Does Gas Price Really Matter?
Back in 2002 and 2003, I was very calculating ... literally. For a whole year, I kept track of my spending on gas: every time I went to a gas station, I kept the receipt with me, and when I got back to my laptop, I entered the brand, # of gallons, price and my odometer readings into my spreadsheet immediately. During the twelve months I maintained the log, I lift the pump 58 times, purchased exact 670.384 gallons with an average price of $1.519/gallon, for a total of $1,016.24. $1.14/gallon at an Arco was the lowest I've ever paid; $1.899/gallon at an Shell being the highest. (Full track record here.)
It is pretty interesting exercise in retrospect, but I ceased to do it two years ago. Why? Because this practice does not help me to reduce my gas spendings. Today, I have only a few rules of reducing gas spending:
- Only use the lowest acceptable grade
- Drive responsibly (don't push or brake too hard) and drive less
- Find the cheapest local gas station and stick to it (if you don't know, consult a gas price tracker)
- Get a cashback card that rebates your gas purchase (like 5% cashback from Citi Dividend Platinum)
Yes, I know gas price is skyrocketing -- yesterday for the first time, I've seen $3.019/gallon for premium gas on my way to office. But to be honest, once you follow these basic tips, there is not much you can do to further reduce your spending. Unlike entertainment expenses, you cannot drive down your gas purchase to zero, unless you don't drive.
It is perhaps just because gas price is highly visible that we think it is a big story. By the end of the day, if you consumer 50 gallons per month with one car, another 20% increase of gas price will only mean a mere $30 a month to you. There ought to be more than one place to save $1 a day easily, or, at least, you can spend your complaining time to earn 30 more bucks every month.
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Actually, there is a great deal that you can do to save on gas.
For starters, you could purchase a hybrid car. I plan on doing so next year to save about $2400/year in gas.
Why next year and not this year?
"Starting in 2006, hybrid-car buyers and advanced lean-burn technology vehicles will be eligible for tax credits ranging from $1,700-$3,000; this credit is tied with two components: hybrids that save the most fuel compared with 2002 models, and the vehicle's estimated lifetime fuel savings."
So if I can save $2400 in gas AND get a $3000 credit then I've saved $5400. I'll also get that $2400/year in gas savings year after year (more if the price of gas goes up).
I plan on keeping the car for 10 years so the whole depreciation arguement doesn't mean much to me. Plus new cars have safety features (full curtain air bags) that I find are a necessity for my family these days.
I seriously doubt you can save $2,400/year on gas. Even at $3.00/gallon, $2,400 can buy 800 gallons, and at 20 MPG, it will mean 16,000 miles a year. Unless you drive 32,000 miles a year AND you reach 40 MPG, how can you save $2,400/year on gas?
You forgot to factor in the additional cost to buy the hybrid model over a non-hybrid model as well as any additional costs in servicing the vehicle.
Besides satisfying the record-keeping fetish that I have, keeping track of gas mileage also helps to detect car problems early.
I read insurance premiums are much higher on hybribs too because of the technology under the hood. Much more expensive to fix if in an accident.
Believe it or not but I do drive about 25k - 30k miles per year. And I personally expect gas to eventually cost $6/gallon within the next 5 years. Sound outrageous? - That's the rate most europeans pay TODAY.
China's economy isn't going to stop so everyone here can save a dollar on gas. India is exploding in growth as well. The days of cheap gas are long behind us and those who aren't prepared will find themselves in a heap of trouble.
According to toyota.com. A non-hybrid highlander is 24,000. A hybrid highlander is 30,000. The price difference is $6k. Like I said earlier, $3000 tax credit + $2400 gas savings (first year) = $5400. So technically, I'm out a whopping $600.
But if I save even just $600/year in gas for the next 10 years then I'm ahead.
Maintenance is going to be needed either on hybrid or non-hybrid so I see no difference here.
If gas does go to $5/gallon what are you going to do then?
I own a VW Golf TDI (Turbo Diesel) and average 45 MPG in my current city/highway cycle. I drove a (rental) Toyota Prius for 2.5 weeks while my car was having body work done from a crash, and found that I got 34 MPG in the same driving cycle.
You can buy a regular Honda Civic (and many other smaller cars) that top that mileage, without paying the hybrid premium (and waiting 6 mos. to get one).
YMMV, but I can not justify the extra expense of the Prius over my TDI. The other thing I wonder about is what happens when one has to replace the bank of batteries in a hybrid? I know they have a warranty - but I'm sure at 5 years and 1 day they will need to be replaced. That surely adds greatly to you TCO.
Supposedly, there is an outfit in california that will replace the battery system in existing hybrids with lithium batteries. This, in theory, lets cars get mileage in the 80mpg - 200mpg range (Prius model). Not sure what they can do with other models.
Not only should you look at the extra money spent at the pump, but rising oil prices have a broader affect on other aspects of the economy.
See the article "Why the concern over oil prices" at http://PersonalFinanceCafe.blogspot.com
Well said Barista,
Even more interesting is something published by William Buckley over at National Review on a potential "What happens with $100/barrel oil".
http://www.nationalreview.com/buckley/buckley.asp
"Commuters suddenly forced to pay $2.50 or more for a gallon of gas began to brown-bag their lunches, inching away from restaurants and sandwich shops. Americans who could still afford a vacation went on shorter trips, putting a major dent in the tourist industry. Trucking companies hauling everything from wines and spirits to furniture to automobile parts imposed a hefty surcharge on shippers, who passed it on to their customers, who then passed it further down the line to the retail buyer if they could.
The crunch forced many independent truckers to sell their rigs, playing havoc with both cross-country and local shipping. Higher fuel costs sent the U.S. Postal Service deeper into the red and threatened the survival of rival package shippers FedEx and UPS. With the break-even point for airlines a distant memory at $31 a barrel and carriers already operating with skeleton staffs, sharp fare boosts were the only option. Traffic spiraled into a tailspin, and one airline after another declared bankruptcy."
Well said Barista,
Even more interesting is something published by William Buckley over at National Review on a potential "What happens with $100/barrel oil".
http://www.nationalreview.com/buckley/buckley.asp
"Commuters suddenly forced to pay $2.50 or more for a gallon of gas began to brown-bag their lunches, inching away from restaurants and sandwich shops. Americans who could still afford a vacation went on shorter trips, putting a major dent in the tourist industry. Trucking companies hauling everything from wines and spirits to furniture to automobile parts imposed a hefty surcharge on shippers, who passed it on to their customers, who then passed it further down the line to the retail buyer if they could.
The crunch forced many independent truckers to sell their rigs, playing havoc with both cross-country and local shipping. Higher fuel costs sent the U.S. Postal Service deeper into the red and threatened the survival of rival package shippers FedEx and UPS. With the break-even point for airlines a distant memory at $31 a barrel and carriers already operating with skeleton staffs, sharp fare boosts were the only option. Traffic spiraled into a tailspin, and one airline after another declared bankruptcy."
I don't see why this would have much effect at all except for the psychological one, *especially* on vacations. Consider a road-trip style vacation with your family of 4, which is pretty much the most driving-intensive one you can get. Let's say you drive *a lot* too, only stopping now and then to see the sights, maybe 600 miles a day. With a 30 mpg car, the difference between $1.50 gas (last year) and $2.50 gas (currently) is a mere $20/day. That's $5/person/day---about the cost of lunch at McDonald's. Sure, you *could* drive less to save the money, or you could just switch from eating at a $20/entree restaurant to a $15/entree restaurant.
I drive a lot on my vacations, and even at European prices of $6/gallon, gasoline never makes up more than 20% of my budget---food and lodging are orders of magnitude more expensive, and will continue to be. Basically, compared to other things you spend money on on vacation, gas is cheap at $2, and still cheap at $6.
