The Gas Game

Ok, gas is pretty out of control at $4+ per gallon, but let’s keep our heads about us and think a few things through before rushing out and joining the Green Revolution.

First off, I have to admit that anytime I hear someone say we need to reduce our ‘carbon footprint’ or conserve our precious natural resources and be friendlier to the environment, I want to go by a Hummer. Not the chinsey Jeep looking kind, but rather the one Arnold made famous in the mid-90’s that is Military grade and can climb the Empire State Building.

Please realize, too, that I live by numbers as they rarely lie and help eliminate the emotion of buying so many of us get caught up in.

With that said, please don’t get caught up in the hype of the gas prices and the brilliant marketing some car manufacturers are using to leverage it.

This whole post was sparked because some friends of mine traded in their paid off Dodge crew cab diesel truck (an ‘04 I think) that ran perfect and had not a single defect, for a brand new Chrysler 300 because it got better gas mileage and Chrysler has the ‘$2.99 gas for 3 years’ promo going. The bust is they got the V6 and didn’t get the one with the Hemi V-8 that would have been a blast to drive, all in the name of gas savings.

Their logic was sound, so they thought. That was until the math guy (me) showed up. Actually, I couldn’t tell this to their face, so I had to vent (and save you from their fate) through this post.

They thought the following:
‘I’m tired of paying nearly $5 a gallon for diesel and then only getting 12 mpg in this HUGE truck. With the new Chrysler 300 we’ll get 17 mpg in the city and up to 24 on the highway and at $2.99 a gallon, we’ll save tons!’

Here’s where the math comes in.

They drive approximately 10,000 miles per year.

With the truck, that equals 833 gallons at only 12 mpg (which is a low estimate). At $5 per gallon (a high estimate) that’s $4,166 per year in gas expense, or $347 per month.

With the new 300, that same 10,000 miles equals 500 gallons assuming they get 20 mpg (which is an aggressive estimate). At $2.99 per gallon for the first three years, that’s $1,495 per year in gas expense, or $124 per month.

At this point most people would say ‘Hey math guy, they’re saving $223 per month! How is that bad?’

We’ll here’s the kicker, they traded in their truck and had to take out a $10,000 loan. Assuming they got it for a 4 year term and got a rate competitive with what BankRate.com says 4 year car loans are going at today (6.92%), their monthly payment would be $239.09 per month. So there goes that $223 per month in expected gas savings.

Granted, they got a new car under warranty and are only out an estimated $16 per month. Not bad. But what happens in year 4 when the gas is no longer subsidized and they have to pay full price? What happens if they don’t get as good of gas mileage as they expected? What if diesel gas drops in price?

Obviously I’m being anal with this example, but I wanted to prove the point that you need to look at the math before you go make an emotional decision that is driven by the hype of the marketers in our world today.

One other note, nobody does anything for free. $2.99 gas is made up for somewhere. My guess is the higher car price. An ‘07 Chrysler 300 last year this time was $24,550 at the base price. This year’s ‘08 300 base price is $25,270. That $720 increase can subsidize a lot of $2.99 gas, especially since our scenario was only showing 500 gallons being used per year.