Downsizing to the extreme

In previous installments of our downsizing series, we looked at when it makes sense to downsize and the long-term implications for trading in early. Here, let's explore an extreme downsizing scenario, going from a full-sized SUV to the highest-mileage production car at a time when gas prices are rising to $5/gallon. To provide an alternative choice, we included a Toyota Camry Hybrid in the mix, as well.

Again, drawing from analysis conducted in May for the "When to downsize your car" story, we follow the customer who is looking to trade in a 2005 Chevrolet Tahoe LT 4x4 on a 2008 Toyota Prius after just 36 months of ownership. Clearly, this consumer would be making a significant sacrifice in terms of passenger and cargo space, as well as towing and off-road ability, to minimize automotive operating costs.

In the previous examples, we estimated that the Tahoe had about $4,750 in trade-in value—factoring outstanding loan payments on the 60-month term and the impact of depreciation. As gasoline prices increase and dealer lots swell with used SUVs, let’s assume the trade-in value rounds to just $4,000.

Model year/ Make/Model

Retail price

MPG

2009 total owner cost

2010 total owner cost

2011 total owner cost

2012 total owner cost

2013 total owner cost

2005 Chevrolet Tahoe LT 4x4	$45,500	13	$11,000	$21,250	$30,250	$38,250	$46,000
Toyota Camry Hybrid	$25,750	34	$10,750	$17,250	$23,250	$29,000	$34,250
Toyota Prius Base	$23,750	44	$9,250	$14,750	$20,000	$25,000	$29,500

The financial benefit of this change is immediate, despite the emotional pain of getting so little for the large SUV on trade-in. We've been asked repeatedly the last couple weeks about when is the tipping point when it makes sense to downsize. The reality is that the numbers are complicated and everyone's scenario is different.

If you are midway through a vehicle loan, as in the scenarios explored in this blog series, you may not have much equity (especially as you chase accelerating depreciation) in your vehicle, and it may make sense to stick it out for another year or two. The tipping point comes sooner depending on how much of the vehicle you truly own, versus the bank, and how great a sacrifice you are willing to make when downsizing.

Going to extremes, the Toyota Prius delivers excellent fuel economy, with 44 mpg overall in our tests. (And depending on how and where it is driven, averaging 50 mpg is not unheard of.) As fuel prices increase, the benefit from this frugal powertrain will only increase, and its depreciation rate is decreasing. There is such demand for a Prius that Toyota literally can't build them fast enough, promising a relatively good return on this investment.

Even moving to the Camry Hybrid, the numbers add up to similar owner costs for the first year and favor the Camry over the Tahoe each year after.

Both the Camry and Prius carry a price premium for their hybrid powertrains. However, there are many good, fuel-efficient small cars with conventional powertrains that would also show marked reductions in annual owner costs, as outlined in "Best fuel economy for the buck."

Bottom line on downsizing
Over the course of an article and several blogs, we have seen what the numbers can do. Ultimately, it boils down to the following:

• Don’t rush into downsizing without considering all the owner costs of your current vehicle, including depreciation and finance charges.
• Understand your goals with downsizing (environmental concern, fuel savings, cost savings), and be sure your strategy will meet these goals.
• Realize that the biggest rewards come with the greatest sacrifices, such as transitioning from a large SUV to a small car. At the same time, make sure the new model will satisfy your financial and lifestyle goals for years to come. If you have a family, remember, kids grow and need more space.
• In northern regions, consider using your SUV as a winter-only vehicle, especially if it enables you to buy an efficient, front-wheel drive car, rather than an all-wheel drive model. Be sure to adjust your insurance accordingly.
• Conversely, if, for some reason, you really want/need a large SUV, this could be a great time to purchase a relatively new, low-mileage example. Both new and used SUVs (especially the monstrous ones) are sitting on dealer's lots—you can practically get one for a song.

In the end, Consumer Reports hopes that all motorists are able to better balance their wants and needs, leading them toward more fuel-efficient vehicles and driving habits.

—Jeff Bartlett

For tips on saving gasoline with your current vehicle and advice on buying a fuel-efficient car, see our green car guide. 

Comments

[Cale]

Jeff, Thank for this extremely helpful and timely series on downsizing and rightsizing. I've enjoyed each installment and look forward to more of your excellent blogging in the future.

Cale

[ed]

+1
This is one of the best blogs you guys have done and this particular one is the most down to earth, balanced, and informative of the series. Keep it up!

[alan]

Good article! What if you included a non-hybrid car, such as a Honda Fit or the Camry 4 cylinder, in the comparison? You would have a lower purchase price, but I would be interested to see if the hybrid premium would end up paying itself off in the longer run.