17
Jun

Hybrids: Financial Friends Or Foes?

Oil prices, the cost of gasoline and environmental concerns have all combined to hit drivers with a one-two punch in the wallet and in the conscience. Some drivers are fighting back by trading in their gas guzzlers for hybrids. These “green” technology marvels run on a combination of gasoline and battery power, emitting fewer greenhouse gases, getting great gas mileage and decreasing the pain consumers feel at the pump. Sound good? Let\’s zoom in for a closer look at hybrids.

The Numbers Don\’t Add Up
The Toyota Prius is the poster child of the hybrid fleet. The 2008 model boasts an impressive EPA-estimated combined city/highway rating of 46 miles per gallon, which certainly lessens the pain at the pump, but a study from Edmunds.com conducted for the article “Cost Savings May Not Offset Higher Price For Hybrids” (May 2005) for USA Today reports that gasoline would need to be priced at $10.10 per gallon, and a driver would need to log 66,500 miles per year over five years, for the Toyota Prius to become a breakeven proposition when compared against a selection of similar, small economy cars (such as the Toyota Corolla).

Hybrids come up short when compared to conventional models because they are significantly more expensive to purchase and maintain than conventional vehicles of similar power and size. They also often cost more to insure and depreciate more quickly than their conventional counterparts.

When all of these factors are combined, most drivers would be better off with any of a variety of four-cylinder vehicles boasting fuel economy ratings in the 30-mile-per-gallon and above range.

Other Reasons To Buy
While buying a hybrid is not yet a savvy move from a purely financial perspective as compared to conventional four-cylinder models, these vehicles do sip gas and are easier on the environment. Driving a hybrid comes with a built-in “feel good” factor and makes a statement about your values. Besides, the number of sports cars, sport utility vehicles and luxury cars on the highways demonstrates that few buyers make purchases from a purely financial perspective. If they did, we\’d all be driving compact cars or taking public transportation.

So, just because you aren\’t driving the least expensive car on the road doesn\’t mean that you can\’t save a few dollars on your transportation expenses. For example, if you want to maximize the “feel good” factor and actually save a few bucks, consider making a lifestyle change by trading in your Hummer for a Prius. A comparison between the two is the ultimate automotive environmental showdown, a David and Goliath competition that is an interesting as it is instructive. Take a look at the financial comparison below:

Financial Comparison: Hummer H2 vs. Toyota Prius
On the one side, we have the Hummer H2. The ultimate off-road machine, guzzling gas at the rate of about one gallon for every 11 miles traveled. Edmunds.com estimates the cost of owning the 2007 model at $29,888 for the first year, including a whopping $14,606 in depreciation and $4,175 in fuel. Over a five-year period, this beast will cost you $90,377 to own and drive. (Note that costs may be slightly different depending on regional costs as determined by zip code; these costs are calculated based on New York City).
On the other side, we have the Prius, which uses an electric engine for an economical 46 miles per gallon. Edmunds.com estimates the cost of owning the 2007 model at $10,884 for the first year, including just $918 for fuel. Over a five-year period, the Prius racks up a bill of $37,865 – under half the cost of the Hummer!
So, in head-to-head comparison, the Prius wins by a landslide. You can buy two Priuses and the five-year costs of both of them would still be less than the five-year costs of one Hummer – and you would still have $15,000 left over!

The lesson here? If you have the funds or financing to purchase a new car and rid yourself of your current one, you could save an enormous amount of money by trading in your uneconomical lemon or gas-guzzling behemoth for a more fuel efficient, environmentally friendly hybrid. Keep in mind that the Prius may be the most talked about hybrid on the road, but it isn\’t alone. There are hybrids for every taste and every wallet, including sport utility vehicles.

The Road Ahead
Hybrid sales have consistently set records. J.D. Power and Associates noted that the first six months of 2007 saw an estimated 187,000 hybrids sold in the United States, with year-end sales predicted to come in around 345,000 vehicles. At that pace, hybrid sales would account for 2.3% of new vehicle sales. Unless something better comes along, hybrid sales are likely to continue to increase, particularly if their prices become more competitive as time passes.

End Destination
You may not have a hybrid in your garage yet, but keep your eyes on the new models rolling off of the assembly lines, and you just might find the car of your dreams.

17
Jun

The True Cost Of Owning A Car

everyone knows that cars are expensive. In addition to the cost of acquisition, there’s maintenance, insurance and the ever-increasing cost of gasoline. We all know that those costs add up, but few of us know exactly how much it really costs to own a car. Let’s take a look.

Government Estimates
According to Consumer Expenditures in 2006, released in February of 2008 by the U.S. Department of Labor’s U.S. Bureau of Labor Statistics, the average vehicle costs $8,003 per year to own and operate. The breakdown of the figure comes to $3,421 for purchasing the vehicle, $2,227 in gasoline and motor oil expenses, and $2,355 in other vehicle-related costs. As one might expect, the least affluent spend less than the most affluent. In fact, the nation’s most affluent quintile spends a whole lot more, with their $15,198 in annual vehicle expenses coming in at nearly six times the $2,856 spent by the least affluent. An overview of vehicle expenses based on household income is provided in figure 1 below.

Item Lowest 20% of Income Earners Second 20% of Income Earners Third 20% of Income Earners Fourth 20% of Income Earners Highest 20% of Income Earners
Total $2,856 $5,058 $7,310 $9,571 $15,198
Purchase $987 $1,954 $2,940 $3,774 $7,442
Gasoline/Oil $991 $1,624 $2,182 $2,829 $3,508
Other $879 $1,489 $2,188 $2,968 $4,248
Figure 1: 2006 household cost of owning a vehicle per quintiles of income.
Source: Bureau of Labor Statistics

Statistics From the American Automobile Association
The American Automobile Association (AAA) also compiles statistics on the cost of driving, and has been doing so since 1950. In its 2007 Your Driving Costs survey, it summarizes the cost of gasoline, maintenance, insurance, license and registration, loan finance charges and depreciation costs for a variety of vehicles. That data is summarized figure 2 below.

2007 Model 10,000 Miles per Year 15,000 Miles per Year 20,000 Miles per Year
Small Sedan 50.5 cents 41.4 cents 37.4 cents
Medium Sedan 61.8 cents 52.5 cents 48.2 cents
Large Sedan 74.2 cents 62.5 cents 56.8 cents
4WD SUV 81.5 cents 66.6 cents 59.6 cents
Minivan 69.2 cents 57.6 cents 52.2 cents
Figure 2: Yearly cost per mile of various vehicles based on number of miles driven
Source: American Automobile Association

According to the AAA, the average person spends $9,641 per year for the privilege of driving. Keep in mind that these estimated costs are based on an average gasoline cost of $2.256 per gallon. The numbers also don’t include the cost of parking.

Putting those costs in terms of an average commute to work, the driver of a medium sedan who pays 52.5 cents per mile spends $10.50 to make a 20-mile round trip each day. The tab comes to $52.50 in a five-day week. Multiply that by 50 weeks per year and the grand total comes to $2,625. In many major cities, an annual bus pass costs less than a third of that amount. In 2008, even in Los Angeles, a $62 monthly bus pass only costs you $744 for the year.

Minimize Your Costs
Regardless of how much you spend on your car each year, less is always better. Although eliminating all spending on transportation isn’t practical or possible for most people, there are steps that can be taken to keep your costs low.

For starters, if you don’t drive much, leasing a vehicle may be right for you.

If public transportation goes to the places that you need to be, you should seriously consider its merits. Not only does somebody else do the driving, but taking public transportation can often reduce your monthly transportation expenditures by a significant amount. Buses, trains, subways and van pools all provide relatively inexpensive alternatives to driving yourself to work.

Car pools are another great option. Just because you own a car, doesn’t mean that you always need to drive it. Taking turns with a friend can save you money and save wear and tear on your vehicle.

If you work odd shifts or can’t access public transportation, you might have no choice but to own and use your own vehicle. If that’s the case, think small. Remember those numbers you looked at earlier? Driving a small sedan is likely to cost in the neighborhood of 50.5 cents per mile versus 81.5 cents for a gas guzzling SUV, which amounts to a 30% savings per year! It’s also a good move for the environment and, since you have to breathe the air too, a good move for your health.

Similarly, don’t pay for an eight-cylinder engine when four cylinders will work just fine. Unless you’re hauling heavy loads on a routine basis, the extra cost of a bigger engine results in more money spent on gasoline.

Whatever you are driving, make a conscious effort to drive it less frequently. Walking or biking to local destinations is good for your health and good for your budget. When you do drive, consolidate your trips. Go to the shopping center, the bank and the dry cleaner all in the same trip instead of making three separate trips.

Conclusion
Regardless of how you get from place to place, pay attention to how much you are spending. This includes ancillary costs, such as car insurance and regular maintenance. By keeping an eye on your expenses, you can keep more money in your pocket.

17
Jun

Extreme Commuting: Is It For You?

The trip to work is a true journey for some 3.4 million commuters that travel at least 90 minutes each way to and from their jobs on a daily basis. Pundits call it “extreme commuting” and, according to the U.S. Census Bureau’s 2004 report Journey To Work, trips of 90 minutes or more are the fastest growing category of commute since 1990. Why do people go to such extremes? Primarily, it’s for the money! Read on to find out the financial pros and cons of living farther away from where you work.

Big City Salary, Small Town Living
There are two major issues driving the growing trend of extreme commuting. By far, the leading issue is money. The real estate boom that has taken place in the United States in recent years has seen housing prices soar. Today, particularly in the immediate suburbs of major metropolitan centers such as Los Angeles and New York, many people simply can’t afford to live near where they work.

This reality is forcing an increasing number of people to move to what is being called the “exurbs,” which are basically the suburbs of the suburbs. As a result, the national average commute time has increased and the number of extreme commuters has nearly doubled since 1990. In 2000, the average daily commute was 25.5 minutes – extreme commuters came in well above that average, driving in excess of 90 minutes to arrive at work each day. This may seem like a long time to spend on the road, but the tradeoff for extreme commuters comes in the cost of their housing. In fact, it is not uncommon to see price differences of more than 50% between housing near major metropolitan centers and that in the exurbs. This is a huge factor if you consider that housing is the largest single expense for most households and, according to the National Association of Home Builders, the prices for new homes have nearly tripled over the past two decades. Extreme commuters also benefit from other cost breaks. Car insurance, for example, tends to be lower due to the lower traffic volumes and less frequent accidents in the exurbs. Tax rates may also be lower, as outlying areas aren’t required to support the aging infrastructure and social services programs required in the city.

Along with the lower cost of living, the exurbs also offer what some people see as a better quality of life. Large homes with large lawns, low crime rates, no poverty or traffic-clogged roadways and fewer people are all part of the appeal of life in the exurbs. In general, living farther away from core metropolitan areas is believed to provide the safe and unhurried lifestyle that is usually associated with small-town life.

The Other Side of the Coin
Although extreme commuting can provide financial and quality of life benefits, the more time that is spent commuting to and from work, the less time commuters have to spend at home with their families. While the average commuter spends more than 100 hours per year on the highway, according to the U.S. Census Bureau, an extreme commuter can rack up those hours in just a little over two months. Additional detractors include the relative lack of cultural institutions and shopping opportunities that exurbs provide compared to their metropolitan counterparts.

While most people escape to the exurbs for financial reasons, many of them fall into a trap when it comes to housing. Instead of buying a modest, affordable home, they instead cave in to the temptation to buy a big house and stretch their budgets in order to do so. Once this choice has been made, these people are locked into the extreme commute for the long haul, since most jobs in small towns don’t come with the big city salaries required to support large homes. While a financially cautious commuter could spend a decade doing the drive, pay off any outstanding bills and then trade in the commute for semi-retirement (or least a lower-paying job closer to home), the people in the big houses often can’t afford to stop working in the city.

Long commutes also result in higher maintenance costs for cars and trucks, as well as big gasoline bills. While few people keep a car long enough to make vehicle replacement an issue, racking up more miles on your automobile does mean that you will need to change your oil, replace your tires and buy brakes more often than your city-based friends.

To Drive or Not to Drive?
The decision to make extreme commuting part of your lifestyle is largely a matter of personal choice. Will cultural opportunities and fine dining offset the need to live in a small apartment or an overpriced, undersized house? Or will wide open spaces and family-friendly places offset the hundreds of hours you will have to spend on the road? These are decisions that each person must make for him or herself. However, with the continued high costs of housing in metropolitan areas, it is likely that the 3.4 million extreme American commuters will continue to grow as more workers decide to hit the highway. Extreme commuting may not be for everyone, but for those who accept the tradeoffs, using a hefty city-based salary on exurban expenses can provide good value.

17
Jun

Getting A Grip On The Cost Of Gas

For the past several years, motorists around the world have felt the squeeze from rising oil prices. While consumers in the United States have expressed displeasure with gasoline prices, the cost for fuel in Germany, Turkey, Denmark, the Netherlands and the United Kingdom is even higher, largely due to heavy governmental taxation designed to discourage consumption.

Increased global demand, shrinking supplies, limited refining capacity, the lack of investment in new refineries and regional instability in the Middle East have lead to significant pain at the pump – and it could get worse. In this article, we’ll outline a few methods to help you minimize the seemingly unavoidable cost of fueling up.

How Did We Get Here?
In the United States, the average cost of a gallon of gas jumped from just over $3.37 on July 1, 2012, to more than $3.85 per gallon at middle of September. While recently gas prices have lowered (now closer to $3.40 a gallon), gas prices have been trending higher over the past decade, as shown in the chart below.

U.S. Regular Conventional Retail Gasoline
Date Cost Per Gallon
Aug 4, 2003 $1.54
Nov 30, 2004 $1.86
Dec 1, 2005 $2.10
Nov 6, 2006 $2.15
Sep 4, 2007 $2.80
Oct 11, 2008 $3.11
Nov 18, 2009 $2.61
Sep 16, 2010 $2.75
Oct 24, 2011 $3.45
Aug 22, 2012 $3.74
Source: GasBuddy.com

Rising gas prices put a spotlight on the cost of crude oil, which jumped from less than $2 a gallon to more than $3.50 in the last 10 years. It has been hovering around this price, and a look in the rear-view mirror shows that oil prices will likely continue to increase.

Many economists expect oil to remain pricey due to the following:

  • Limited pumping capacity
  • Limited supply of quality oil
  • Increased worldwide demand
  • Limited refining capacity

According to reports by Thomson Financial, most OPEC members are pumping at near-full capacity. Capacity can be increased, but doing so is an expensive proposition that won’t likely be undertaken in response to short-term spikes in demand. Furthermore, some of the reserve oil that can be brought to market is of lesser quality and requires additional refining. This creates yet another challenge, as new refinery construction is largely stalled (particularly in the U.S.) due to ecological and quality-of-life concerns.

With the burgeoning economies in China and other emerging markets creating a sustained increase in the demand for oil, lower gas prices do not seem to be on the horizon. The Russians underscored the international appetite for oil in August 2007, when they planted a flag on the seabed in the Arctic to lay claim to the oil rich region and pave the way for future deep-sea drilling.

Solutions?
From the consumer’s perspective, the easiest short-term solutions to the gas crisis would involve government intervention. According to the Energy Information Administration (EIA) which provides official energy statistics from the U.S. government, approximately 19% of the cost of gas is attributed to federal and state taxes. The remaining cost of a gallon of gas is accounted for by gasoline distribution and marketing, which accounts for 9% of the cost filling your tank, refining the oil, which accounts for 19%, and cost of crude oil, which accounts for 53% (using 2005 data).

A tax on windfall corporate profits is another possible way to reduce gas prices. The biggest players in the gasoline industry are booking record profits quarter after quarter. When the staggering profits generated by oil companies are viewed in light of the percentage of the price of gas that is accounted for by the price of oil, it is clear that these firms have plenty of room to reduce the cost of gas and still make a profit. At the present time, elimination of the gas tax and the implementation of a tax on windfall profits are both extremely unlikely.

On a slightly more promising front, efforts are underway to develop alternative fuels. Unfortunately, there are no quick fixes on the horizon. Ethanol, which can be made from corn or sugarcane, is the alternative currently capturing the most attention, but it is costly to produce. By some estimates, it takes a gallon of fuel to produce a gallon of ethanol. In addition, the large amounts of corn earmarked for ethanol production has downstream impact on the cost of food for farm animals and humans. So far, ethanol cannot yet be produced in quantities that are particularly meaningful for widespread use, and has done little to reduce the cost of fuel for motorists.

What You Can Do

If you don’t want to put your hopes into a dramatic reduction in gas prices generated by government or industry, there are still steps that you can take to address the situation on your own. The purchase of a hybrid vehicle is one path you can choose. These increasingly popular cars dominate the top portion of the Environmental Protection Agency’s list of “most fuel-efficient cars.” They sip gas, are “good” for the environment, and get you where you need to go as well as any other vehicle. On the downside, hybrids are expensive to purchase and may cost more to insure and fix. (To compare a hybrid to a standard model car of your choice, check out the U.S. Depart of Energy’s Cost Calculator.)

A study by Edmunds reported that gasoline would need to be priced at $5.60 per gallon, and a driver would need to log 15,000 miles (24,000 kilometers) per year over each of five years for the Toyota Prius to become a break-even proposition when compared against a selection of other economy cars. Of course, if you trade an SUV for a hybrid, the scale would tip in your favor much sooner.

If a hybrid isn’t in your budget, perhaps you can take a cue from Europe. The cities over there are packed with tiny cars, scooters and motorcycles. If you are ready to trade in your super-sized sport utility vehicle, six of the top 10 most fuel-efficient (according to the Environmental Protection Agency) vehicles sold in the U.S. for 2008 aren’t hybrids:

  1. Toyota Prius
  2. Honda Civic Hybrid
  3. Nissan Altima Hybrid
  4. Toyota Camry Hybrid
  5. Ford Escape Hybrid/Mercury Mariner Hybrid/Mazda Tribute Hybrid
  6. Toyota Yaris (manual)
  7. Toyota Corolla
  8. Honda Fit
  9. Nissan Versa/Scion xD
  10. Hyundai Accent

If you want even more fuel-efficient wheels, consider a motorcycle or moped. Mopeds may not be the flashiest vehicles on the road, but they sure are easy on the wallet at the gas pump.

Regardless of what you are driving, the best way to minimize the impact of high gas prices on your household budget is to reduce the amount of time you spend behind the wheel. Consolidate your trips; don’t pick up the dry-cleaning until you also need milk and gas, and then do everything in the same outing.

You can also join a car pool or consider public transportation. Take the bus, subway or train, and buy a monthly pass – this guarantees a one-month price lock on your transportation expenses. If possible, walk or ride a bike. Not only do you get good exercise, but the trip is virtually free!

When Driving Is the Only Way
When there’s just no alternative to driving to your destination, make sure your vehicle is ready for the road. Start by keeping track of your gas mileage. If it suddenly fluctuates, your car may need servicing. In the service arena, it pays to do the recommended maintenance to keep your car tuned and the tires properly inflated, as a well-maintained vehicle operates with higher fuel efficiency. It also pays to read your owner’s manual. Filling your car with a higher octane gasoline than that recommended by the manufacturer is simply a waste of money.

Good driving habits can help you save money, too. In vehicle tests conducted by Edmunds.com, using cruise control was identified as an easy way to save gas, as was proper stopping and acceleration. Instead of racing up to stop signs and red lights, jamming on the brakes and then accelerating quickly when it is your turn to go, back off of the gas as you approach the stopping point and accelerate gradually when you pull out. Turning off the air conditioning helps as well, but not much. Also, watch your speed, as excessive speeding will also consume more fuel.

Before you pull into your favorite gas station and start pumping, pay attention to the prices offered by nearby competitors. Cross the street to save that nickel per gallon when the price is lower. And speaking of lower, take excess baggage out of your vehicle to lower its weight. You are paying for every pound you carry. Finally, talk to your employer about a flexible work schedule. Driving at off-peak times can cut down on the amount of time you spend in traffic and the amount of money wasted at the gas station.

The Bottom Line
Although the price of gas may be out of consumers’ control, your choices will determine how much you spend. Using less gas is a surefire way to reduce your transportation costs – not to mention the financial stress that can result from rising prices at the pump.

17
Jun

Car Shopping: New Or Used?

it happens to everyone. The old clunker gasps its last smokey gasp at the side of the road, and you’re left to face a sickening reality – you need some new wheels.

The ads on television all scream in your ear, “New Car! New Car! New Car!” A shiny, clean new car does sound appealing, but you’ve also heard from your annoying know-it-all friend who says buying used is actually the smarter choice in the long run. It’s a tough decision to make. In this article we’ll explore the pros and cons of buying new and used vehicles to help pick the car that is right for you.


New, Glorious New
There’s just no denying the curb appeal of a brand new car, from that new-car smell to that shiny paint, the clean interior to the “ooohs” and “aahs” when your friends see it for the first time. In our consumer culture, a new car is an undeniable status symbol that lets everyone know you have arrived (often literally). Cosmetics aside, purchasing a new car also comes with a host of other positive attributes.

Positives
It’s new! Most new cars have good reliability records, and if anything does go wrong, it’s probably covered by the warranty. Buying new also means that you have no concerns about how the vehicle was treated before you bought it.

Many new cars also offer roadside assistance. This provides peace of mind and saves you the cost of paying for a roadside assistance program on your own, or for towing expenses to your home if you are stranded on the side of the highway.

New cars are also likely to offer the highest fuel efficiency standards and the latest safety features, such as side-curtain airbags and structural reinforcements. Many companies even offer financing programs with low or no interest rate, making it less expensive to finance a new car than a used car.

Negatives
Buying a new car is hard on the wallet. Not only do new cars cost more than used cars, but they depreciate in value more quickly too. A vehicle loses the most value in the first few years of ownership. It actually loses a huge chunk of value in its first few seconds off the lot. In other words, when you purchase a new car, you pay the retail price – the price a dealer charges for a new car. As soon as you’re off the lot, the car is worth wholesale price. This is the amount the dealer would be willing to pay if you turned around and tried to sell your car back.

Unfortunately, the difference between these two values can be massive. According to Blue Book, the manufacturer’s suggested retail price for a 2007 Ford Focus two-door hatchback is $14,335. The used-car private-party resale value for the exact same car is $11,995. That’s a loss of $2,340 for driving the car off the lot.

Buying a new car means that you are both incurring higher debt and losing value more quickly than if you had purchased a used car. New cars also come with higher insurance costs than used models, as replacement values are higher.

On a more philosophical level, buying a new car fosters a culture of conspicuous consumption, not a culture of frugality. Instead of making a practical transportation decision, you are buying into the culture of consumerism and its ongoing quest for the latest and greatest toys. Not only is this an expensive proposition, but it is likely that next year something even better will hit the market, making your costly purchase obsolete.

Finally, new cars don’t stay new for long. In a day, a week, or a month, you’ll get your first scratch or nick. By the end of the first year, the floor will be stained, the doors will be dinged, and the thrill of having a new car will be long gone. Of course, the monthly payment will linger for many more years.

Used, Humble Used
While “pre-owned vehicles” (marketing jargon for used cars) lack the mystique of new cars, they sure are hard to beat when it comes to practical financial reality. Buying a late-model, low-mile vehicle can be a bargain hunter’s dream come true.

Positives
Buying used is an opportunity to get the best car for your money. You can often find a late-model used car priced at less than half the cost of a new one. Pre-certified dealer programs offer strong warranties, often including the remaining balance of the factory warranty, and the opportunity to purchase an extended warranty. For all practical purposes, low mileage, late-model used cars are basically new. If you trade your car in every few years the way many people do, you aren’t likely to notice the difference between a used vehicle and a new one because most modern cars will go 100,000 miles or more with few mechanical difficulties. Buying a car that has 40,000 miles on the odometer is likely to result in 60,000 or more miles of trouble-free driving. Some vehicles now offer drive-train warranties that cover the most expensive components of your drive train for 200,000 miles.

If you are low on cash and willing to take a chance, you can even get a car for just a few thousand dollars, and maybe even a few hundred. If you are handy with a wrench, buying a car that needs a little time and attention can dramatically reduce your acquisition cost.

Negatives
Despite the warranties, used cars still come with that unknown reliability stigma. Because you don’t know how the car was treated by the last owner or why it was traded in, there is always that fear of buying somebody else’s problem. Even if the car is perfectly sound, you will need to perform required maintenance sooner than on a new car. This maintenance includes things like radiator and transmission flushes, new breaks and new tires.

On a more practical level, it may be challenging to find a used vehicle that comes with the options and features that you want. You also have less recourse if you have purchased a lemon, as lemon laws often apply only to vehicles under a certain age and with less than a certain number of miles on the odometer.

New or Used?
The decision to purchase either a new or used vehicle should be based on a number of factors. You need to be comfortable with financing options, as well as the long-term implications for your personal financial situation. You need to feel safe, and you’ll need a vehicle that is reliable. Finally, you need make sure your new car meets your needs in terms of comfort features and amenities.

Buying a car is major financial decision. Aside from the purchase of a home, it often qualifies as one of the largest purchase many people make in a lifetime – so make sure to research and enjoy the ride!

17
Jun

7 Hot Hybrids: Will They Save You Money On Gas?

When Nissan (OTC: NSANY) announced that it would launch its “Leaf” electric car in the U.S. in 2010, the media was abuzz with renewed interest in a zero-emissions car. Nissan’s new car, along with the proposed introduction of other all-electric cars such as the Mitsubishi (OTC:MMTOF) MiEV and the Volvo C30 in the near future, it looks like electric cars may be becoming a more practical reality. However, although experts predict the tipping point toward zero-emissions vehicles may be approaching, there are some practical considerations that are keeping these cars on the margins, including low top speeds, slow acceleration, limited range and the time it takes to recharge them.
For those who want a greener commute, the most practical existing option is still hybrid vehicles, which combine gas with electric battery power. There are a number of these vehicles on the market and most of them use significantly less fuel than a comparable non-hybrid car. Unfortunately, at their elevated cost, that doesn’t make them cheaper to drive in most cases. Oil and gas industry analysts aren’t predicting a rise in oil prices just yet, but if you’re set on buying a hybrid, whether for the environment, your pocketbook or as a hip accessory, read on to find out which cars will provide the most value over a comparable non-hybrid model and how long it will take before you start getting more value out of your hybrid at current national average gas prices.

Nissan Altima Hybrid – Years to Break Even on Fuel Savings: 21
Car testers approve of the Nissan Altima nearly unanimously; Consumer Reports named it one of its top picks for 2010 and JD Power & Associates named it the highest-ranked mid-sized car in initial quality. Testers noted that the Altima hybrid was similar – but they didn’t fail to note that most consumers would have a hard time getting one (they’re only available in eight states) and the fuel savings were less-than-spectacular considering its premium price.

With an average yearly fuel cost of about $1,587 at current gas prices, the hybrid version only saves an Altima driver $326 per year. With a more than $6,000 discrepancy between the Altima Hybrid sticker price and the price for a comparable four-cylinder gas-powered Altima, it will take an owner 21 years to recoup the difference on gas prices alone.

Toyota Prius – Years to Break Even on Fuel Savings: 20
There’s little doubt that this darling of the hybrid industry is a great car. Consumer Reports chose the Toyota (NYSE:TM) as one of the best picks for environmentally friendly vehicles and one of the best value vehicles for 2010. A lot of this value stems from its outstanding reliability, however the price of the Prius has been a sticking point for true value-oriented buyers, who can get more value out of other small, non-hybrid vehicles. For our purposes, we compared the Prius in price and fuel efficiency to the Toyota Yaris. Although the Prius is certainly a more luxurious car than the Yaris and tends to get higher scores for performance, if you want to drive the most cost-effective Toyota, the Prius just isn’t it.

Although the Prius does use more than $500 less gas than a Yaris at current prices, it also costs between $22,000 and $28,000, far more than the Yaris’ $12,605 base-model price – and far more than most other similar sized, fuel-efficient sedans and hatchbacks.

Honda Civic Hybrid – Years to Break Even on Fuel Savings: 17
The Honda (NYSE:HMC) Civic Hybrid can’t boast the outstanding 51 mile per gallon fuel economy the Toyota Prius gets in the city, but it costs nearly as much, retailing for $23,800. That’s a long way from its non-hybrid counterpart, which starts at $16,000. US News & World Report may have ranked Honda’s hybrid as No.4 on its list of most affordable cars for 2010, but that still put this fuel-efficient version two spots behind its fuel-burning sibling, the Honda Civic, which ranked higher as a result of its much lower price. The hybrid version will save the average driver about $460 per year, which means it’ll take 17 years to recoup the nearly $8,000 premium for the hybrid model.

Honda Insight – Years to Break Even on Fuel Savings: 16.5
The Honda Insight was groundbreaking in that it was the first hybrid to hit the North American market in 1999, beating the Prius by several months. But although it’s probably the least expensive hybrid out there – it retails for $21,300 – most reviews of the car noted that comfort and refinement were sacrificed. Consumer Reports called it one of the worst Hondas it had rated in a long time, and notoriously outspoken U.K. auto journalist Jeremy Clarkson called it “biblically awful”.

The Insight’s engine produces a paltry 98 horsepower but uses slightly more fuel than the Prius, which delivers considerably more pep with its 134-horsepower engine. With a $5,600 premium over the Honda Fit, it would take an Insight driver 16.5 years to break even on the gas savings alone. Plus, most testers much preferred the Fit’s driveability, style and versatility.

Toyota Camry Hybrid – Years to Breakeven: 15
The non-hybrid Camry has been one of the best-selling and highest-rated cars in its class for years and by most accounts, the hybrid is pretty good too. U.S. News & World Reports described it as more comfortable and refined than the Prius – it’s also roomier and has considerably more power (187 horsepower to the Prius’ 134 horses). That said, at $26,400 the hybrid Camry costs nearly $6,000 more than a comparable non-hybrid, and only provides about $300 per year savings on gas (at current prices). As such, it would take you 15 years to break even on this car over the cost of its non-hybrid counterpart. However, if you’re looking to buy a hybrid for its cachet, rather than for cost-effectiveness, the Camry Hybrid looks to be a sensible choice.

Mercury Milan Hybrid – Years to Breakeven: 13
The Milan Hybrid is new for 2010 and reviewers are loving its combination of luxury, fuel efficiency and performance, which apparently is nearly indistinguishable from a non-hybrid. It’s a practical mid-sized car that provides entry-level luxury features, such as leather seats and satellite navigation systems. And, although it cost $6,300 more than a comparable non-hybrid Milan, the hybrid’s ability to get 41 miles per gallon in the city far surpasses its gas-greedy counterpart’s 22 mpg rating, allowing a typical driver to save nearly $500 per year on gas and break even on those savings within 13 years.

Ford Fusion Hybrid – Years to Breakeven: 5.6
What do you get when you combine a Ford (NYSE:F) Fusion with an electric motor and nickel hydride battery pack? According to Consumer Reports, the answer is the “crown jewel” of the Fusion family and a very cost-effective hybrid vehicle. This could account for why it took home top honors as the North American Car of Year at the Detroit Auto Show. It provides a similar look and driving experience as the non-hybrid Fusion, but because the price discrepancy between the two models is relatively slim (about $3,200), drivers are likely to break even with the money they save in gas within six years. If fuel prices go up, the Ford Fusion hybrid is likely to be a very cost-effective choice.

The Bottom Line
Although most hybrid cars can get you around on considerably less gas, at current gas prices, most of them just aren’t cheap enough to make this the sole consideration when deciding between a traditional or hybrid model. If you’re betting that oil prices will go up – or you just want to reduce your carbon footprint regardless of the cost – you might want to take the plunge to hybrid driving. If you don’t have the extra cash, consider choosing a small, fuel-efficient car. It won’t have the hybrid cachet, but it’ll get you around at a much lower price.

17
Jun

5 Ways To Buy A Used Car

The used car market is thriving. With the average price of a new car in the United States nearing $29,000, it’s no surprise that consumers are three times more likely to purchase a used car than a new one. Consumers have more choices than ever when it comes to buying a used car. Classified ads in the local newspaper are no longer the only way to search for a used automobile. Here are five ways to buy a used car.

1. Certified Pre-Owned
A J.D. Power and Associates study recently indicated that the sale of certified cars has increased 46% since 2000. Certified pre-owned (CPO) vehicles are used cars that have been inspected, refurbished and certified by a manufacturer or other authority, thereby providing the consumer with some confidence regarding the vehicle’s condition. CPOs usually include an extended warranty and often special financing offers, providing new car benefits at a used car price. Most dealers advertise CPO vehicles and may even devote an entire lot to these types of cars. CPOs are typically more expensive than non-certified used cars, but often the benefits (such as the extended warranty) outweigh the extra costs.

Buyers can search at Edmunds (www.edmunds.com) by clicking on “Certified Cars” and browsing by category, make or zip code; or at www.cars.com by selected the “Certified Used” button under the Used Cars heading, and searching by make, model, price and location. Cars.com also publishes a useful Certified Pre-Owned Users Guide, found under the “Advice” tab.

2. Superstores
Used car superstore CarMax (www.carmax.com) is a Fortune 500 company that offers thousands of vehicles for sale through its 100+ locations nationwide. Consumers can search for vehicles by make, vehicle type, model & price, features and MPG on the CarMax website. Once a search selection has been made, buyers can enter their zip code and search radius (for example, within 50 miles of the zip code) to find local deals. CarMax offers its buyers a five-day money-back guarantee, a limited 30-day warranty, extended service plans and free vehicle history reports. CarMax offers financing, as well as money for trade-ins.

3. Government Auctions
Thousands of seized, surplus and forfeited cars each month are sold at online and live auction venues. These vehicles are the property of the federal government, and due to the high costs associated with storage, they must be sold quickly and at appealing prices. The “Official Site to Buy U.S. Government Property” is www.govsales.gov, and lists government assets for sale along with information specific to each vehicle including the year, make and model, and the auction’s closing time. Consumers can search by category (such as “Cars and SUVs or “Trucks”) or by state to find local listings.

No financing is offered and buyers must be able to pay for the item using cash, a bank cashier’s check, a U.S. Postal Service or commercial money order, Traveler’s checks, a personal or company check that is accompanied by a bank letter of guarantee, or by credit card. Bids cannot be lowered or canceled. Other car auction websites such as www.car-auction.com can be found by searching online.

4. eBay
Officials at eBay have indicated that every 52 seconds, a passenger vehicle sells on its website. eBay first launched its Motors area in 2000 and is expected to reach $18 billion in sales this year. When a car is purchased on eBay, it is usually done sight-unseen which can be unsettling for some buyers. Checking the seller’s feedback and bidding on an auction that allows buyers to back out of the purchase after inspecting the car are two ways buyers can help protect themselves when purchasing a car through eBay. Sellers usually expect to be paid in cash, and buyers should be wary or entirely avoid sellers asking for upfront money transfers (like Western Union).

Since the car might be located a considerable distance from the buyer’s home, any pick up or delivery costs including gas, hotels, food, missed work and plane tickets should be factored into the price. When a flight is necessary, Edmunds recommends purchasing a round trip plane ticket since they are usually less expensive than one-way tickets, and they provide flexibility in the event that the car does not meet the buyer’s expectations.

5. Private Sales
Buyers can look for used cars in the classified ads in the local newspaper or at online classified websites such as www.craigslist.com. Unlike the other methods of buying used cars, private sales through classified ads or signs placed on the car match buyers with people who are usually just selling one car (rather than a whole fleet). Care should be taken to ensure that the seller is asking a fair price, and it is a good idea to have an inspection performed by a qualified mechanic prior to purchase. People who list their cars for sale on Craigslist are often the same people who would otherwise advertise locally, but, unfortunately, sometimes they are scammers. A few of the known Craigslist scams include instances where the seller steals the car back from the buyer a few days after purchase and the buyer being robbed of the cash they brought with them to a test-drive.

Buyers can reduce these risks by not disclosing their home addresses, meeting in a public location for test drives, and not carrying cash to a test drive. As with eBay, requests for down payments through money transfers should be a red flag.

The Bottom Line
Regardless of where a new car is purchased, consumers should be cautious and do adequate research to help protect themselves against both a bad car and a bad deal. Services such as CARFAX (www.carfax.com) provide vehicle history reports for a small fee that detail title problems, ownership history, and accident and service records. Kelley Blue Book (www.kbb.com) is a trusted source for finding the current value of a vehicle.

Buyers can also have the car inspected prior to purchase. To help avoid scams, car buyers should be careful when dealing with an “anxious” seller (one who gives an elaborate story explaining why he or she needs to sell the car ASAP); deals that seem too good to be true; or a seller demanding a down payment via Money Transfer such as Western Union or MoneyGram. While buying a used car usually takes a little extra effort and caution than buying a new car, it can save most buyers a considerable amount of money, making it worth the effort.

17
Jun

Buying A Car: The Worst Investment?

Those who know how to build wealth understand that every dollar they spend should be seen as an investment. Even if you don’t have a lot of knowledge (or even interest) in how the stock market works, you surely know how to be successful: you buy a stock at one price and later sell it at a higher price, making a healthy and impressive profit.

The Worst Investment?
Let’s set up a hypothetical scenario. You have $25,000 to invest and a certain investment broker approached you with a great new investment vehicle. He starts by telling you that it is one of the most popular investments in North America. He goes on to say that you can feel safe because a large amount of Americans invest in this product.

You have the same question as most would: “How much money can you make on this investment?” When you ask, you’re surprised by the answer. Your investment broker tells you that the chances are nearly 100% that you will make no money at all. Then he tells you the really shocking part: The chances are nearly 100% that you will lose at least half of your investment and most likely much more than that!

Who would sign up for an investment like this? The answer is, quite possibly, you! You would sign up for it because like most Americans, if you are purchasing a new car, you’re probably leasing or financing it. For most Americans, a car is a terrible investment, but you need one, so what do you do?

The Facts about “Investing” in a Car
In this case, $25,000 is the amount that you are considering investing into this investment vehicle, so let’s act like investors and examine the facts:

  • An automobile is a depreciating asset. As it ages, it loses value rapidly and drastically. There is very little chance that an automobile used for personal transportation will appreciate in value.
  • Along with the financing payments, this “investment” has to be insured, repaired and maintained and registered with the state, further driving the cost of it higher. According to Edmunds.com, over five years it will cost an estimated $33,604 to drive your $25,000 vehicle, making the loss on this investment even higher.
  • A reliable form of transportation is essential in order for most people to produce an income.
  • Many people see an automobile as a social status symbol, but is the luxury component of an automobile worth the investment dollars?

How to Lose Less
To be fair, one could argue that owning this car allows them to travel to their place of employment to produce an income so the investment isn’t actually losing as much as the raw numbers would suggest. Most would concede that owning an automobile is a necessity so let’s look at a better way to make an investment in an automobile without losing so much of the original dollars.

First, purchase a used car. On our original $25,000 car, over 10% of the value will be lost in its first year from depreciation. By purchasing a car that is more than one year old, you don’t have to lose your investment dollars to the first year depreciation.

Next, only buy an automobile when you can pay cash for it. Pay cash and you save an estimated $3,100 in finance charges on a $25,000 car. Buy a four-year-old car paying cash and you could have about $13,000 leftover from your initial $25,000 budget.

Now, take that $13,000 you saved and invest it in to a high dividend paying stock of your choice for the same amount of time that you were going to finance your car. Assuming Verizon’s dividend stays at the same for five years, your $13,000 investment will generate over $650 per year in income for you. By buying a used car, You can potentially save half of your original “investment” in that new car, and you make 5% for five years by investing the money.

The Bottom Line
Looking at it as an investor would, purchasing a new car is a terrible investment, but what’s worse is purchasing a new car using credit, and now we have numbers to prove it.

17
Jun

Analyzing Auto Stocks

Automobile companies have been a staple in American society since the early 1900s. For nearly the same amount of time, investors have been trying to determine the best ways to go about analyzing the industry, individual companies and stocks – above and beyond the good old-fashioned P/E ratio. The following article will detail some of the items that can have a positive or adverse impact on the earnings and stock prices of domestic automakers.

Jobs and Unemployment Play a Role
To qualify for financing to purchase an automobile, individuals must typically show some source of income. By extension, jobs and unemployment rates can have an influence on car sales. December 2007 unemployment ticked up in numerous states over 2007 and auto sales simultaneously slumped. The number of jobs and the average person’s confidence that they’ll keep their job can both be a big determinant of auto sales.

Borrowing Rates
Many car buyers finance their purchases. If the borrowing rates become too high, buyers may shy away and instead spend more money maintaining their existing vehicles.

Over time, auto sales data and rate data have shown a correlation. The one period that stands out is how borrowing rates impacted sales after September 11, 2001.

In November 2001, many employers initiated a hiring freeze, mostly as a defensive mechanism against a slowing economy. According to the U.S. department of labor, unemployment rose, but domestic auto sales continued to rise at a fairly brisk rate according to CNN Money. Why was that? Many give credit to the fact that a large number of dealers and automakers were offering 0% financing or other favorable financing packages in order to lure in customers.

In short, when analyzing and investing in auto stocks don’t forget to factor in the potential impact of interest rate fluctuations and their possible impact on sales.

Labor Relations
U.S. automakers often have a disadvantage compared to their foreign counterparts. This is because a sizable portion of the U.S. labor force working in the automobile industry is unionized or under some form of union influence. Unfortunately, today’s unions don’t just bargain for safe working conditions as they did in decades past. These days, they aggressively negotiate for pay raises, medical and retirement benefits.

This is not to say that these individuals don’t deserve the pay they are getting. In fact, given the hard work many of these individuals perform, it may be warranted. However, it can be expensive. In order to cover those expenses, the domestic automaker may have to reduce costs on production or raise the price of their cars. Both of these options can have an impact on sales.

Look for companies that have just negotiated a contract with their unions. This way, it is likely that it will be at least a couple more years before the two parties have to negotiate another contract that could crimp margins.

Tax Breaks
The average American saves very little each year. By definition, this means that when they get their hands on something like a tax refund, or if they experience some other type of tax windfall, they probably will spend it.

According to the National Bureau of Economic Research, in 2001, when the domestic economy entered into a recession, the U.S. government sent out rebate checks ranging from $300 to $600 as a stimulus, and within a six-month period most Americans had spent the money.

The money was spent on a variety of items ranging from more traditional consumer goods to vacations. However, some of that money almost surely made its way to the automakers, again as evidenced by the above-mentioned 2001 U.S. auto sales numbers.

Environmentally Friendly Cars
While there are some exceptions, the majority of automobiles still run on oil byproducts, such as gasoline. The good news is that this is beginning to change. For example, battery operated cars and/or hybrids are becoming more popular. In addition, the government has been pushing automakers to produce more fuel-efficient vehicles, mostly to help cut down on emissions.

It’s important to note that these efforts don’t come cheap. In fact, the research and development (R&D) of such vehicles is likely to cost billions of dollars and take years to come to fruition. Keep a close eye on what companies are spending on R&D for environmentally friendly vehicles and try to determine how that might impact future profits, or how the company will be able to finance such initiatives. Much of this information will be available in the company’s 10-K and most likely in the management discussion and analysis(MD&A) section or the section on future guidance.

New Model Line Up
If a company doesn’t have an exciting product line, its sales could suffer and/or the stock could too. For example, between 2001 and 2008 Ford (NYSE:F) stock has been in the doldrums. There are lots of potential reasons for its decline, including potential labor concerns and the health of the U.S. economy. However, its generally lackluster lineup of new cars has been blamed as well. Automakers including Honda (NYSE:HMC), Hyundai, Toyota (NYSE:TM), and others have been coming out with aesthetically pleasing new vehicles. And some folks have found these more attractive than Ford’s offerings.

Try to keep an eye on a company’s new cars and try to determine whether you think their models will appeal to consumers. Remember: the analyst community will likely be doing the same thing.

Tariffs
When the economy is struggling, some politicians will push for tariffs or taxes on imported vehicles. They argue that imports will then cost more to buy and that American jobs will be preserved because consumers will buy “American.”

Trouble is, this doesn’t always work out as planned. Foreign governments may then enact tariffs on goods, such as cars that they import and as a result the domestic automaker may actually end up generating less revenue.

When politicians start to bandy such legislation, read the proposal carefully and try to evaluate the potential impact on U.S. consumers as well as how other nations might react.

Bottom Line
Investing in auto stocks isn’t easy. There are a number of macroeconomic and company-specific factors that must be considered. Investing in these companies often requires an extra level of patience and dedication, but the industry has proved it will be around for a long time.

17
Jun

10 Tips For Buying A Car Online

With GM’s announcement that it will begin selling new cars directly to buyers online through powerhouse auction website eBay, in conjunction with its 225 California-based dealerships, consumers may now more seriously consider buying a car online. While eBay is already in the car-selling business – its automotive marketplace eBay Motors is ranked by Nielsen Ratings as the #1 online automotive site – this marks the first time a car manufacturer has sold new cars directly to the general public online. The test program will run from August 11 to September 8 and, if successful, will expand nationwide.

Driving Sales Online
This is a bold attempt that’s part of a larger plan aimed at helping the beleaguered car manufacturer successfully emerge from bankruptcy. GM is slashing its total number of dealerships by 40% by the end of next year; this internet-based experiment may provide the company with a valuable (and less expensive) way to reach a larger buying audience.

The company will list more than 20,000 new Buick, Chevrolet, GMC and Pontiac cars on its website, and will feature options enabling consumers to compare prices across models and dealerships, apply for financing and either “buy it now” at the listed price or negotiate with the dealer for a lower price.

The move is a smart one for GM, given that more than 75% of new car buyers went online to do research before buying, according to J.D. Power & Associates, and 30% of all car purchases are now taking place online, according to Edmunds.com. If you are considering buying a car online – from GM through its eBay website or through another seller – here are some tips to help ensure you don’t get taken for a ride:

#1 – Verify the Seller’s Credibility
Check the seller’s history with the Better Business Bureau, or read ratings from other sellers to ensure you’re working with someone who will deliver the car according to the terms you are offered.

#2 – Get More Information
If you have questions, email the seller for additional information on the listed car including photographs (of the interior and exterior).

#3 – Get an Auto History Report
If you’re buying a previously-owned car, get an auto history report through a vendor.

#4 Test-Drive the Car
Go out to the lot, or arrange to meet the seller in person at a safe location, to test-drive a model of the car you’re considering to see if it’s really comfortable and drives the way you’d like.

#5 – Compare Prices
Research prices on the car you’re considering through other competing online sites. Those sites will give you an idea of the sticker price as compared to the invoice price (the amount that the dealer paid for the car). If you’re buying a used car check the Kelley Blue Book value to know the average price for what consumers are paying for the car you’re considering.

#6 – Check for Incentives
Just because you’re buying online, you don’t want to miss out on any potential manufacturer incentives. Call your local dealership for potential dealer-based incentives (in case they’re not advertised online) or visit the manufacturer’s website to learn about national promotions.

#7 – Get the Best Financing. If you need a loan to purchase the car, compare the dealer financing you’re offered online with rates and terms available for a car loan through the bank you’re currently using or a local credit union.

#8 – Get it Inspected
Have an independent mechanic inspect the car in person (if you’re buying locally) or at least review the pictures and information provided online.

#9 – Confirm That the Deposit is Refundable
Find out if the deposit is refundable in the event that the vehicle is sold to another consumer, and print out any online records including emails to verify your transaction.

#10 – Make a Secure Online Payment
If you’re buying online, or even just making a deposit, use your credit card to get limited liability in the event of fraud (i.e. the seller doesn’t provide the car you intended to purchase).

Use the internet to your advantage when searching for a new or used car, and save yourself some valuable time – and perhaps money – in the process.