For many people, selling their gas guzzler doesn't make financial sense.
With the average cost of gas above $4 a gallon nationwide, more and more people are making the decision to get rid of their SUVs in an attempt to save money. While this would appear to be a good move, in many cases it will end up costing you more money than you will save.
When one looks at trading in a gas guzzler for a fuel-efficient car purely as a question of gas mileage, it makes perfect sense to want to make the trade and pocket the savings.
What many people forget to consider is that gas mileage is only one thing that needs to be considered in order to determine if the trade makes financial sense. When all factors are considered, trading in a SUV for a more fuel efficient car doesn't make sense for a lot of people.
How much do you drive?
The amount you have to drive will be the major determining factor as to whether or not it makes financial sense to trade in your SUV for a fuel-efficient car.
For example, if you own a SUV that gets 15 miles per gallon and you want to trade it in for a fuel efficient car that gets 30 m.p.g., that means that the trade will net 15 more miles of driving for every gallon you purchase. Most people who see a 15 m.p.g. gain assume it means large savings, but the true savings is dependent on the number of miles you drive each month.
The average person drives approximately 12,000 miles a year, according to the EPA. That's 1,000 miles a month, which would result in a $267-a-month savings with at $4-a-gallon gas. For many people, the cost of trading in their SUV will be close, if not more, than this amount that they will end up saving.
The less you drive, the less sense it makes to trade in your gas-guzzler.
How much can you get for your SUV?
Not only are you one of many people who currently want to get rid of their SUV, there are also not many people who are in the market for a SUV these days.
Kelley Blue Book data indicate that SUVs have depreciated between $3,000 and $5,000 in the past six months, and that SUV prices have fallen more than 8% since September of last year. This may be the reason that more and more dealers are refusing to even take SUVs as trade-ins as they consider the SUV overstock they already hold.
The fact is, if you want to get rid of your SUV, you're going to have to sell it at a steep discount.
This means many SUVs are worth less than what is owed on them (this is referred to as being "upside down" on the loan). In order to sell and get a more fuel-efficient car, the owner would also have to repay the remaining balance on the loan for the SUV that wasn't covered in the sale. The savings received from better gas mileage rarely makes up for the extra costs that would still have to be paid on the SUV after it has already been sold.
How much will the fuel-efficient car cost?
Fuel-efficient cars have risen 7% in value during that same period that SUVs have fallen in value. The double combination of getting less value for your SUV than you owe and having to pay more for a fuel-efficient car makes it less likely that selling a gas guzzler will produce a big enough savings to cover the losses.
Can you reduce your driving?
There is a reason that ridership on public transportation is at a 50-year high. The best way to beat high gas prices is not to trade cars, but to simply drive less. There are changes that you can make in your driving habits as well as alternative ways to commute that can greatly reduce the miles you currently drive.
By looking at different ways that you can reduce your driving, you are likely to be able to save more money than you could by trading in your SUV for a fuel-efficient car.
Are you following basic gas saving tips?
Chances are that you are getting much worse gas mileage in your SUV than you could be getting. If you can't reduce the amount you drive, incorporating basic gas saving tips can improve your gas mileage.
Even small improvements in gas mileage will often make keeping the SUV a more financially smart move than trading when losses you are bound to incur are considered.
This should in no way imply that you should be happy with a gas guzzler. It's costing you money that it wouldn't be if you had chosen a more fuel-efficient car to begin with. It simply means that if you want to make the best financial decision, you need to look at all the costs that will result from the sale of the gas guzzler.
If these can ultimately be recouped with the savings that you will receive from getting a fuel-efficient car, it's time to make the trade, but if they can't, take the steps to get better gas mileage and reduce the amount you drive until it's time to purchase your next vehicle.
Just be sure that when that time comes, you purchase one that is fuel-efficient, so that the above situation is never an issue again.