“Be kind, for everyone you meet is fighting a hard battle” - Often attributed to Plato but likely from Ian McLaren (pseudonym of Reverend John Watson)

Sunday, April 29, 2007

New car for "free"?

As mentioned in a previous post, the Jeep Grand Cherokee Limited that is the subject of a large part of this blog was purchased in July of 2000. It has well over 150,000 miles on the odometer, and has been everything I could reasonably want in a vehicle. But to quote George Harrison, "All Things Must Pass."

So, given that I'm able to drive the Grand Cherokee for 23.5 m.p.g., can I purchase a vehicle that, through savings at the pump, will pay for itself? I'm speaking purely of the cash cost to me and not of the impact on overall fuel consumption for "the universe" (fuel to produce and deliver the car, etc.). I expect to write about that aspect in another post.

I'll also leave out insurance and other extraneous considerations. Any vehicle that could conceivably pay for itself in fuel savings would be much smaller and possibly less costly than the Cherokee was. But it would be new, and so insurance might be a wash. Anyway, that's not what this blog is about.

So, in any case, the Grand Cherokee gets about 23.5 m.p.g. at $3.29 per gallon currently. That amounts to $0.14 per mile, and I average about 56.13 miles per day, 365.25 per year. Therefore, the monthly gas expenditure is (365.25 * 56.13 * 0.14)/12 or $239.18. Now, suppose I could get a vehicle in which I could achieve an average of, say, 45 m.p.g. My monthly fuel expenditure would be reduced to $124.91 for a savings of $114.27.

Hmmm... that won't buy much of a car I guess. What if gasoline went to $4.00/gallon as I hear predicted, and by extreme techniques, I could get 50 m.p.g.? Well, the Cherokee would then cost $0.17 per mile and total $290.80 per month and the new car would cost $136.67 per month and save $154.13. Not there yet, though it is starting to eat significantly into the monthly payment for an economy car with very low fuel consumption.

As I've mentioned, my company actually owns the Grand Cherokee, so "business finance" and considerations of internal rate of return, net present value, and payback period are appropriate. I found a 1995 Geo Metro on line for $2,200. The payback period, exclusive of necessary repairs, is on the order of 14 months. I don't know if I can quite deal with that type of accommodation, but it's the only way I can see to getting a car for free. After the 14 month payback period, I'd be essentially adding to the retained earnings every time I drove.

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