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Gas Prices Have People Not Thinking Clearly
By JLP | May 14, 2008
This morning as I was dropping my daughter off at daycare, a lady pulled up in a new Honda Accord. As she was walking into the building I asked her if she got rid of her Lincoln Aviator. She said something like, “Yes. I got rid of the gas guzzler and I’m lovin’ it.”
As I was leaving daycare I got to thinking about this lady’s decision to trade in her Aviator for the Accord. Did she make a wise decision? Well, that’s not for me to say, but I can tell you what the numbers say.
I noticed that she was driving a Honda Accord with a V-6 but I didn’t notice the exact model. So, I’ll assume she went with the EX V-6, which Edmunds.com says retails for just under $26,000 (there are more expensive Accords, but this model will suffice). Using Edmunds.com, I estimated that her Aviator had a trade-in value of just under $11,000. I have no idea what year her Aviator was, so I’m going to assume it was 2003, which was the first year for that model.
Since gas was the first thing she mentioned, I thought it would be a good idea to estimate how much she is going to save on gas now that she is driving the Accord. According to the FuelEconomy.gov, the 2008 Accord V-6 gets between 19 and 29 miles per gallon. The average Honda Accord driver will spend around $2,261 on gas each year while the Navigator driver will spend $3,676 (assuming an average price per gallon of $3.39 and 15,000 miles driven per year split 55% city driving and 45% highway driving). So, she will save roughly $1,400 per year on gas. Unfortunately, that’s just PART of the equation.
Unless she paid cash for the Honda, she probably has a new car note. American Honda Finance is currently running a promotion of .9% financing for 24-36 months. Assuming she financed $15,000 (the difference between the sales price of $26,000 and the trade-in value of $11,000 for the Aviator) for 36 months, her payment would be $422.47 per month or $5,070 per year.
Bottom Line
Not factoring in maintenance costs, this lady is spending $5,070 per year for 3 years to save $1,400 per year, a difference of $3,670 per year. Granted she does have a new car and her savings will increase as gas prices increase. But, she traded in a car that was still in very nice condition and was most likely paid off for a brand new car that will depreciate in value. All else being equal, gas prices would have to go to over $12 per gallon before she broke even.
I suppose there are environmental considerations but I think those are negated by the fact that someone will be driving the Aviator.
I’m all for saving money but I think lots of people are making decisions based on emotion rather than on clear thought.
What do you think? Did I mess up on my math somewhere?
