Replacement costs drop for hybrid batteries

A frequently voiced concern about hybrids centers around the high cost of replacement batteries, which have ranged up to about $3,000. Now some relief may be on the way. Toyota announced last month that it has reduced the price of replacement batteries for the current (2002-2009) Prius by $686, to $2,299. Batteries for the first-generation Prius dropped $397 to $2,588.

That still seems like a lot of money. But overall, we have found hybrids to be very reliable in our subscriber surveys and relatively inexpensive to own. Automakers are required to warranty batteries for 8 years and 80,000 miles nationwide or 10 years and 150,000 miles in states that follow California emissions regulations. Relatively few hybrids have exceeded that mileage yet.

Given the length of the battery warranty, even if a hybrid owner does have to replace the battery pack after 80,000 or 150,000 miles, the cost is comparable to the cost of a transmission, which would likely have failed in other cars before that point. And hybrids have fewer other issues, which more makes up for any added battery cost.

Toyota says it has been able reduce costs in part by building its own batteries through its joint venture with Panasonic, through Panasonic EV Battery Corp., thereby reducing the impact from the battery middleman. And the company says it expects battery price drops to continue.

The nickel-metal hydride batteries in the all of the current hybrid vehicles are also recyclable which may help with price reductions.

Cheaper batteries are good news for more than owners of hybrids today. Electric cars, and hybrids that plug in for extra power are the most promising near-term alternative to oil consumption. And those cars will require bigger and better batteries to meet consumer demands for performance and range.

The next generation of advanced batteries are called lithium-ion batteries, like the one we had installed in the plug-in Prius we are testing. Lithium Ion batteries are smaller and lighter for the same energy storage capacity and so lend themselves better to full electric and plug-in hybrid vehicles. However, they cost even more than nickel-metal hydride batteries. And expensive lithium-ion batteries are the biggest stumbling block to building more electric cars. So the race is on to lower the price of batteries across the board.

Toyota will start building lithium-ion batteries in 2009 and mass-producing them in 2010, the company says. But Toyota’s National Manager of Advance Technology Vehicles Bill Reinert says the company is already looking beyond lithium ion for future energy storage.

Dilithium crystals or a Flux Capacitor, anyone?

—Eric Evarts

Learn more about alternative fuels in our guide to driving green. And read "Taking charge: Toyota Prius plug-in hybrid."

Save on gas with morning fill-ups? Don’t bet on it

Some people say it’s better to buy your gasoline first thing in the morning, rather than in the heat of the day. That’s because gasoline, like all liquids, expands when heated. So, according to this advice, gasoline will be denser in the cool of early morning, meaning you’ll get more energy per gallon than later in the day.

The basic facts are correct, but the advice is not. Gasoline does expand and contract a little depending on its temperature. When gasoline rises from 60 to 75 degrees F, for instance, it increases in volume by 1 percent while the energy content remains the same.

But filling stations typically store their gasoline in underground tanks, where the temperature variation during the day is much less than in the air above. The result is that the temperature of the gasoline coming out of the fuel nozzle varies very little, if at all, during any 24-hour stretch at any particular station.

Craig Eerkes, former chairman of the Petroleum Marketers Association of America, a trade group for filling stations, says that the expansion and contraction of gasoline due to day-long temperature shifts is, for the consumer, "Just so, so minuscule as to be almost nonexistent."

Judy Dugan, Research Director for the California advocacy group Consumer Watchdog, says, “The temperature variation between day and night at an individual gas station is apt to be negligible. She also notes that today’s double-welled tanks tend to keep the gasoline at the same temperature at which it’s deliver for a while. "If fuel is warm when it’s delivered to a station, it’ll still be warm when it’s sold a few hours later."

What we did. We performed some temperature testing at our auto-test facility in East Haddam, Connecticut, where we have an underground fuel tank similar to a typical filling station’s. Over a few summer days we measured the temperature of each gallon leaving our dispenser nozzle both in the early morning (8:30 a.m.) and early afternoon (12:30 to 1:00 p.m.). 

Results. While the air temperature between filling varied by up to 12 degrees, the fuel in our underground tank stayed at a steady 62 degrees F. As a result, we found that after the first few gallons were pumped, the fuel temperature coming out of the nozzle varied very little between morning and afternoon.

At both morning and afternoon fill-ups, however, the first few gallons out of the nozzle were notably warmer than following gallons. The temperature between the first and tenth gallons, for example, dropped by between 8 and 17 degrees. This was a result of the gas sitting in the pump dispenser, which was warmed by the sun. At our underground tank, which stores premium fuel, it’s not unusual for the gasoline to sit for hours or even days between fill-ups—unlike a typical filling station tank, which may be replenished every day or even more often. After pumping a car-tankful of gas, 20 gallons or so, the temperature had declined to that of the underground tank.

For consumers, this indicates that you could be marginally better off getting gas where the fuel hasn’t sat in a sun-warmed pump assembly for very long, regardless of the time of day. But that only holds true if the underground tank is keeping the fuel cold. As Dugan points out, that’s often not the case. Today’s double-walled tanks work just as well at keeping fuel warm as keeping it cool. If fuel is warm when it’s delivered to a station, it’ll still be warm when it’s sold a few hours later, whether that’s five in the morning or two in the afternoon.

Bottom line. Even with the temperature swings we saw in the first few gallons pumped at our facility, we didn’t see a big penalty for the consumer. A 15-degree difference, for example, would result in a one-percent gain in volume. Or, just a few cents difference on the first gallons pumped—not enough to change your schedule or routine in chasing costs, especially if it might increase your fuel consumption in the pursuit.

—Gordon Hard

For more information on saving fuel see our reports on how to get the best gas mileage and where to find the cheapest gas. 

 

Premium gas can be a waste of money

Many people use premium gasoline thinking that it’s better for engines than regular. That can be a costly misconception.

Regular gas typically has an octane rating of 87, while premium is rated at 91 to 93. But octane grades don't represent "good, better, best"; they simply measure a fuel's resistance to pre-ignition (pinging or knocking), a condition in which gasoline burns uncontrollably in the engine’s combustion chambers, possibly leading to engine damage. The higher the octane rating, the more resistance it provides.

Most engines are designed to run fine on regular gas. Using premium in them doesn’t improve performance; it only costs more money.

Even many cars for which premium is recommended can use regular gas without a problem. That’s because most modern engines can detect the presence of pre-ignition (which usually occurs under high-load conditions) and automatically make adjustments to eliminate it. The tradeoff when that happens is a slight decrease in power and gas mileage, but most people probably won’t notice it.

Generally, if your owner’s manual says "premium recommended," you can safely use regular gas.

Some engines do require premium gas. They’re typically more powerful ones used in sports and luxury cars. Those engines use a higher compression ratio, which can make them run hotter and make them more vulnerable to pinging. The high octane fuel helps them resist the condition. So if the manual says "premium required," follow it.

Learn how to save at the pump by visiting Consumer Reports’ guide to driving green. Check the latest national average gasoline prices.

Older drivers - Not the menace we’ve been told?

Jerry Seinfeld tells a joke about older drivers to the effect that in Florida it’s customary to back out of the driveway without looking first. Indeed, part of our culture believes in stereotypes about older drivers: that they’re a danger to the rest of us; that they don’t use turn signals (or do but then don’t turn them off); that they drive too slowly; and that they migrate to Florida like birds.

The view of older drivers emerging from a number of recent studies paints a more sympathetic picture, especially when viewed in the context of other drivers.

A 2007 RAND Corporation study came to these surprising conclusions:

• Statistics show older drivers are 16 percent likelier to cause a crash than drivers aged 25 to 64. But younger drivers are 188 percent likelier than those aged 25 to 64 to cause a crash.
• Older drivers, who represent 15 percent of the driving population, cause only 7 percent of all two-car crashes, while younger people, who comprise 13 percent of drivers, cause 43 percent of all two-car crashes.
• Drivers aged 70 and older are less likely to cause a crash than those aged 55 to 65. Of course, older drivers also drive far fewer miles per capita each year than younger people. But on the basis of crashes per licensed driver, they look pretty safe.

The RAND study found that older drivers are only slightly likelier to cause an accident but are much more likely to be killed in one. In fact, older drivers are almost seven times more likely to die in a crash than young drivers are. This is attributed to the increasing physical frailty that overtakes people as they age.

The Insurance Institute for Highway Safety has done a number of studies along similar lines. The IIHS summarizes the fragility issue this way:

"In terms of fatalities, older drivers are a danger mostly to themselves and their passengers, who also typically are older and thus more vulnerable to injuries."

Several other factors characterize older drivers as a group that make them less of a highway threat than many believe. One of the most important factor is that older drivers self-regulate.

Many older drivers curtail their driving, take only familiar roads, avoid rush hour, and don’t drive after dark. Young drivers, on the other hand, drive many more miles per capita and travel at all times of day, but are much less susceptible to fatal injuries if they do have a crash. The net result is that the older-driver pool self-selects in favor of the safest drivers in the group.

When it comes to the question of whether older drivers should face more stringent licensing requirements, the jury is still out. Typical restrictions, varying by state, include shorter renewal cycles, visual acuity tests, and in-person written and road tests. The IIHS says it’s not at all clear whether these steps make a meaningful difference in preventing crashes.

The state of Oregon, meanwhile, has adopted an interesting alternative. Rather than making impaired driving an age-based issue, Oregon treats all drivers the same. Hospitals, doctors, other first responders and in fact anyone else can fill out a short form requesting the Department of Motor Vehicles to review somebody’s driving skills. The DMV takes particular care to weed out tattle-tale reports, which officials have said are pretty easy to spot. But if there is any sound evidence that an Oregon driver is not operating a vehicle safely, then the agency can call that person in for some testing, and then perhaps suspend or revoke that driver’s license.

In general, these studies show that while your grandparents may dawdle in the slow lane, they are likely safer drivers than the whipper-snappers that pass them.

—Gordon Hard

What is an ideal vehicle?

I recently posted a reality check "Let your priorities be your guide, but don’t ignore the big picture" encouraging readers to look beyond the latest list du jour to ensure they “understand the intention and methodology, lest something be lost in the sound bite.” While drafting that post was cathartic, it wasn’t enough to stymie my apoplectic reaction from reading the results of AutoPacific’s 2008 Ideal Vehicle Awards (IVA).

Reminding me of the last day of Little League when every player stood up to receive a trophy, these awards condense extensive research down to just 28 vehicle categories. Everyone is a winner… Well, not quite. I think the casual reader may not come out ahead.

AutoPacific asked "…owners [to] rate their new 2008 model year cars and trucks by how closely they come to their ideal, as measured by 15 key vehicle attributes. The cars or trucks that owners would change the least are the most ideal."

Like the many other studies issued by this respected automotive consulting firm, IVA leads to interesting findings, particularly for manufacturers. That said, what jumped out at me was the tie for "Mid-Size Sport Utility" class—one of 11 categories dedicated to SUVs.

A perennial hot segment, contested by myriad high-quality machines, midsized SUVs (along with sedans) have long-been at the heart of the American market.

The winners? The Jeep Liberty and Kia Sorento.

Cue sound effect: Screeching brakes.

Having driven both within the past week, I am dumbfounded that these would be acceptable to any consumer who comparison shopped and test drove other SUVs in this class, let alone be considered ideal.

Both were included in the recently published Consumer Reports August-issue SUV road test group. The Liberty earned the distinction of being the lowest-rated SUV in its class, with lows that include fuel economy, lack of agility, unsettled ride, fit and finish, noise, and braking.

The Sorento had a much stronger showing in our testing, placing it 14th among 24 models in the class. Still, its score was too low for it to meet Consumer Reports’ criteria to be recommended. Feeling like something of a throwback, the Sorento’s low points include ride, agility, steering, fuel economy, and reliability. If you don’t take our word for it, consider that owners surveyed by Consumer Reports rate it near-bottom for owner satisfaction, right above the Chevrolet Equinox and Suzuki Grand Vitara. (Many of our owners in that survey have owned the cars for years, rather than reporting on their brand new car as in the Ideal awards.)

But the Grand Vitara wins an Ideal award too, for "Compact SUV/Off-Road Vehicle." Wait a minute. Isn’t that exactly what the Sorento and Liberty are? The Grand Vitara is all of one inch shorter than a Liberty, and it has much more room inside. Plus the Liberty and Sorento are better off-road than the Grand Vitara.

So what gives? Well, with so many classes in their study, the Mid-Size Crossover SUV category must be where all the more refined models fit, reflecting the trend of SUVs migrating to unibody platforms…

Here, we find the Ford Escape came out on top in the AutoPacific study. However, in Consumer Reports’ testing, we place it 21st out of 24. (We do not distinguish SUV versus crossover SUV for rankings.) Again, its score was too low to be recommended. One big reason for that—the Escape had extremely long braking distances, the worst of any vehicle we’ve recently tested. Most owners probably don’t know that—unless they own a test track. 

Bottom line: Lists have their place as a pre-filtered means for initiating conversation and research. (In fact, CR presents myriad lists that filter our test and survey results to help consumers find the information they seek.) But, as we have said before, it pays to look at the bigger picture. For us, a vehicle that earns a good test score and has average or better fuel economy, safety ratings, and predicted reliability is ideal.

—Jeff Bartlett

You can build your own Top 10 list based on the factors that matter most to you using our New Car Selector tool.

Fuel economy feedback

A number of letters and e-mails have reached my desk regarding our most recent test of compact economy cars in the July 2008 test group.

One of the more frequent comments was why we didn't test Volkswagen's diesel models. We would have loved to include a TDI Jetta or Rabbit, but there's one, slight problem: neither are currently for sale in the United States. We tested a Jetta TDI in 2006 (available to subscribers) and got 34 mpg overall. VW plans to reintroduce the Jetta TDI this August; we'll buy and test one as soon as we can. (Read "How we test fuel economy.")

Another comment burning up my in-box was from readers saying how their 3-cylinder Geo Metro got 50 mpg gallon and "Why the heck aren't modern cars as fuel efficient?" One of the reasons cars today haven't made greater strides in fuel economy is that while engines and transmissions have gotten more powerful and efficient, the cars themselves have gotten heavier. You see, over the years, we've all become accustomed to air conditioning, power windows and door locks, quiet (heavily insulated) interiors, and high-end, multi-speaker stereo systems. Plus we take comfort in having front and side air bags, side-impact door beams, and solid overall structures. Plus, larger vehicles are often fitted with all-wheel drive and third-row seats. All of these creature comforts and safety gear add weight. And the extra poundage detracts from fuel economy.

Also, the engines and transmissions in cars today have helped improve performance to levels that was unheard of 20 years ago. For example, the last Toyota RAV4 V6 we tested went from 0-60 mph in 6.7 seconds and still returned 22 mpg overall. Our model had a third-row seat, standard stability control, and could tow 3,500 pounds. Put this in historical perspective and it's impressive: A two-seat Nissan 300ZX we tested in 1992 made it to 60 mph in 6.1 seconds, but certainly didn’t have the utility, safety equipment, fuel economy, or light-duty off-road ability of a modern RAV4.

However, in some respects, while cars haven't made the fuel economy strides they could have, all the vehicles are a LOT safer. While most of this safety equipment adds weight, we think it's a fair tradeoff. And when you think about it, the 1980s micro cars were all very thrifty on fuel, but none had antilock brakes, stability control, or front-, side-, or head-protection air bags.

Ideally, we think fuel economy should not come at the expense of safety. Today's cars are safer than anything built 20-30 years ago; they’re also cleaner and more comfortable. I don't miss the "good old days" in terms of automotive safety. And the future looks exciting with all the emerging technologies (electric cars; plug-in hybrids; cleaner diesels). And yes, we'll test all that we can, once they become available.

—Mike Quincy

For information on the most fuel-efficient cars and alternative fuels, see our guide to driving green. Also, see our video above on how to improve your gas mileage.

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. 

Downsizing—The long-term implications for trading in early

In the second part of our blog series on downsizing, we'll dig into the numbers behind the "When to downsize your car" report to further illustrate the implications for trading in early.

We left off by explaining why you shouldn’t trade in your large, gas-guzzler early. Now we will explore the scenario of moving from a 2005 Chevrolet Tahoe LT 4x4 to a 2008 Honda Pilot EX-L, a more fuel-efficient model that represents a reasonable compromise with all-wheel drive, eight-passenger seating, and decent tow capacity.

Downsizing SUVs—Show me the money
In this hypothetical scenario, a customer bought a popularly equipped 2005 Tahoe new for $45,390, putting 15 percent down and financing the rest for 60 months. Looking to trade it in three years later, we find this owner has only about $4,750 in equity in the Tahoe to apply toward purchasing the new Pilot after the remaining loan balance is paid off.

This is the eye opener for many consumers; just because you have a big vehicle in the driveway doesn't mean it makes sense to swap it out for a smaller vehicle. Often times, another loan will be necessary and therefore no real reduction in monthly payments is feasible, unless the loan terms are extended. (Already sensing this isn’t an easy money-saving change?)

Buying the Honda brings about $1,700 in sales tax, based on a national average. Roll that into your loan and the impact will be stretched over five years.

In the first year, we predict the Pilot will depreciate $9,000. The total cost for that first year with the Pilot is $15,250, compared with $10,250 for the Tahoe.

Over time, the Pilot's cost per year will decrease significantly. The depreciation rate will slow and by year five the loan will be paid and there will be no more interest charges. Of course, the Tahoe would be paid in just 24 months from now; choosing to purchase the Pilot will lead to three more years of payments.

What are your downsizing goals?
If you need to save money today, then downsizing can accomplish that only if you make great sacrifices. If you can look a few years down the road (see chart below), you will understand that trading in early may not be the best option.

Based on our June numbers of $4.00/gallon and CR overall fuel economy results, the cost to fuel the Tahoe for 12,000 miles is about $3,700. At 17 mpg, the Pilot would cost $2,800—not a huge difference. Downsize all the way to a Toyota RAV4 V6 and the fuel bill would tally just $2,200.

Those fuel savings will not offset the hidden costs (depreciation and interest) for years in this example, unless fuel prices continue to skyrocket.

12-month costs at $4.00/gallon

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	$10,250	$19,500	$27,500	$34,500	$41,500
2008 Honda Pilot EX-L AWD	$34,750	17	$15,250	$24,250	$32,250	$40,250	$47,500
2008 Toyota RAV4 Limited V6 AWD	$30,250	22	$12,000	$19,500	$26,250	$32,750	$38,750

When is the tipping point for downsizing?
We have heard this question a lot in the past two weeks, and the answer is always: it varies. Truly, it depends on how extreme the move is to downsize. A less expensive, more fuel-efficient model with lower five-year owner costs will pay off more rapidly than a vehicle with only modest sacrifices.

With this scenario, comparing keeping the Tahoe versus trading in on either the Pilot or RAV4, we calculated out the estimated annual owner costs for years to come. What we found is that the cost to own the Tahoe and the RAV4 from now through 2010 would be about same at $19,500 each. Owning a 2008 Pilot for two years would cost an estimated $24,250.

So, to trade now on the RAV4 would start to make financial sense within a couple years. Looking further out, the RAV4 starts to cost slightly less with each passing year.

The Pilot does not have that crossover point, having a higher cumulative ownership cost over the next five years.

Should gasoline rise to $5 this month, and stay there, the scenario changes, though only slightly. Measured beginning today, the RAV4 costs less to own after just 24 months than the used Tahoe, giving the RAV4 a $1,000 advantage that increases over time. Look at the costs in 2011, and the RAV4 has a dramatic lead at $27,750 versus $30,250. Again, looking out five years, buying the Pilot versus retaining the Tahoe never adds up.

12-month costs at $5.00/gallon

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
2008 Honda Pilot EX-L AWD	$34,750	17	$16,000	$25,500	$34,500	$43,000	$51,000
2008 Toyota RAV4 Limited V6 AWD	$30,250	22	$12,750	$20,500	$27,750	$35,000	$41,500

Bottom line
To save big in both fuel bills and long-term owner costs takes a significant sacrifice in downsizing. A modest move down one vehicle class may not be enough to create sizable savings.

In the end, reducing owner costs comes down to holding on to your car for more than three years. And in choosing your next ride, look for a model that performed well in Consumer Reports tests, has average or better predicted reliability, a good overall safety Rating, fuel economy at the top of its class in our testing, and average or better estimated owner costs. There are a lot of factors to consider, but this information is readily available at ConsumerReports.org and the New Car Selector tool can help you quickly assemble a shopping list to research further.

In part three of this downsizing series, I will explore the numbers if you downsize to the extreme.

—Jeff Bartlett

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

Downsizing your car – when does it make cents?

Last month, we published a report on "When to downsize your car" exploring the financial realities of trading in a large vehicle early in the ownership cycle on a new, more fuel-efficient one. The findings are counterintuitive, suggesting that even owners of large trucks and SUVs might be better off holding on to their three-year-old vehicle for another year or two before selling it.

There has been tremendous interest in this subject, warranting another look at the topic to address perspectives raised by readers and the media, including ABC News, CBS Morning Show, NY Times,  Washington Post, and many other outlets. As with other studies conducted at Consumer Reports, the final story summarized the findings from a veritable mountain of data. Over a several blog posts, I’ll dig deeper into our data to illustrate the concepts from the original article and clarify the advice to help you make the right decisions for your situation.

The miracle of downsizing
First off, I want to restate that Consumer Reports strongly recommends that everyone purchase a good, reliable, safe, and fuel-efficient car. With the numerous lists and powerful, interactive tools at ConsumerReports.org, you can quickly narrow your list down to vehicles that truly meet all those criteria. Regarding downsizing, we have always maintained that people should buy the most miserly model that satisfies their needs. And in every vehicle category, there are models at both ends of the fuel-economy spectrum.

Secondly, at the heart of our latest research is a cautionary note for those who have owned a vehicle for three-years or less and are still making payments: carefully consider the short- and long-term financial impact of trading it in. We hope all motorists move to more fuel-efficient models but suggest that they do so only when the timing is right.

Why downsize?
Of course, people are motivated to downsize by escalating fuel prices at the pump. But many consumers are feeling the economic squeeze on other fronts, leading them to want to also decrease their monthly car payments and possibly their insurance premiums. Those feeling the pressure on multiple fronts may be the most vulnerable to making a rash trade-in decision that hurts them in the long run.

Why not dump my SUV now?
If you’re just partway through a car loan, you may not have much equity in that gas guzzler due to hidden costs. We’re all too familiar with weekly gas costs and monthly payments, but the real dollars move silently behind the scenes. The biggest of these hidden costs? Depreciation. On average, depreciation now accounts for 46 percent of the owner costs over a typical five-year ownership period, with interest adding another 12 percent. (Fuel accounts for about 26 percent, on average.) So the bulk of your investment in this depreciating asset is quietly melting away, while you focus on the fuel costs.

In our analysis, we found that downsizing now may save $1,000 or more a year in fuel costs. Sounds good on the surface, but it’s a drop in the bucket over the long haul.

Consider that interest is stacked so the monthly payment has more interest in the first month than the last. And a vehicle depreciates greatly in year one, then less so with each successive year. Likewise, buying a new car means paying sales tax in most states. Trading in early, therefore, means moving from the most expensive period of ownership on one vehicle into that of the next.

To flip this around, if you asked, "What could I do to waste as much money as possible on a car?" My answer would be to buy new, finance it longer than you plan to keep the car, and then trade it in on another new car. This is exactly what we’re cautioning you against now.

We’ll dig into the numbers and explore the tipping point for selling your gas guzzler in the next installments.

—Jeff Bartlett

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

Workplace incentives for fuel-efficient cars

Reading The Wall Street Journal over breakfast a while back, I noticed an interesting article titled "Workers Get Incentives to Live Greener" that mentioned employers who give workers financial reasons to buy fuel-efficient cars. Clif Bar, makers of energy bars, give forgivable loans if you buy a car that gets at least 40 mpg. NRG Systems, who makes wind-measurement equipment, gives a $1,000 bonus to employees who buy a Toyota Prius. And, although it wasn’t mentioned in this article, Google gives $5,000 to workers who buy a car that achieves 45 mpg. (Hybridcars.com has a list of employers who offer such fuel economy and hybrid incentives.)

Another company that offers incentives is Topics Entertainment, a Washington software publisher. Their incentive program is considerably wider-ranging. To get those above incentives, based on what’s on the market today, you’re essentially limited to buying a new Toyota Prius. Not bad, but not for everyone.

Topics’ program covers other ways to improve fuel economy. Employees get $1,000 to trade in their current car for a new one with a smaller engine and additional money for going from a V8 to a four cylinder or buying a hybrid. That gives employees a wider range of vehicles from which to choose.

For the most part, this is a great idea. You don’t need to go all the way from a Suburban, Expedition, or Land Cruiser to a Prius to get considerable fuel economy improvements. For example, trading in a Jeep Commander for a Saturn Outlook would save 3 mpg (13 vs. 16 mpg, overall, in our tests).

As a general rule of thumb, an engine with a lower displacement or fewer cylinders typically consumes less fuel, thus creating less carbon dioxide emissions than a bigger engine with more cylinders. (This is discussed in my earlier blog "You coulda had a V8... but who needs it?' Indeed, some European nations have taxes based on vehicle engine displacement.

But there are some exceptions to the rule:

If you trade this...

For this...

…you can save this many mpg (based on CR's overall fuel economy)

2000 Subaru Outback (2.5-liter, four-cylinder)	2008 Toyota RAV4 V6 (3.5-liter, six-cylinder)	2 mpg (20 vs. 22)
2004 Volvo S60 2.5T (2.5-liter turbo, five-cylinder)	2006 BMW 328i (3.0-liter, six-cylinder)	2 mpg (22 vs. 24)
2005 Chevrolet Cobalt LS (2.2-liter, four-cylinder)	2008 Volkswagen Jetta (2.5-liter, five-cylinder)	1 mpg (23 vs. 24)
2007 Mazda CX-7 (2.3-liter turbo, four-cylinder)	2008 BMW X3 3.0i (3.0-liter, six-cylinder)	1 mpg (18 vs. 19)
2006 Hummer H3 (3.5-liter, five-cylinder)	2008 Volvo XC90 V8 (4.6-liter, eight-cylinder)	2 mpg (14 vs. 16)
2004 Mazda RX-8 (1.3-liter rotary, zero cylinders)	2008 Ford Mustang GT V8 (4.6-liter, eight-cylinder)	2 mpg (18 vs. 20)

Why do some of these disparities exist?

A manufacturer can improve fuel economy in the same engine with continued development. A new Subaru Outback 2.5i, for example, gets 1 mpg better than the 2000 Outback did on our tests.

Typically, the more gears in the automatic transmission, the better the mileage. Cars like the Outback, Cobalt, and H3 only have four-speed automatics.

Small engines pulling heavy vehicles (H3 and CX-7) can struggle, reducing fuel economy.

Rotary engines (RX-8) are very compact, building impressive horsepower per liter, but they aren’t particularly fuel efficient or low in emissions.

To sum up, if you want to improve fuel economy, you usually can’t go wrong by buying a car with a smaller engine. But take a quick look at the fuel economy numbers to make sure.

—Tom Mutchler

Visit our fuel economy hub, and see our list of best cars for fuel economy.