The true cost of a vehicle is defined as the combined cost of ownership including the price tag, not just the price tag. You may not necessarily save money by purchasing a newer car, but sometimes it is a no brainer. This article will help you to determine whether or not it makes financial sense to purchase a newer vehicle. This article focuses on the replacement of very old vehicles.
There are many factors which should be considered when purchasing a newer car, they include:
- Reliability of your old vehicle as well as the reliability reputation of the newer vehicle you are considering. I said reputation because you are not yet familiar with the newer one.
- Safety of the old and new vehicle. The age of the old vehicle does matter. Older vehicles tend to be equipped with less safety features.
- Fuel economy of the old and new vehicle.
- Average cost of fuel in your area.
- Environmental impact of the old and new vehicle.
- Price tag (notice that I didn’t use the word cost, because that is different).
- Ride quality and overall driving experience of the old and new vehicle.
The cost of a vehicle is defined as the cost to purchase and maintain it (including fuel) over its lifetime. Too many vehicle reviewers judge mainly based on speed and price tag. I understand that it is difficult to judge reliability until the vehicles being reviewed have been tested under normal conditions for years.
Fuel economy and reliability are the most significant financial factors by far to consider when choosing a car to purchase. More specifically, I am referring to the cost of maintaining and fuelling that specific vehicle, so insurance cost was not factored in.
People purchase new vehicles for a variety of reasons, especially comfort, fuel economy, performance, and feature related reasons. As technology ages, it is outmoded by modern technologies which are more appealing to consumers. When people see that they can have something better, they will want it.
There are many older cars (manufactured after the 1990s) that are worth keeping for economical reasons, but that is in a case in which they are in excellent condition and achieve decent fuel economy.
You decide whether or not it is worth it to purchase a new car based on your requirements. Some people require only decent ride quality, better than average fuel economy, reliability, and of course the ability to fit into the car. The Toyota Camry is an example of such a vehicle.
In my opinion, if you are not pleased with a car, then you should not buy it unless there really is no other option for you (this would mean that you are extremely financially limited). You need to be happy with what you have.
Apart from that, the main point of this article is to help you to better understand whether or not a newer car will save you money.
Comparison of Old and New Vehicle
Let us compare an 11 mpg (highway) mid sized car to a 30 mpg (highway) 2002 Toyota Camry. The 11 mpg example vehicle is in used condition and the Camry is in excellent condition.
Currency: US Dollars. Whatever your currency is, change the cost of fuel per gallon to your local one and recalculate.
To make this easier, I will convert the miles per gallon figures to gallons per mile.
Old Vehicle: 1 / 11 MPG = 0.0909090909 GPM or 0.3441283436 litres per mile.
Camry: 1 / 30 = 0.03333333333 GPM or 0.12618039265 litres per mile.
I converted GPM to litres per mile by multiplying the GPM by 3.78541178 litres because 1 gallon equals 3.78541178 litres.
It is assumed that the cost of gasoline in the United States is $4 per U.S gallon. If you live in the Eurozone, this is equivalent to €2.69 without an additional gasoline tax. 1 U.S. dollar = 0.67294751 Euros (this was in April 2011).
Old Vehicle: Fuel required to drive 100,000 miles (160,934 km) on the highway without stopping in gallons = GPM * 100,000 miles. The result is 9,091 gallons or 34,413 litres per 100,000 miles. The cost of 9,091 gallons of gasoline in this example is $36,364 or €24,454.
This exceeds the price of a brand new 2011 Toyota Camry which achieves 32 mpg with a MSRP of $20,000, and you would be left with $6,364 if you purchased it all at once without any loans. This excludes tax.
The 2002 Camry would require 3,333 gallons of fuel and $13,332 to drive the same distance, which is 5,758 gallons and $23,032 less than the old vehicle.
You can add the cost to fuel the 2002 Camry to whatever price the seller is offering it for. An example price tag of a used 2002 Camry LE with a mileage of 126,277 km (78,465 miles) is $2,623 USD. Add this price to the cost of fuel after 100,000 miles which is $13,332 and the result is $15,955. I am unable to quantify the cost to maintain the Camry, but, it is known for exceptional reliability. Subtract the Camry’s price + fuel cost from the old vehicle’s fuel cost alone and the result is: $36,364 – $15,955 = $20,409 which is still enough to buy a 2011 Camry.
Assuming that the cost of fuel is $5 per gallon (€3.36):
Old Vehicle: Fuel required to drive 100,000 miles on the highway without stopping in gallons = GPM * 100,000. The result is 9,091 gallons.
The cost of 9,091 gallons is $45,455 or €30,545. This exceeds the cost of a brand new 2011 Toyota Camry which achieves 32 mpg with an MSRP of $20,000, and you would be left with $25,455 if you purchased it all at once without any loans. You could purchase two of these Camrys and you would be left with $5,455 afterwards.
The 2002 Camry would require 3,333 gallons or 12,616 litres of gasoline every 100,000 miles which would cost $16,665.
40 miles per day: 14,400 miles per year. It would take 7 years to drive 100,000 miles at this rate.
20 miles per day: 7,200 miles per year. It would take 14 years to drive 100,000 miles at this rate.
You can add the cost to fuel the 2002 Camry to whatever price the seller is offering it for. An example price tag of a used 2002 Camry LE with a mileage of 126,277 km (78,465 miles) is $2,623 USD. Add this price to the cost of fuel after 100,000 miles which is $16,665 and the result is $19,288. I am unable to quantify the cost to maintain the Camry, but, it is known for exceptional reliability. Subtract the Camry’s price + fuel cost from the cost to fuel the old vehicle and you will have: $45,455 – $19,288 = $26,167 which is still enough to buy a 2011 Camry.
All gasoline taxes are excluded from the calculations above.
I don’t expect you to just go out and purchase a 2011 Camry, because that is one enormous cost, as opposed to the old vehicle which has a smaller recurrent cost which adds up. It is up to you to decide what option is best for you because financial situations vary.
I cannot tell you what is financially best for you, because I know nothing about your situation. Sometimes you can find an older one which is decent and economical at the same time. The comparison of the old vehicle mentioned above to a 2002 Camry is extreme because vehicles with a fuel economy of 11 mpg are not very common anymore.
This fuel efficiency analysis is particularly aimed at those who drive 11 mpg cars and worse.
I believe that the Cash For Clunkers program in the United States should have targeted more particularly inefficient vehicles (for example, less than 12 mpg), because the program had a limited budget and would have to stop after a while, and because it was spent on so many cars which were more efficient than 12 mpg, many cars which were less than 12 mpg could not be turned in.
In simpler terms: If you have an example budget of a certain amount and half the vehicles were greater than 16 mpg, and the other half was less than 12 mpg, then twice as many < 12 mpg vehicles could have been turned in if the maximum fuel economy rating was changed to 12 mpg.