How Much Is Fuel Efficiency Really Worth?

Jim writes in with an interesting question:

I’m in the market for a late model used car. I’ve narrowed my desired model down to a handful of choices, each with different gas mileage data. How can you really figure out how much fuel efficiency is worth in terms of dollars and cents? I know how to do the basic math, but it seems artificial. How would you do it?

It’s pretty easy to see how better fuel efficiency saves you money. If gas is $3 a gallon and you have a car that gets 30 miles per gallon and a car that gets 40 miles per gallon, over 100,000 miles, the more fuel-efficient car will save you $2,500. That’s real cash in the pocket.

The only problem with that is the number of variables in the question. How much will gas cost in the future? How long will you drive the car? Does your personal driving habits have anything to do with it?

Let’s look at each factor and see how it affects the importance of fuel efficiency in a car purchase.

How Much Will Gas Cost?
You can usually get a solid estimate of where the price of gas will go over the next year by paying attention to the short term energy forecast from the U.S. Energy Information Administration, but anything beyond that is basically tantamount to gambling. Even within that year, unexpected events can disrupt the price of gas – like 9/11.

So what can a person do when it comes to figuring out the future price of gasoline?

My first piece of advice is to estimate high if you’re in doubt. A high estimate of future gas prices simply means that you’re putting a bit of extra value into fuel efficiency. If fuel prices really are high, you’ll be glad you did it – even if they’re not, you’ll still reap some rewards from fuel efficiency. This is a better scenario than estimating low and being stuck with a gas guzzler if prices spike.

Beyond that, I would assume the trend in the one year forecast will continue for several years. Since it’s the only real “future” number you have to go on, just assume that trend will continue for however many years you intend to own your car.

So, let’s say you’re buying a car and you intend to drive it for about seven years. The fuel estimate report says “crude oil prices contribute to an increase in the annual average regular-grade gasoline retail price from $2.35 per gallon in 2009 to $2.83 in 2010.” That means that a one-year increase will be about $0.48 per gallon.

So, if you’re going to own the car from 2010 to 2016, you’d assume $2.83 a gallon for 2010, $3.21 a gallon for 2011, $3.69 a gallon for 2012, $4.17 a gallon for 2013, $4.65 a gallon for 2014, $5.13 a gallon for 2015, and $5.61 a gallon for 2016. This averages out to $4.17 a gallon over the time you’d own that car. That seems like a high-end calculation to me. However, recall that in 2000, gas prices were often below $1 per gallon, for comparison’s sake.

How Many Miles Will You Put On The Car?
This is a fairly personal calculation, but we’ll stick with the above premise that you’re intending to drive the late model used car for seven years. This is comparable to how long I’ve driven my truck – and it’s very near the point of needing to be traded away.

How many miles do you put on a car in a year? If you have some mileage data, that calculation becomes much easier. Look at your own records and see if you have some data from a year or two earlier that indicates your mileage on a specific date. Calculate how many years ago that was – for example, you might note that the number came from 1.3 years ago – and then subtract that mileage from your current mileage. Divide the difference in mileage by the years since that number and you have a rough yardstick of your annual driving needs.

For the sake of calculations below, we’ll assume that you’re going to be driving 12,000 miles a year. Over seven years, that’s 84,000 miles on the car. Again, this may change based on your own plans and your own auto usage.

How Is Your Driving?
You can use FuelEconomy.gov to find out the fuel economy of nearly every make and model sold in the United States over the past decade or two – it’s an invaluable resource. However, the government uses certain standards to minimize the variation in fuel efficiency from car to car, and your driving is almost assuredly different than those standards.

Here’s a quick test. Fill up your car as much as you can, write down the mileage, then drive it normally for a while. Fill up again and write down how much gas you put in. Fill up again and write down how much gas you added, plus your current mileage. Add up the two gas totals. Subtract your old mileage from your current one. Divide the difference in mileage by the amount of gas you put in, and you’ll get a good estimate of your real world mileage for your current car. It’s not perfect, because it doesn’t vary across seasons too much, but it at least provides some variance for your use.

Now, go look up your current car on FuelEconomy.gov and see what average fuel efficiency your model should get. Then, subtract your calculated fuel efficiency from the government-estimated efficiency and then divide that difference by the government efficiency. That’ll tell you by what percentage your driving habits – plus the conditions you drive in – vary from the government tests. Subtract that from 1 (or from 100 if you’re using percents).

Then, look up the models you’re considering buying and multiply that by the fuel efficiency percentage you just calculated. That new number should get you pretty close to the fuel efficiency you should actually expect to get from the car on the road.

Why do all this? A person who drives aggressively will simply be less fuel efficient than a person who drives conservatively. Thus, an aggressive driver gets less benefit from buying a fuel efficient car. Doing this just calibrates things based on how you drive – and the conditions in which you drive (as winter driving often has a negative effect on efficiency).

So, let’s say that ol’ lead-footed Jim finds that he only gets about 80% of the government numbers out of his car.

A Calculation Example
Jim is looking at a 2007 Toyota Corolla and a 2006 Ford Focus, for example. He looks them up on FuelEconomy.gov and finds that the government estimates that the Corolla gets 31 miles per gallon and the Focus gets 26 miles per gallon. Jim estimates that he drives at about 80% of that efficiency – he drives on the interstate a lot and is a bit aggressive – so that modifies things to about 25 miles per gallon for the Corolla and about 21 miles per gallon for the Focus.

Jim wants to drive the car for seven years and puts about 12,000 miles on it per year. As above, he calculates that the average gas price will be $4.17 a gallon for those years, and he’ll put 84,000 miles on each car.

So how much will the Corolla save him?

In the Corolla, Jim will total up about 3,360 gallons of gas used. At a cost of $4.17 a gallon, that’s $14,011.20 spent on gas over the period. In the Focus, Jim will total up about 4,000 gallons of gas. At $4.17 a gallon, that’s $16,680.

The Corolla would save Jim $2,668.80 in fuel costs over that period, using the estimates we came up with above.

Wait, I Don’t Agree With That One Assumption, So Your Entire Post Is Bogus
The real challenge in making such prediction-based calculations is that they’re based on assumptions, and almost all assumptions about the future are up for debate. The best anyone can do is rely on the best data available and make reasonable leaps based upon that data – and have a rational reason for explaining those leaps.

If you don’t agree with one of the assumptions – or two of the assumptions, or more – change them. Just be sure that you have a valid, intelligent reason for changing it that’s based on some real data or logic. I’ve done my best to explain the logic behind the calculations and information I’ve shown here so that you can use it in your own calculations, or at least have a good starting point for finding your own assumptions.

Good luck.

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34 thoughts on “How Much Is Fuel Efficiency Really Worth?

  1. Des says:

    A fuel efficient car will also have a better resale value if gas prices go up. Of course, that may not matter if you plan on driving your new car until it dies.

  2. Kate says:

    Another post about buying cars and fuel efficiency? I find myself coming here less and less and these kinds of posts are the reason why along with the “year in review” posts. Seems like this is a rehash of many, many past posts? Or is it my imagination?

  3. lurker carl says:

    Fuel usage is fairly easy to calculate. Don’t bother trying to determine fuel cost over time – it is too variable with location and seasonal flucuation to estimate. Fuel consumption will remain consistant so stick with stable units of measurement.

    The hidden costs of automobile ownership are a bit harder. The carrying costs of the vehicles have been ignored here. Purchase and selling prices need to be addressed in real dollars, not percentages. A very fuel efficient vehicle that is expensive to purchase, costs more to insure, difficult to repair/maintain and is practically worthless upon trade-in may not be the most frugal decision. Even more so when the vehicle does not adequately serve your basic transportation requirements.

  4. kim says:

    Well…I got through most of this post and I was pretty impressed. It was a number cruncher reminiscent of Trent’s work a few years ago. I was especially impressed that the word Prius did not appear anywhere in the post. I honestly almost did’t read the post because I thought it was going to be another pat on the back for buying a Prius. It wasn’t and that was a nice change. I enjoyed this article right up to the last section. Trent actually mounted a defense against commenters before the post was written. Trent, getting defensive against your audience is going to KILL this blog. It will turn you against your audience and make you write from spite. Yes, I’m sure criticism hurts. You are now a professional writer. Toughen up. I won’t drop this blog for content. Even though the quality has slipped a little, it’s still better than most out there. I will stop reading if you get snippy towards me. Petty is not cool. Rise above it.

  5. Geoff says:

    I too was suprised by Trent’s defense of his article at the end. No need for it Trent, your better than that. As a 2 year reader, who will continue to read no matter the trolls, you don’t need to justify your work. Who cares if some of the articles give me a bit of deja vu, it gives me a kick in the *** to think about those things again. I also know some of it is for newer readers too. Not everyone has been here for 2 years.
    Keep up the GREAT work Trent.

  6. Vicky says:

    Fuel efficiency is a game for me! I drive an ’04 Chevy Caviler, 5-speed transmission.

    When gas hit $4 a gallon, it cost me nearly $40 to fill up my car.

    Using a lot of techniques I read all over the web I boosted my estimated mpg from 22 all the way up to 32. At one point I actually hit 400 mpg.

    So it helped to already have a decent car, but driving habits make a HUGE impact on whether or not the car actually gets that much.

  7. Vicky says:

    … I wish we could edit posts. That should say 400 miles to a tank, not 400 mpg…

    At 400 mpg half the country would drive little Cavilers, haha.

  8. Trent says:

    “Another post about buying cars and fuel efficiency?”

    The last time I wrote about calculating fuel efficiency in any way was in October 2008: http://www.thesimpledollar.com/2008/10/13/how-much-extra-should-you-pay-for-fuel-efficiency-heres-how-were-calculating-it/

    .. and even then, this post was quite a bit different from that one.

    I’m not sure exactly how to react to the idea that revisiting something after more than a year is “a rehash of many, many past posts.” What do the other readers think?

  9. Start with a fuel efficient car, keep the tires inflated fully, and drive SLOWLY.

    Those are the main things.

    John DeFlumeri Jr

  10. Little House says:

    I think it’s perfectly fine to revisit a topic a year later. It’s not like it’s a complete duplicate of your previous post. Also, I only started reading your blog about 8 months ago and didn’t get a chance to read about fuel efficiency in Oct. ’08. I’m not one to peruse past articles in the archives, I just don’t have time.

    I’d also like to add that my husband hypermiles our Element, and that adds a little more to our total MPG. I’m terrible at hypermiling, but when I luck out and make every light, I can add a few miles to a total tank.

  11. KC says:

    #5 Geoff pretty much stated how I feel, too. In fact these trolls have actually made me pay more attention to the comments section.

    Now back to topic, other matters to consider here are that cars are going to get much, much more efficient by law in the near future. Not everyone can afford to put off a car purchase for 2016 – but if you can fuel efficiency is mandated by law to be much better by then.

    Also I’ve been reading an investment book about future trends (Jim Jubak is the author). And one of his points is that the days of cheap oil are over. He’s not saying we’re running out of oil – he’s saying we have oil – but it’s expensive to find and drill for – and he’s right. Fuel costs will increase in the future – and increase in greater rates than they have in the past. Your best hedge is to get as fuel efficient car as possible that fits your needs. There are too many intangibles to only consider fuel efficiency, but, I feel its safe to say, you should buy the most fuel efficient vehicle that you can get by with. In other words if you can get by with a Ford Escape don’t buy an Explorer or Expedition. If a Corolla meets your needs don’t buy a Camry or Avalon.

  12. Russ says:

    I like these numbers games, because I like to figure out where the edges and boundaries are. Let’s take my example – I drive a Focus (European model, don’t know if it differs much from the US model).

    I’m a reasonably aggressive driver, so if I accept all Trent’s numbers except for annual mileage (I drive barely 4000 miles a year), my costs come out to (7*4000)/21 * $4.17 = $5560 for the Focus, compared to (7*4000)/25 * $4.17 = $4670 for the Corolla.

    So, a difference of just $890 over 7 years, or about $130 a year, or roughly $10 a month. It then becomes a question of whether I’m prepared to pay $10 a month for the tight handling, superior ride, and general fun of a Focus compared to a stodgy and miserable Corolla. I think, for now, I prefer the Focus.

  13. Troy says:

    Focusing on what you can control matters.

    The cost of fuel in the future doesn’t matter to the decision. Becasue you can’t control it.

    But what you can control matters. And how MUCH you drive matters the most.

    This is the issue I have with “efficiency” justification. Especially variable efficiency.

    Many times because something is more efficient (car, washing machine, etc), we justify using it more, thereby negating the benefit. Like using a “sale” as a reason to buy more. You end up spending the same, or even more.

    Same with efficiency. Driving a highly efficient vehicle encourages more driving. It helps justify the purchase, especially if that purchase was made in part on the basis of efficiency.

    And typically, that purchase is more expensive when the more efficient item is chosen.

    I would simply focus on driving less and make fuel efficiency as small a factor as possible.

  14. Leah says:

    I like Russ’ example, even though I drive a corolla and love it (in my own experience, the focus is much more difficult to drive). It’s essential that people crunch the numbers if they’re concerned about fuel mileage.

    Mileage is my #1 factor in my car, with reliability and repair costs being a super close second. Essentially, I was very concerned with how much I’d have to put into my car over the long run. I’m happy to say that my corolla has done me well. I’ve got a 2004, and through careful driving, I frequently have mileage numbers in the 35+ mpg range. On road trips, I can get that up to 40 if I’m careful.

    I do notice that the driver has a significant influence on mpg. My boyfriend drives faster and accelerates harder than I do, and my car just doesn’t achieve the same numbers as when I drive. I’m always careful to keep my RPMs low, and I let people pass me instead of worrying about passing everyone on the road. In my mind, the way he drives is just as important as the type of car Jim will chose to buy.

  15. Kate says:

    Please accept my apologies for my very snarky comment. I really don’t know what came over me! Nor do I know why I thought this was a revisit, other than I must have been reading the archives and it stuck in my mind.

  16. Kara says:

    First the off topic discussion: I don’t think that revisting a topic after more than a year is “rehashing.” Rehashing, to me, implies that you are using virtually the same post, but I don’t think you do that. You generally try to add something or make an entirley different point.

    On to the article. I know that my husband gets markedly lower mpg than I do. The difference is in how we drive. DH=Mario Andretii on steriods. Me=80 grama on a Sunday drive. Here’s the point, there’s like a 10mpg difference on any vehicle that we drive. So figure in how you drive. That, IMO is the most important factor in determing gas milage.

  17. Michelle says:

    I think how much you drive should be a big factor. I drive very little, so we were able to buy a less fuel efficient family car (and less expensive). But since I only fill up twice a month it’s not that big a deal. Whereas my husband’s commuter, was a little more expensive, and much smaller, but gets great gas mileage.

    Another point to consider is how much the car costs. If it’s a little less fuel efficient, but less money, it might come out to a wash. If, over the life of the car, a Corolla will save you $2000 in fuel costs, but the Focus costs $2000 less then it’s about even. Just a thought, since more fuel efficient cars are often more expensive than other comparable cars. We just went through this process, and that’s what I noticed about it.

    BTW- I don’t think this is a rehash. I couldn’t remember you talking about this recently, and while this is kind of a “no-brainer” for me, I thought the info was useful. I was very proud of you for not using the word “Prius”! And while I don’t agree with everything you say (and sometimes the tone is annoying), I still enjoy the blog. Just thought that will all the negativity floating around lately, you could use the encouragement! I’ve been reading for nearly 3 years and I’m not going anywhere!

  18. Courtney says:

    The only reason to speculate on the cost of fuel in the future is when the more fuel efficient car costs more. For example, a Civic sedan starts at $15,565 for 36mpg, versus a Civic hybrid sedan at $23,800 for 45mpg. The question is, is a 9mpg difference worth an $8,000 premium?

    In cases like that, you’re better off *under*estimating the future cost of gas – or even just going with today’s numbers, to decide if it’s worth the price difference based on your own driving.

    Otherwise, between two cars at about the same price, the more fuel efficient car will always be the cheaper to drive fuel-wise, regardless of what the price of gas does.

  19. This is the kind of post that made your blog so popular in the first place. I remember the controversial gift-wrapping defense, people were saying they missed the number crunching. I don’t think it’s a rehash, but I do think recent posts on your Prius might be what people are remembering.

    I would also like to add that I liked the last section. It was like something a much more polite version of Ramit would have said. If you think an assumption is wrong, change it! The math isn’t too difficult to work through yourself.

  20. deRuiter says:

    I’m more concerned with safety in case of a crash. Prefer to drive a bit larger, heavier vehicle. In a crash with a Prius / Metro / Focus / Smart Car, I’m more likely to walk away safely while those in the sardine can are being extracted with the Jaws of Life by the rescue squad. I skimp and save in all areas except vehicles. Everyone’s got to determine their own priorities. If you prefer the mini cars, good for you! I like having a good bit of space from front or rear bumper to the roomy passenger compartment.

  21. I think what can also be factored into the equation is how many maintenance-type tasks are kept up with on the car to improve fuel efficiency.

    Meaning, you can get the most fuel-efficient car in the world, but if you don’t maintain your tire pressure, change your air filter, tune your car up regularly etc., then you are just “spinning your wheels”.

    Pardon the pun

  22. Russ says:

    @deRuiter

    You might want to think carefully about that particular logic. Car crash safety is not just about who has the biggest car, it’s about whether the cabin deforms and traps you in a fire, or whether the engine moves from the impact and pushes the pedals up and breaks both your legs. In Euro NCAP safety ratings, a 2004 model Ford Focus outranks a Landrover Discovery. If you have a big safe truck then fine, but don’t assume a truck is safer just because it’s big.

  23. Jonathan says:

    I see no problem with revisiting a topic after more than a year. Especially when it is written in response to a question from a reader.

    Also, I wanted to say that I was happy to see the last paragraph of the post. Too often it seems that the entire message gets lost when readers disagree with one of the details, assumptions, or examples that are given. I’m glad that Trent is trying to keep everyone’s focus on the primary point of the article.

  24. Kenny says:

    But what if the Focus was $3,000 less than the cost of the Corolla? Now how much would you pay?

    On a related note, I disagree with the whole premise of “you will save $xxx if you make this decision. In real life, you are actually lowering the amount you will be spending.

    The term “savings” tells me that you are actually putting money into a savings account of some kind. Unless you are truly doing that, I don’t think the word “save” is appropriate.

    We should start spreading the phrase “reduce the amount you obligate yourself to spend” instead. It just rolls off the tongue and is more accurate a description in most cases.

  25. Credit says:

    I think you should revisit the distinction between real and nominal dollars — a post showing the historical real price of gasoline could be very illustrative. It would help improve the accuracy of a lot of your projected value calculations and make this a more valuable website. You are really doing your readers a disservice by not incorporating inflation (or lack thereof if you believe in that sort of thing) into your calculations. For the comparison above, you should do a net present value calculation for each purchase including operating costs and compare. I’m not questioning a single assumption, but the fundamental basis of your calculation.

  26. Kim says:

    Since the question Trent was answering involved late model used cars, I understand him not bringing up the cost of maintenance & repair.

    I would like someone to discuss somewhere the cost of replacing the batteries on the newer hybrids. I have been told by several people that the cost will be in the thousands! This isn’t a cost that can be put off indefinitely through careful maintenance, as can be the case with a combustion engine.

  27. Takilla says:

    Heh, you remind me of me … writing something, anticipating what people might question, and answering it ahead of time.

    One question: do you find that you get dragged down by some of the negativity and trolls in the comments? I was just thinking how I’d feel in your place … I’d probably be in therapy like every day =). Maybe it’s just me but it seems like there is a lot of non-constructive type criticism.

    Also, it always makes me chuckle when there are people that are like “well, I don’t agree with that so I’m never reading your blog again, hmmph.” As if writing one thing they find questionable makes you a pariah for life to them. I mean there are several things you’ve written that I don’t completely agree with but that just seems really weird to me.

  28. JP says:

    Probably doesn’t change the numbers but the 2010 should be $3.31 and increased at $.48 for the rest of the time

  29. Bill says:

    Limit your miles driven and fuel efficiency is much less of a concern.

    Were we honest with ourselves, most would admit we drive a lot of purely discretionary miles over the course of a year.

  30. triLcat says:

    Bill – I doubt that’s true – Most people I know drive over 80% of their miles and probably over 90% of their miles on their daily commute to/from work.

  31. Yello says:

    One thing to remember is that $100 is not worth $100 ten years from now…

    What we are really doing is pricing a capital asset. A good way of doing this is to estimate the annual cash flows (Positive and Negative) for things like the purchase price, maintenance, fuel, etc… and then discount each years cash flow to put it in present dollars and then sum up the years.

    What is the discount rate? Well you could choose inflation, you could choose a number higher to accounts for your opportunity cost as well.

    $100 today is only $42.24 10 years from now at 9%
    $100 today is only $67.56 10 years from now at 4%

  32. Georgia says:

    My experience with cars has been varied. But one thing was almost always the same. I have had a 79 Buick Electra Ltd. (next to biggest model Buick made), a 91 Chevy Lumina, and now a 2000 Ford Taurus Wagon. In all three my average mileage was @ 24-25 mpg city and 28-31 highway. Why are we bragging on new cars that get 30 mpg hwy? Last year I drove around 1500 miles and got 32.3 mpg twice on my wagon and the whole trip averaged a high 29 mpg even though I drove through a lot of mountains (TN type).

    One thing that helped the mileage on the first two was that I was driving lots of miles and they were mostly highway miles. When gas was low, I was driving 7-800 miles per week. When gas started to go up, I had dropped to 500 mpw. Extra high, I had dropped to 240 mpw. Totally out of sight, I had just retired and did only local town driving mostly. So, the price of gas hasn’t affected me much yet.

    I did use a lot of good tips to get better mileage – drive 55-60 on cruise on hwy’s, shut car off or put in neutral if stopping for more than 10 seconds, be light on the takeoffs and stops, park so you can pull forward, etc.

    I do know how these figures are because on every car I have had since 1987 I have kept meticulous records on the cost of gas/oil, maintenance, and repairs. Right now my Wagon is costing me an average of $80.00 per month for all repairs & maint. As long as it stays below $120, I will not buy another car. We bought this car in 2005 and it has served us well.

    Actually, if I need to buy another car, it will be used and I will pay cash for it. I’m one lucky old retired lady with an adequate EF.

  33. Georgia says:

    I forgot – fueleconomy.com said my Taurus should get an average of 17 mpg city and 25 mpg hwy. and 12 mpg city and 18 mpg on E85. I have used it rarely and I usually got 19 mpg city. So I ended up better than the averages.

  34. John says:

    Im getting 38MPG in a 8 year old car that does 0-60 in 6.3 seconds. 46mpg for a hybrid..which costs a fortune, has terrible seats and terrible performance..count me out. The MPG can vary 50% easily depending on how you drive…I went from 26MPG doing 80mph with ethanol (10%) to 38mpg, 60mpg, nonoxygenated. Ethanol kills mileage folks. Not by 2-3% as you would expect, more like 10-20%.

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