Panic Trading When Gas Prices Spike – Car Pro Commentary

high gas pricesAs gas approaches $4 per gallon in many areas of the country, and in Los Angeles is at $5.19 at some stations, I am trying to educate the people who listen to my radio shows on how best to weather the escalating costs of fuel. It takes some thought and some patience not to make a “panic trade.” We have seen the gas spikes many times now, and as gas prices go up, so does the price of fuel-efficient cars, especially hybrids. I encourage people to get ahead of the gas spikes if you are going to make a trade. Used car prices generally lag several weeks behind rapid gas spikes like we are seeing right now.
Too many people lock in on one expense, like fuel costs, and especially when a particular expense takes a leap up. I think it is imperative that you know exactly what you are spending to drive your car, so take the sum of your fuel cost, your car payment if there is one, the average monthly outgo for maintenance and repairs, and your cost of insurance. This is your total cost of transportation.
If trading cars to save money at the pump causes your total cost of driving to go up, then it may not be in your best interest. Let’s look at some actual numbers. The average driver travels 15,000 miles per year. If you have a vehicle that is getting 20 miles per gallon average, and you go to a new car that averages 35 miles per gallon, that would seem like a huge increase in fuel economy and it actually is. Assuming $4 per gallon, the actual savings in fuel cost is $107 per month. If your car payment goes up by more than $107 per month, your total cost of transportation went up and you did not help yourself at all.
Taking the same numbers above to the “worst case scenario” of $5 per gallon, your fuel cost per month goes up to $134. So again, if you trade cars and your payment and insurance goes up by more than $134, it is all for nothing.
There are many variables of course, such as the actual number of miles you drive, and your cost of upkeep if you are in an older or high mileage car. That is why it is so important to calculate your personal vehicle expenses, and to take that into account.
Pump shock is no fun at all. We started 2013 at $3.27 per gallon nationally and as I write this on February 20th, the national average is $3.73. Prices have risen for 33 days in a row and we don’t know where they will end up, and I know some will make a “panic trade.”
For the average 15,000 mile per year driver getting 20 miles per gallon average, the resulting increase is $29 per month since the first of the year. For most of us, it just feels like it is more than that. When and if we get to $4 per gallon nationally, the monthly increased cost of fuel will be $46 per month since January 1.
If you haven’t been in the market for a new car in a few years, you might be surprised how fuel-efficient many cars have become. In fact, odds are great that if your car is more than 3 years old, and you buy the same car in a 2013 model, it will be much more fuel-efficient. Downsizing does not mean downgrading necessarily.
I have a great fuel cost calculator on my website which you can find here: With the input of 4 numbers, you can see your savings if you get a more fuel-efficient vehicle. Just make sure you look at the big picture.
Knowing your total cost of transportation will keep you from making a mistake with your next car.


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