High Gas Prices Driving Midsize SUVs to Extinction

[Tallpine]

Vehicles don't last forever.

The way gas prices are going up, they just might 

Back it out of the garage once a month to wax it, and then put it away again


My pickup is 32 years old.

[charby]

I don't see how the savings on gas makes up for more debt for more years.  Any one got an answer?

The answer is easy.  It doesn't.

Brad

Vehicles don't last forever.  As they age, repair expenses increase and it becomes an exercise in diminishing returns.  At some point, you're going to have to replace it, and that's when people will abandon the gas guzzlers for more modern, fuel effecient vehicles.

Thats pretty much what I am going to do next year when I replace my GMC Jimmy. It was slated for replacement next year and I think I'll be getting something with a lot better fuel economy. I had wanted to get a pickup so I can upgrade to a bigger boat, but with gas slated to go over $5 a gallon I think I'll just keep my little boat and pull with it with a Subaru Forester or Honda CRV type vehicle.

[Brad Johnson]

I don't see how the savings on gas makes up for more debt for more years.  Any one got an answer?

The answer is easy.  It doesn't.

Brad

Vehicles don't last forever.  As they age, repair expenses increase and it becomes an exercise in diminishing returns.  At some point, you're going to have to replace it, and that's when people will abandon the gas guzzlers for more modern, fuel effecient vehicles.

Correct, they don't.  But selling a perfectly reliable and relatively low-mileage vehicle just because you don't like the fuel economy is, in a word, dumb.  (actually I have a couple other words for it, but I won't say them here on the forum).

As for "diminishing returns" I don't look at it that way.  You don't get a "return" on a vehicle. All you get is expense, either in actual costs or depreciation.  A vehicle is a rolling money hole, pure and simple.  Sure, there is some residual value, but that is totally irrelevant to this particular discussion.  We are talking about annualized expense.

As for something finally getting to the point where it's more advantageous to trade, well, there are many schools of thought on that.  I tend to keep vehicles until the wheels fall off, doing extensive preventive maintenance and proactive repairs in lieu of having a payment on something else.  It doesn't take a rocket scientist or a degree in economics to see that $2000 a year in preventive maintenance instead of $5000-$6000 a year in payments is money in your pocket.  I do all that maintenance and repair so that my vehicle remains as reliable and operationally efficient as the day I drove it home from the dealer.  My Vic may have 100k on the clock but I would have no problem walking out the front door and, with no more prep than a full tank of gas, setting out for any destination reachable by road. 

Heck, even and engine and tranny replacment, while a large one-time expense, is still cheaper than buying a new vehicle if you amortize the expense over their 150-200k expected service life.  Yet I see people every day who take a vehicle that might need a $4000 engine (but is in every other respect a showroom condition ride) who will trade for a fifteen or twenty thousand dollar vehicle because replacing the engine was "too expensive".  I've lost count of how many times I've heard someone say they "weren't going to put more money in the car than it's worth" when they would have been tens of thousands better off.  Four or five grand for another 5-7 years of reliable service vs fiften to twenty grand for the same period does not a smart financial decision make.

Brad

[RadioFreeSeaLab]

Then there's my situation.  Pretty economical fullsize pickup (2003 GMC Sierra, 6 cyl, 5spd, single cab) gets me an average of 18-19 MPG.  It is not paid off.  I am considering picking up a beater Honda in the $1000 range, to drive half the time.  Need to run the numbers, but I'm pretty sure the fuel savings would offset the slight insurance increase.  I drive several hundred miles a week.

[mtnbkr]

I agree.  I'd drop a new engine in my Camry in a heartbeat if it failed and I could do so for less than the replacement cost of a comperable car.  Same with my 4Runner because I still need a truck type vehicle often enough to keep it around. 

Chris

[Manedwolf]

I agree.  I'd drop a new engine in my Camry in a heartbeat if it failed and I could do so for less than the replacement cost of a comperable car.  Same with my 4Runner because I still need a truck type vehicle often enough to keep it around. 

Chris

Same here in regards to engines. There were about three million of my model of Accord made. There's a hell of a lot of F23A1 engines out there with low mileage for not much. A swap is about a two-hour operation because all connections are modular, just bolts and locking connectors. If I wanted to buy a mount adapter kit, I could also swap in anything up to a brand-new K-series engine or even a JDM import if I wanted to. I've seen complete published swap guides of "yes yes yes no yes yes" and the ease of each, from "drop it in and have a beer" to "yes, with shoehorn" to "hire engineering students." (and also "yes, but why?") Hondas are amazing in terms of engine flexibility.

[The Annoyed Man]

Correct, they don't.  But selling a perfectly reliable and relatively low-mileage vehicle just because you don't like the fuel economy is, in a word, dumb.  (actually I have a couple other words for it, but I won't say them here on the forum).

Really?  I can think of at least one situation where selling/trading the above vehicle makes perfect sense.  That's when you're using the vehicle for a transportation/delivery/courier service with fixed revenues.

As for "diminishing returns" I don't look at it that way.  You don't get a "return" on a vehicle. All you get is expense, either in actual costs or depreciation.  A vehicle is a rolling money hole, pure and simple.  Sure, there is some residual value, but that is totally irrelevant to this particular discussion.  We are talking about annualized expense.

'Returns' don't always come in the form of cash.  In this case, your return is the benefit you receive from vehicle ownership-transportation.  If a vehicle were a 'rolling money hole, pure and simple' IOW, expenses without any benefit, nobody would own one.l

That said, purchasing a new vehicle is the costliest. You'll lose at least 20% as soon as you drive it off the lot.  The best bet, IMO, is a 2 year lease return.  It's already taken the new car depreciation hit.

Is the Crown Vic your business auto?  If you're keeping it for that many miles, it's already fully depreciated.  If you're using the Standard Mileage Rate, you've taken depreciation expense beyond its basis.

[mtnbkr]

Same here in regards to engines. There were about three million of my model of Accord made. There's a hell of a lot of F23A1 engines out there with low mileage for not much. A swap is about a two-hour operation because all connections are modular, just bolts and locking connectors. If I wanted to buy a mount adapter kit, I could also swap in anything up to a brand-new K-series engine or even a JDM import if I wanted to. I've seen complete published swap guides of "yes yes yes no yes yes" and the ease of each, from "drop it in and have a beer" to "yes, with shoehorn" to "hire engineering students." (and also "yes, but why?") Hondas are amazing in terms of engine flexibility.

I don't know if Toyotas are that easy, but the engines are plentiful and cheap.  I'll probably end up doing the manual transmission on my 4Runner long before the engine.  I don't know what the previous owner did to it, but I had to have the main bearings of the tranny replaced under warranty when I bought it at 56k miles (rumbling and groaning).  At 160k, it's a bit noisy, but shifts and operates fine.  I may do that when I replace the clutch (whenever that is) since the transmission will be out anyway.  Then again, it might keep going for another 100k (the transmission, not the clutch).

Dunno what the previous owner did because Toyota manual transmissions are supposed to be nearly bulletproof. 

Engine is great though.  Other than some seepage at the valve covers, it's nice and tight still. 

Chris

[Manedwolf]

I have the benefit of a nearly new transmission as well. It had a slightly rough shift, I asked Honda, they said that a run of them had had a recall for a slight defect, I got a brand-new free transmission as part of warranty. So my transmission has less than 30,000 miles on it now! That's not bad at all.

[Tallpine]

100K miles is just getting broke in nicely (or should be, anyway)

Our Suburban has ~218K right now.  What it really needs is a new body and interior to go on the frame and drive train 

( I wonder if a standard p/u cab and bed can be made to fit on a Suburban chassis ... )

[Brad Johnson]

Really?  I can think of at least one situation where selling/trading the above vehicle makes perfect sense.  That's when you're using the vehicle for a transportation/delivery/courier service with fixed revenues.

How?  If you own the vehicle outright with no expense other than fuel I still can't see it being any advantage.  It's either Fuel Only or Fuel + Payment.  Only vary rarely does the fuel savings even come close to washing out the addition monthly expense of the payment.

'Returns' don't always come in the form of cash.  In this case, your return is the benefit you receive from vehicle ownership-transportation.  If a vehicle were a 'rolling money hole, pure and simple' IOW, expenses without any benefit, nobody would own one.l

If you own a vehicle there will always be the benefit of ownership-transportation.  It is a constant.  Everyone who owns a vehile will have it.  As a constant it is a null value.  It still boils down to the actual annual and lifetime out-of-pocket expense.

The best bet, IMO, is a 2 year lease return.  It's already taken the new car depreciation hit.

Or I can keep my now six-year-old Vic another 5-7 years with no payment at all and no annual expense other than preventive maintenance and repairs.  By my redords the annual cost is roughly a third of what it would be if I did the trade-every-three-year routine (presuming 1-2 yr old low-mileage Vic outfitted similarly).

Is the Crown Vic your business auto?  If you're keeping it for that many miles, it's already fully depreciated.  If you're using the Standard Mileage Rate, you've taken depreciation expense beyond its basis.

The Vic is both personal and business.  I take standard mileage and keep good records.

Brad

[The Annoyed Man]

How?  If you own the vehicle outright with no expense other than fuel I still can't see it being any advantage.  It's either Fuel Only or Fuel + Payment.  Only vary rarely does the fuel savings even come close to washing out the addition monthly expense of the payment.

You're thinking like a consumer rather than a businessman, Brad.  Assets are not expenses. If you trade cash for a vehicle, you've exchanged one asset for another.  If choose to finance the purchase instead, only the interest portion of the payment is an expense.  All cash in is not profit and all cash out is not expense.  Depreciation is an expense, but it doesn't come out of current revenues; it's 'chipped' from an existing asset. Gasoline purchases, however, come out of current revenues and right off the bottom line.

So if you replace your gas guzzler with a fuel efficient vehicle, the difference in fuel costs go right into your pocket.

[Tallpine]

How?  If you own the vehicle outright with no expense other than fuel I still can't see it being any advantage.  It's either Fuel Only or Fuel + Payment.  Only vary rarely does the fuel savings even come close to washing out the addition monthly expense of the payment.

You're thinking like a consumer rather than a businessman, Brad.  Assets are not expenses. If you trade cash for a vehicle, you've exchanged one asset for another.  If choose to finance the purchase instead, only the interest portion of the payment is an expense.  All cash in is not profit and all cash out is not expense.  Depreciation is an expense, but it doesn't come out of current revenues; it's 'chipped' from an existing asset. Gasoline purchases, however, come out of current revenues and right off the bottom line.

So if you replace your gas guzzler with a fuel efficient vehicle, the difference in fuel costs go right into your pocket.

You were an accountant for Enron, weren't you ?   

Actually, assets sort of are an expense - just spread out over more than one annual accounting period.  Assets - even cash needed for daily/monthly operations - are expenses (debits) necessary to run the business, which have to be funded by investment or alternately, borrowing (both credits).

Assets incur an opportunity cost in that they could be spent on something else like beer and ammo, or even invested in a different business.

Did you want to discuss accounting theory, or were you just making chit-chat? 

[Brad Johnson]

You're thinking like a consumer rather than a businessman, Brad.  Assets are not expenses.  bottom line.

Nah, I'm thinking like a guy who actually writes a check for his expenses rather than running them around on paper to satisfy the IRS or make the annual reports look good for the shareholders.

I assign the vehicle market value completely seperate from day-to-day expense.  The saleable value is the saleable value, no matter how much I have or haven't "depreciated" it.  I'm not going to try and assign any creative bookeeping to it just to say I can.

Expense is expense.  You either paid (or will pay) for something or you don't.  Pretty simple.  No fancy monetary footwork need be involved, at least not in my situation.  Depreciation may be great for spreading out costs on paper, but it still costs me X number of dollars per year to pay for, repair, maintain, and fuel my vehicle.  Hard cost.  Out of pocket.  That's how I calculate "expense" in my ledger. 

Revenue less expense = net income/loss.  Residual value of asset less amount owed = net equity.  Pretty simple.  And I don't need an accountant to tell me how to calculate or read it.  I know exactly where I stand financially, in hard, cold numbers.  Not where I might stand, or where the IRS thinks I stand, or whatever.  Where I actually stand.  Right now.  Right here.  Today.

I am not an accounting dunce.  I've been in corporate America for more than two decades.  I'm fully aware of corporate accounting practices, how they function, and what they are for.  I also know it's financial maneuvering mostly to defer/lower taxes, or to make the shareholders happier by spreading expenses across as much paper as possible.  And it's a bunch of overly complex crap.  It keeps most people so confused they don't know which end is up, or they end up making stupid decisions because it looked good on paper but bankrupt them in real life.  I choose to not fall into that trap.

Brad

[The Annoyed Man]

Actually, assets sort of are an expense -

Actually, there's no such thing as 'sort of an expense'.  It goes like this:

Assets+Liabilities=Equity.  Income and Expense are increases and decreases, respectively, to Equity.  IOW, an increase in Equity=an increase in Assets, or a reduction in Liabilities.  Otherwise the equation doesn't balance.

And Brad, you're mixing up Cash Flow with Earnings.  They're two different things.

[Brad Johnson]

And Brad, you're mixing up Cash Flow with Earnings.  They're two different things.

Again, I don't accountant-ify my finances to please shareholders or the IRS.  I have no need to so overly complicate my finances.  Nor do I intend to begin spreading things around on paper make it look "mo better". 

I spent years playing the accounting game.  I finally wised up and figured out I was running myself in circles.  I was spending dollars to save dimes but it looked good on the reports.  I stopped trying to fool myself by moving numbers around on paper.  I knocked it back to the basics and began paying attention to what was going on in the real world - actual, hard, daily income and expense, annualizing them, and not playing the "gotta trade while it still has some value" game.  It was a real eye-opener.  As a result I know exactly what I have and I know exactly where I stand.  And I do it in a way that doesn't require an accountant to compute or translate.

Brad

[Tallpine]

Let me rephrase myself: an asset is an "expense" in the sense that it needs to be funded by either investment or borrowing.  The fact that it is shown in the balance sheet and amortized to the income statement over mulitple years rather than a single year doesn't make it less of an expense.

Never mind, it's more of a finance concept than an accounting concept.

Assets+Liabilities=Equity.

You better check that one again