Comparing Vehicle MPG Ratings and Lifetime Costs

In today's economy of high gas prices and diminishing credit, consumers are feeling their wallets get lighter by the minute. Some people have found short-term remedies to the situation, and others can't see the light at the end of the tunnel. If you have already exhausted the tips and tricks to better fuel economy in your SUV, you may already be considering buying a more fuel efficient vehicle. I whipped up some charts that may be helpful in determining how high you can fly with MPG ratings, and how to get the most MPG for your buck! Before getting too far into this, I want to quickly explain the concept of lifetime costs. Lifecycle costs = production costs + operation costs. Still with me? Read an educational example about it here. The classic example compares standard incandescent light bulbs to newer Compact Fluorescent bulbs. The conclusion is that, although the compact fluorescents are more expensive, they last much longer, meaning that it would take several inexpensive incandescent bulbs to replace it. Therefore you "save" money of the "life" of the light bulb.

Now, let's get into the lifecycle costs of two vehicles: Vehicle A, which as a lower initial price (the incandescent bulb) but a higher operational cost, and Vehicle B, which has a higher initial price (the compact fluorescent) but a lower operational cost.

First, some nifty charts.

 These charts attempt to put in perspective the differences in fuel costs that you could expect from vehicles at 20, 30, 40, 50, and 60 MPG ratings. As you can see, the differences between each increasing level of MPG gets smaller as the MPG gets higher. In the per-mile chart, the difference in jumping from a 20 MPG vehicle to a 3o MPG vehicle is $.06 per mile, or $903 annually (rated at 15,000 miles per year - see fueleconomy.gov). So, given the above information, it's time to make some assumptions.

You drive a 20 MPG vehicle. You are deciding which car you should buy to cut down on fuel costs to drive your car. So, you find two cars online that seem nice: (A) a cool new Chevy, rated at 30MPG for $15,000, or (B) a more humble Toyota, rated at 40 MPG for $22,000. Which do you think will "save" you money over the life of the vehicle? Comparing this example to the light bulb example is not exactly fair since cars do not typically just stop working at the end of their life, so we may have to assume that, "After 5 years, I will sell the car and buy a new one." That way we have a definite lifespan to allow for easier comparison. Here's what we've got so far:

Vehicle A: Chevy

30 MPG

$15,000 pricetag

Vehicle B: Toyota

40 MPG

$22,000 pricetag

Assumptions: You drive exactly 15,000 miles per year. Fuel prices never change and costs $3.61 per gallon. The life of the vehicles is 5 years, at which point the car will be sold and replaced with a new, possibly more efficient car. Depreciation, time value of money, resale value and maintenance costs are not factored. You can afford the initial purchase price of either vehicle, and the vehicle will be paid 100% in cash at the time of purchase.

Yes, I know, these are a lot of assumptions, and we want to be environmentally friendly - but this has to be a legitimate test, right? Don't worry, our conclusions will consider the tree-hugging factor. :) Also, remember that some of these assumptions may effect both cars similarly, so they are not significant.

Now, onward! some simple calculations of differences between vehicles A and B:

The initial price difference: $7,000

Annual Fuel cost difference: $451.00 per year

So, our hypothesis is that the operational savings (from the higher MPG) will result in MORE than a $7,000 savings over the 5 years of owning the car. If our hypothesis is correct, it will be worthwhile to pay the additional $7,000 today for Vehicle B to get better gas mileage. To test our hypothesis, we will multiply the difference in annual fuel cost by 5 years:

$451.00 x 5 years = $2,255.00

Well, our hypothesis was incorrect. It is not financially worthwhile to buy Vehicle B solely on the basis of getting better gas mileage for 5 years. 

Oh no! .... let's not stop there...

$451.00 x 10 years = $4,510.00

Welp, it's not even worth it for 10 years!

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The purpose for this experiment was to provide a little assistance in understanding the hysteria and making the best decision for you. I am very interested in protecting the environment just as much as saving money, but it is important to make smart choices based on these concerns. If protecting the environment is worth it to you, then go for the higher MPG car. You'll feel better about yourself and the environment, even though it cost you a little more. But I think it's important to see that just because a vehicle gets the best gas mileage on the road doesn't mean it will save you money. 

I hope that you can use this experiment in your own considerations like this. It's been proven that Compact Fluorescents will save you money over the long-run. I am NOT telling you that all fuel efficient cars are bad, or they cost this much more, etc. Just know how to assess the situation and consider all that's involved. It may just be that cars which are 10 MPG more fuel efficient only cost $2,000 more in price, and would therefore be worthwhile to purchase.

$451.00 x 20 years = $9,020.oo

You can keep your car for 20 years, and you'll "save" over $2,000! Yippee!