Thursday, December 22, 2011

Thinking About Replacing My Car

So while on vacation this week, I rented a 2012 Nissan Versa sedan from Alamo Car Rental... for the trick on getting car rental pricing that I use, I checked and then also checked the prices from - I went with Alamo and paid about $182 for 10 days including all taxes and fees.... not bad for a peak time of year.  Note that Alamo doesn't ask for verification of BJ's membership if you take care of your reservation using the kiosk for checkout instead of talking to their representative...

I liked the Versa enough that I even so much considered upgrading it and trading in my clunker that I held off on trading in during the Cash for Clunker program - a 1994 Buick Park Avenue Ultra.  with 228,000 miles.  I figured that the Versa was getting me 35.5 mpg overall on the road vs. 18ish for my Buick - if you do the math, estimating that I drive 1,200 miles per month, and assuming current gas prices stay the same, how long would it take before the car pays for itself through gas savings?  The new car price would be about $15,000 even including tax, title, registration and a $500 trade in for the clunker.  Let's assume $4.00 per gallon average for gas during the total length of ownership - not entirely unreasonable given recent gas price fluctuations and perhaps conservative overall.  Let's also assume that my Versa mpg is only 30mpg, since that's the City rating, and I mostly drive in traffic, not highway.  That's a 12mpg increase overall or 67% increase in fuel efficiency.  I'd have to drive at least 170,000 miles until I break even - which at 15,000 miles per year, would take me about 11 years; factor in the time value of money from lost use of it when buying a car, and the cost of the car increases.  Assuming a 3% per year IRR, then it'd take about 312,000 miles to break even.

Bottom line, with such a long rate of return, I think I'll keep my current car until it drops and defer buying a car as long as possible.  For some people, a car matters, and sure, it matters to me, but I think I'll hold off for now.  By 2016 car makers will have to achieve an average of 35.5 mpg on its cars, so if I can wait until then, the # of cars with amazing fuel economy is bound to increase, giving buys a nice selection of cars.... fuel for thought...

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