Gas Price Deflation

In just a few short months, the price of gas at the station I regularly use has dropped from $4.09 per gallon to $1.49 per gallon – an absolutely amazing drop. Not long ago, I spent $82 filling up my truck (which has a 20 gallon tank) – just today, I filled the tank for under $30.

From a strict personal finance perspective (and ignoring the larger global economic concerns), this is fantastic news for most people. If you have to fill a typical car tank each week (12 gallons), the price change is saving you somewhere on the order of $30 a week – that’s $120 a month, an amount that can really help with debt repayment, saving for a down payment, or preparing for retirement.

This shift in gas prices comes at an interesting time for me and my family. My wife and I have been carefully studying potential automobile purchases, and our calculations had led us to focus on automobiles that are efficient with their fuel. Using our numbers, assuming a $4-$5 gallon of gas going forward, fuel efficiency was so valuable that it often trumped a higher price at the dealership.

However, when we look at the era of $1.50 a gallon for gas, the math no longer holds true, and we’re typically looking at a better deal for a less fuel efficient car.

Here are some of our conclusions after talking over the situation and doing some additional research.

The price of gas will go up from here.

If oil prices stay as low as they are, oil producing countries will have to cut production to drive the price up. Most nations and regions that rely on oil income have already budgeted and planned for oil prices that are significantly higher than they are right now, and if the market doesn’t automatically bring those prices back up, they’ll do what they can to bring them up.

… but it’s impossible to know how much it will go up, or how fast.

No one can accurately predict the future, particularly when it comes to the future price of such a vital commodity with so many different fingers in the pool manipulating things. Perhaps there will be another speculative bubble. Perhaps the oil producing nations will begin to really tinker with production, driving prices up quickly. Perhaps the price will just slowly inch upwards over time. No one knows for sure, and there’s no way to make accurate bets on such moves.

That leaves gas mileage as an important but hard-to-estimate factor in determining the best car price.

It’s obvious that greater fuel efficiency will save money over time – the only question is exactly how much it will save. What we can rely on is this: fuel efficiency is a much bigger factor if you intend to own the car for a longer period of time. My wife and I, for example, prefer to buy automobiles that are late model used when we purchase them, but drive them until they are experiencing severe repair issues. Thus, for us, fuel efficiency is a bigger factor than it would be for a person seeking to pick up a car for just a few years.

Buying a more efficient car results in lower fuel costs regardless of prices, meaning your monthly upkeep cost is lower.

If you do choose to invest in a more fuel efficient car, it will save you money each and every month. Given the fact that we cannot know what the future holds, if you can make a choice now to reduce your required costs in the future, you’re generally well-advised to do so.

So, the best strategy is still acquiring a fuel-efficient car for the lowest price possible.

While it’s not worthwhile to pay a large premium for fuel efficiency, you’re still well-served seeking out highly fuel-efficient options regardless of the market conditions of the moment.

The same strategies apply whether gas is high or low.

Start saving now.

You’re always in a better position if you have the money in the bank to buy the car instead of having to take out a loan to buy it. Start saving right away – set up an automatic savings plan to take $100 a month from your checking and put it into a savings account designated for automobile savings.

Do your own research.

Know what you want in advance, and remember that fuel efficiency is definitely a positive even when gas prices are low.

Shop around.

That means don’t just jump in with the first dealership you visit. Instead, seek the best prices around. Stop in at several dealerships and use online tools as well.

Negotiate.

That sticker price is just a starting point. Don’t be afraid to make a lower offer on the car once you’ve found the one you want.

What will we do?

Since we’re still in the “research” phase of the purchase – and also because we’re somewhat waiting for one of our vehicles to finally give out on us – we’re still sitting back and waiting. However, fuel efficiency remains one of our big considerations in the purchase, regardless of where gas prices are or where they might go.

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