Monday, August 31, 2009

Electric Cars

I am on an automobile kick this week. There was a big story on the news about electric cars hitting the market with some history of the vehicles and some interesting information on the cars.

The Chevrolet Volt was prominently mentioned. It is supposed to get 230 miles per gallon of gas and cost about $43,000. What a deal that must be. Let’s take a look at that.

Assume that you buy a Volt and drive exactly 230 miles per week. That’s a gallon of gas a week. Suppose in 2 or 3 years gas is at $5 per gallon. It’s going to cost you $5 per week or $260 per year. Not bad.

Instead you buy a Toyota Prius for about $23,000. It gets 50 miles per gallon. You drive the same 230 miles per week it’s going to cost you $23 a week — essentially five times the cost of gas for the Volt. So you will be spending $1,200 per year on gas, an increase of $940 over the Volt. That means that it will take 21 years to get back your added investment of $20,000 in the Volt. Of course this calculation changes if you drive more or less than these numbers or if the price of gas is different than $5 per gallon. You also can get a tax credit of $2,500 for the Volt but no credit for the Prius.

Taking it one step further, you buy an economy car for $15,000 that gets 25 miles per gallon (is that an economy care anymore) and drive that same 230 miles per week. Total gas cost for the year is $2,400 or an increase of $2,140 over the Volt. This time it will take you 13 years to get your money back BUT you will have to swap out the batteries in the Volt at some time in that period.

It takes about 7 years to get your money back if you compare the economy car with the Prius.

These electric vehicles certainly save gasoline but are not necessarily economical. However, being economical is not necessarily the reason you but a Volt.

Saturday, August 22, 2009

Gas Prices Revisited

Back in January, I predicted that gas prices would be at $3 per gallon now. I missed by about 40 cents. Some areas of the country did see gas prices at this level and eastern Massachusetts saw some stations selling premium gas above that price. Generally I should stick to accounting and not predicting the future.

However, the idea of trading up to a car that gets better mileage is still a good idea. Gas prices have bounced around lately but they will be headed up (there I go predicting the future again). The “Cash for Clunkers” program (see my previous blog) is in full swing and may be over by the time you read this. Getting more bang for your buck is always a good idea.

Tuesday, August 18, 2009

Cash For clunkers

Vacation is over. Time to get back to the computer!

The “Cash for Clunkers” program is in full swing and the auto dealerships are very happy. People are buying cars again thanks to a gift from Uncle Sam. With all the money they are throwing around in Washington, it is good that a little of it is actually going to everyday people.

I would like to add just a few personal comments on the program.

Is the money really going to everyday people? Hopefully, yes. The Toyota Prius sold for $24,000 when it qualified for a tax credit of $3000 and if you wanted one, you had to go on a waiting list. Once the credit expired the Prius sold for $21,000 and there were plenty of them on the car dealership lots. Is the same thing happening now? Are the dealers jacking up the price they accept in the bargaining dance? Probably, some are, after all they need to make a buck too. But my feeling is that the majority of this money is going into the consumers’ pockets.

Congress funded the program with $1,000,000,000 (oops, now $3,000,000,000). Wow, that’s a lot of money. It was supposed to last until November. Wow, that’s a long time. It was supposed to fund the payment on 250,000 cars. Wow, that’s a lot of cars. Wait a minute. Is it really a lot of cars? Historically, annual car sales in the US run between 13 and 15 million vehicles. Currently, it is running at a rate of about 11 million a year. That’s a million cars a month or 400,000 a week. They funded about 4 days worth of sales. Of course, not all vehicles qualify. I think it is time for a few arithmetic lessons in Washington.

The dealers are supposed to scrap the vehicles, the idea being to improve the overall mileage for cars on the road. This is accomplished by replacing the oil with “liquid glass” and running the car, which essentially destroys the engine. This could lead to fraud. Some dealers might certify that the car was scrapped when it was not. Is there a paper trail that needs to be followed to make sure this happens? Luckily this is not the consumers problem.

What happens when the program finally runs out of money? My guess is that car sales will drop a bit but people will have been shaken out of their economic sleep and consider purchasing a new car. There also is pent-up demand for cars as people make their old vehicles work a little longer. Eventually they will want to replace the old clunker.

All in all, I’m happy they have put this program into place. I believe the money is going to the consumer, car sales are revved up a bit, and the vast majority of dealers will be honest.

Here is the official government website to get real information on the program: