If Your SUV Is Worthless as a Trade-In, Is There a Gas Price That Will Compel You to Simply Junk It?
DALLAS – July 18, 2008 – With the resale value of SUVs plummeting and some car dealers refusing to accept them in trade, Scott Burns, personal finance writer and chief investment strategist for AssetBuilder, poses the question: “Is it time to junk the SUV?”
For most people, Burns says, probably not. But should fuel prices climb to $6 per gallon or more, it might be time to walk away from your gas guzzler.
“To determine if your SUV is worth junking,” Burns explains, “you should compare the cost per mile of feeding it gasoline to the cost per mile for fuel plus the cost per mile of the depreciation on a new vehicle. Depreciation is the largest single cost, by far, of owning a car. The Junking Moment is when the new-car costs are less.”
Burns offers a hypothetical example:
“Let’s assume that a new car will lose about 80 percent of its value in the first 100,000 miles. That means a new $25,000 vehicle will lose $20,000 in 100,000 miles and cost about 20 cents a mile for depreciation. A $30,000 vehicle will cost about 24 cents a mile for depreciation, and a $40,000 vehicle will cost about 32 cents a mile for depreciation.
“To throw your gas guzzler away, you’d need to find a combination of new car depreciation and gas cost per mile that is less than the cost to run your SUV.”
Burns says this might be possible to find today – but not probable.
If your SUV gets 13 miles per gallon, it costs 31 cents per mile to drive it when gas prices are at $4 per gallon, Burn explains. If you were to purchase a new car that gets 40 miles per gallon, the cost to drive that vehicle is 10 cents per mile. That’s a difference of 21 cents per mile.
If you can find a new car that gets 40 miles per gallon for $25,000, it may be worth trashing your SUV, Burns says. But that’s unlikely.
If gas goes up to $6 per gallon, however, it’s a different story. Then even paying $40,000 for a fuel-efficient new car would be better than sticking with your SUV.
Read more of “Is It Time to Junk the SUV?” at www.AssetBuilder.com.
About Scott Burns
Scott Burns is a newspaper columnist and author who has covered personal finance and investments for nearly 40 years. Today, he is one of the five most widely read personal finance writers in the country, according to The Dallas Morning News. In 2006, he co-founded AssetBuilder, a Registered Investment Advisor, where he serves as chief investment strategist.
Burns and Laurence J. Kotlikoff are co-authors of “Spend Til’ the End: The Revolutionary Guide to Raising Your Living Standard -- Today and When You Retire,” published in June 2008 by Simon & Schuster.
AssetBuilder offers weary investors a science-based alternative to the unnecessary costs, risks and complexity of traditional Wall Street firms. With fees that rank among the lowest in the financial services industry, AssetBuilder provides customers a menu of pre-constructed, risk-managed portfolios that make choosing and implementing a personal investment strategy simpler than ever. Co-founded by personal finance writer Scott Burns, AssetBuilder’s portfolios are an extension of Burns’ widely praised “Couch Potato” methodology. Based in Dallas, AssetBuilder is a Registered Investment Advisor. For more information, visit the company’s Web site at www.AssetBuilder.com.
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