Monday, November 05, 2007

Green Decisions - The personal cost of high oil

Tonight I was sitting in a bakery and noticed the gas station across the street was selling regular unleaded for $3.05/gallon, the first time that gas has been over $3/gallon since September 2005 (at least in these parts). I glanced back at the hulk of a pickup truck that I drive and started to do some computations in my head of my direct cost of oil.......

In this country people don't seem to put much, if any emphasis on conservation. We drive monster cars, have monster houses, and way too much waste in our lives. I'm no less guilty than the next guy - I consume more than I should and drive a bigger vehicle than necessary. However, conservation and being green is always on the front of my mind when it makes economic sense to do so. Repeat that - it must make economic sense. What is that you say, well lets' get back to gas prices.

I drive a pickup truck. A V-8 powered 4WD breast of a vehicle. Surprisingly, it doesn't get horrible gas mileage for it's size (about 17 mixed). I purchased said pickup for a specific purpose and now that gas prices are real high conventional wisdom says I should ditch it for a fuel efficient car. Economic reason is different and we're going to look at this case through the lens of replacement value - or what would it cost me to get an equivalent vehicle today. Let's look at the facts here. One, my truck is paid for. That means I have possession of the title, and it's mine all mine. That reduces my cost of ownership quick significantly because I'm not spending $400-500 a month that an equivalent new truck would cost me. Due to it being paid off (and slightly older), the insurance premium is cheaper. Another $50/month saved. I drive on average 150 miles per week to school/work and back, and at 17 MPG, that is rougly 8.82 gallons of gas, we'll say 9 to keep the math easier. Final calculation: I use 36 gallons of gas a month for my personal transportation cost which would cost me $107 at $3.05 per gallon.

For comparison sake, I'm going to buy a Chevy Cobalt. Not really, but IF I were to need a car tomorrow, it would be at the top of my list due to it's value and economy. As much as I like the Prius, there is certainly not an economic case to be made to drive one. Back to the Cobalt, let's say I have to take out a loan of $250 a month (48-months) to pay for it. Insurance is about $130/month, and the car averages about 30 MPG. Conventional wisdom says that people with fuel efficient cars drive more because it costs less to do so - I don't buy it, but let's say I drive 700 miles a month now. At 30 MPG mixed, I use 23.3 gallons a week, spending $72 a month. In essence I've saved $35/month, YET I have increased my expediture by ~$100 a WEEK by having to make payments and additional insurance costs. Sure doesn't look to make economic sense does it, to save a little gas?

To be fair - there are a host of other variables that I am not controlling for or observing. It's hard to guess the utility (happiness) I would receive from a new car. I may save some money on repairs. I might feel good about burning less fuel (and creating less CO2). If I paid cash for the new car the numbers would be substantially different, but the result is still the same. It's generally a net loss to buy a new car to save money on gas.

If I had to do it over again, I would strongly reconsider my choice of vehicle. I don't like wasting anything but to spend dollars to save pennies makes no economic sense in my book.