When gas prices breached $4 a gallon, consumers scrambled to unload their gas-guzzling sports utility vehicles. With gas well below $3 a gallon, you may still be inclined to swap that Yukon for a Prius, but whether it’s a good idea is far from a no-brainer.
In fact, for most consumers, whether you’ll save money by dumping a gas guzzler in favor of any high-efficiency vehicle, hybrid or not, depends on a variety of factors, including the age of your current vehicle, what you owe on it, your commute and your family size. Most consumers will lose money on a trade designed strictly to upgrade gas efficiency, so it makes sense to hold onto just about any type of SUV barring other reasons for a trade in.
“Whether you should trade in a gas guzzler or not depends on what overall benefits you’ll get from the trade,” says Jack Nerad, executive market analyst with Kelly Blue Book and KBB.com. “You have to ask if the vehicle you are thinking about trading the SUV in for will do what you need it to do. If you regularly transport more than two people at a time, a smaller car may not meet your needs. In most cases, an economy car will not save you enough in fuel costs to offset the loss you would take on trading in your larger car.”
Several Web sites offer trade-in calculators that can help you determine if it is worthwhile to trade in your car purely based on the fuel savings. These include Edmunds.com, Political Calculations.com and Kelly Blue Book Green, all of which provide some interesting food for thought.
If you are coming to the end of your vehicle’s useful life and need a new or newer car anyway, considering a more fuel-efficient vehicle makes much more sense, Nerad notes. This is because you need a new or newer car, your current car is probably not worth much at all and your overall needs may be changing. For example, if your kids are in school now and you are carpooling more, a larger car makes sense. If your kids are out of the house and in college, on the other hand, a smaller car makes more sense given your situation.
With that in mind, here are seven reasons it might not be worth it to trade in your gas-guzzler:
1. You won’t save enough in fuel economy. As a look at these calculators will likely show you, it takes a long time to break even purely on gas savings when contemplating a trade-in. In fact, the time it takes to break even can last way longer than the useful life of the car you’re lusting after, as Nerad discovered when he ran some numbers on how long it would take to break even on trading in a 2001 Chevy Tahoe for a 2008 Tahoe Hybrid. The break-even period a few months ago? 48 years.
2. Your current vehicle may be worth less than you think. Because automakers manufactured too many SUVs and so many drivers are seeking to unload them, there is a huge surplus of used SUVs, which is depressing prices further. “Trade-in values for SUVs are at an all time low, whereas hybrids and fuel efficient vehicles are valued at an all-time high,” says Mike Vander Baan of AutoConsign.com in Charlotte, N.C. “By trading in, you’ll take an enormous hit and have less to put towards your next car purchase.”
Mark Scott of AutoTrader.com agrees, saying: “Since gas prices started going up, the value of larger used vehicles has gone down as more and more people seek to sell or trade them, meaning your used SUV that might have been worth $16,000 last year is now only worth $12,000 to a dealer or in a private sale.
“How much in gas savings would you have to realize to make up for that lost value?” Scott says. “Or might you be better off holding onto your larger vehicle until the market for used SUVs comes back to some normalcy and some of that value potentially comes back?” If you are serious about wanting to get rid of your SUV, explore sites such as Kelly Blue Book and Edmunds that can give you a ballpark idea of what your car is worth and what it might fetch in either a trade-in or private sale.
SUVs coming off lease are flooding the market, and many consumers in the middle of SUV leases are trying to unload them through lease trading Web sites, says John Sternal of Leasetrader.com, who has seen a 25 percent increase in the number of consumers seeking to unload their leased SUVs. Those interested in assuming leases on these cars are finding some good deals, he notes.
3. You may be upside down in your loan. If you took out a five, six or seven-year loan, odds are you owe more on your car than it’s worth. Getting out of the car will be that much more complicated, especially if its value is depressed further than normal. In a trade-in, you’ll have to pay cash on top of the value of your car to grease the deal or borrow more money than that your new car is worth, an unlikely scenario in these days of tight lending policies. So before you start shopping, call your lender for a pay-off amount, which will tell you how much it would cost to pay off your loan today and compare that to what you can get in a trade or outright sale.
4. Your insurance may increase. Insurance is a cost that most consumers don’t consider until after they’ve gotten the keys to the new car. Higher insurance rates, especially on a hybrid, may wipe out any gas savings you achieve on a new car. Many consumers don’t consider that hybrids have higher insurance premiums because they are more costly to repair in the event of an accident.
Hybrids aren’t the only cars expensive to insure. “In most cases, a brand new car is more expensive to insure than an older one,” says Scott. “Also, higher mile-per-gallon cars tend to be smaller, and smaller cars are frequently more expensive to insure than larger cars.” If you’re in the market for a specific new or used car, get some insurance quotes before you buy and compare them to what you are currently paying to get a better handle on whether your insurance costs will increase.
5. You may not get favorable interest rates on a loan. With banks merging and failing and finance companies pulling back from both lending and leasing, this isn’t a great time to be in the market for a new or newer car. Many consumers, even those with good credit, are encountering higher rates than they expect or have gotten in the past, given how low overall interest rates currently are.
The automakers that are advertising incentives such as zero percent financing are reserving those deals for the most-credit worthy customers on the cars that they want to move the most, which are often the very large SUVs that most consumers are avoiding. “Smaller cars are flying off the lots and thus dealers and manufacturers typically aren’t offering discounts and special financing terms on those cars,” says Scott.
When you do shop for a car, make a few calls to your local bank or credit union and try to get preapproved before you go to a dealership. That way, you’ll know exactly what your interest rate will be, and if the dealer can beat it, you’ll be in even better shape.
6. Your family may not fit in the smaller car. The best gas sippers are pretty small, especially to consumers who are used to a roomy SUV or minivan. Here are the specifications of several 2009 models:
Honda Fit 5-speed automatic:
- Length: 161.6″
- Height: 60″
- Width: 66.7″
- Gas mileage: 28 city/35 highway/31 combined
Honda Pilot LX 5-speed automatic 4-wheel-drive
- Length: 190.9″
- Height: 71″
- Width: 78.5″
- Gas mileage: 16 city/22 highway/18 combined
GMC Yukon 5-speed automatic 4-wheel-drive
- Length: 202″
- Height: 76.9″
- Width: 79″
- Gas mileage: 11 city/14 highway/12 combined
Before you take the plunge to smaller car, bring your family to the dealership and have everyone sit in the car you are interested in, to see what it feels like.
7. It can’t hurt to wait. Six months ago, analysts were predicting $200 a barrel oil in 2009, which could have jacked up gas prices past $5 a gallon. Instead, two months shy of 2009, oil fell below $70 a barrel, and gas is below $3 a gallon.
Just as no one knows where the price of gas will go, the future improvements in technology are also not readily apparent. Hybrid technology continues to develop, and although analysts don’t expect hybrids to get much cheaper in general, their current premium might erode as more models hit the market.
Also, the credit crunch will inevitably ease, so you might be able to get better terms on a loan or lease by waiting six months or a year or longer. Prices of SUVs may also moderate as the current glut works its way through the market.