Jetta, Golf, and Passat TDI's really do get upward of 50 MPG, and recently diesel is cheaper than gas. Although the diesel/gas prices fluctuate as far as which is cheaper at any given time, you're now talking about up to three times the gas mileage of your truck.

The trick is finding a low mileage TDI for a good price, because they hold their value so well. But they're out there, and it's a much faster payoff than a new car, especially considering depreciation. Obviously buying used means more mileage and potentially sooner maintenance, but the TDIs really are bulletproof engines. The rest of the car is what may be an issue, though the Passats were/are German-made and are built to higher standards.

Furthermore, these VWs (esp the Passats) are way more fun, sporty, luxurious and comfortable than a Yaris :)
posted by sprocket87 at 9:14 AM on May 23, 2007

Try this as a good resource. Customize fuel prices to check out scenarios with different vehicles.
posted by kch at 1:48 PM on May 23, 2007