Don't Read This Post

Quick, how many of you can tell me:

1. Your cars’ fuel economy in miles per gallon or, even better, gallons per mile.
2. How much you drove in the last year.
3. The cost to fill your tank.
4. Your monthly and annual fuel expenditures.
5. How your cars’ fuel economy sits in relation to other cars in their classes.
6. What your fuel savings in gallons and dollars would be if you switched to a hybrid or other highly economical vehicle.

If a 2006 paper by Thomas S. Turrentine and Kenneth S. Kurani (of the University of California, Davis) is accurate, your score on this quiz may well be zero.

“The vast majority of buyers will throw up their hands and perform no math at all.”

If so, you’re not alone. Much as I hate to admit it, even I could only answer one question (number one) with any degree of certainty; the best I could come up with for the others were rough estimates; and I’m a transportation scholar who makes his living exhorting people to drive more fuel-efficient vehicles. Turrentine and Kurani found surprising (or not) evidence that when it comes to fuel economy, car purchasers make decisions that are very, very different than what you would get from the rational, profit-maximizing consumers that populate many economic models.

First, the paper found that recent car purchasers and prospective buyers rarely even mentioned fuel economy as a factor in their decision. (The main exception was hybrid owners, who were considered separately; I’ll write about them when I look at altruistic and emotional motivations for fuel conservation, another time).

Car size and capacity were the most important features for buyers. The car purchasers almost never compared the fuel economy of the autos they were considering purchasing. To the extent they made any comparison, it was between the new car and their current vehicle. But this was problematic. Very few members of the sample of 57 households kept any sort of records of their current car’s fuel consumption or how much money they spent on gas. They had only a rough conception of how much it cost to fill up their tank, and many households (19) didn’t even know their own car’s m.p.g.

In addition to a lack of data, the subjects demonstrated questionable mathematical prowess. When asked how much they’d be willing to pay for a hypothetical m.p.g. improvement of 50 percent, respondents were flummoxed. The results were wild guesses that ranged from $0 to $10,000.

Some tried to make a rational calculation, but with poor results. Even mathematically-skilled individuals like finance professionals or computer engineers had little clue. Two thirds of the households never even dreamed of analyzing how long it would take for an investment in greater fuel economy to pay for itself. Only 10 intrepid households attempted the payback period calculation, and 8 of those performed it wrong.

Two lonely households managed a reasonable stab at it — sort of. But even they did not perform the important step of converting future dollars to net present values. (NPV discounts future income — in this case, fuel savings down the road — on the grounds that getting $1,000 ten years from now is worth a lot less to you than getting $1,000 today. This means you can’t just add up the dollars you will eventually save and count them as money in the bank; at the moment you buy the car the real value of the future savings is a lot less than it seems.)

And even the two households who were in the ballpark on the payback question didn’t actually think to make such a calculation when they purchased their last car.

Interestingly, when pressed, respondents tended to seriously overestimate both their gas costs and the potential financial savings from improved fuel economy. They expressed a willingness to pay much more upfront for a more efficient car than the eventual fuel savings would warrant.

And here is where ignorance may be bliss. With the impending arrival of more hybrids and pure electric cars, we have a perhaps once-in-a-lifetime chance to free ourselves from our shackles at the gas pump. And surprisingly, when we make this fateful decision, a bit of individual irrationality might make for greater collective rationality — provided Americans don’t dazzle us with their financial acumen.

Here’s how.

First, thanks to our myopic focus on recent fuel prices when we make car purchasing decisions (those big gas station signs are among the very few bits of data we carry with us into the auto showroom), consumers might make some very good bad decisions. A rational financial calculator would consider not just the general rise in real fuel prices in the 2000’s but the two decades of plunging real gas prices in the 1980’s and 1990’s. However, short memories may make us forget that oil prices can go down as well as up.

True, fuel prices have dropped since the lofty peaks they hit last summer. But the 2008 spike might have seared fuel economy into our psyches, the way traumatic events often do, and this may cause us to behave a bit more “irrationally.” It’s interesting to note that a few subjects in the study did consider fuel economy thanks to memories of the 1970’s oil shocks, which still reverberate in their consciousness 30 years later.

So buyers will have insufficient data and will probably interpret it irrationally; but in a way that promotes concern with fuel economy. Next, throw in some faulty math, which also tends to favor more efficient cars (for example, by omitting the NPV step). Even better, the vast majority of buyers will throw up their hands and perform no math at all, in which case they will hazard guesses that, this paper suggests, may make them pay more for fuel efficiency than they will ever see back.

All of these forces may line up to shift us into more economical but costlier vehicles (e.g. electrics) even when it makes little financial sense to do so — but only if consumers don’t do the math too carefully and don’t realize the dollar savings might not be all they think they are. Of course, there are altruistic motives (concern for global warming) and emotional ones (hatred of the oil companies) involved in the fuel economy calculus as well, but these might not pull the American public along like perceived economic ones might. So let’s all come together in the noble cause of keeping America irrational — and let’s start by keeping this post strictly between us.


Ben Cass

I know I also value the time I save by making less frequent gas stops.

After reading this article, I'd guess boosting my Civic's efficiency by 50% for the next 7 years of its expected lifespan would be worth about $900 to me today. My biggest and least likely assumption is that I'll be driving the same amount in 7 years that I do now (I walk to work).

Peter

After you do that math, then you can wrap your head around the idea that an electric car like the Toyota Prius is not so green after-all:

"CNW Marketing rates cars on the combined energy needed "to plan, build, sell, drive and dispose of a vehicle from initial concept to scrappage." A Prius costs $2.87 per lifetime mile. By comparison, an H3 Hummer costs $2.07 per lifetime mile. Then there will be the problem of disposing of the used batteries. "

For example...

"The nickel is mined in Sudbury, Ontario, and smelted nearby, doing damage to the local environment. The smelted nickel is shipped to Wales, where it is refined. Then it is sent to China to be made into nickel foam. Then it goes to Japan, where it is made into a battery. Then it goes into cars, some of which are shipped to the United States and some of which go to Europe. All of that seaborne transport consumes a lot of fossil fuel."

::: snipped from:

http://www.washingtonpost.com/wp-dyn/content/article/2009/06/20/AR2009062001523.html

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Dan

1. About 18 mpg
2. 12,000
3. $30 - $35 depending on how empty and price of gas.
4. 1850 - 2000 but it varies
5. Vary similar. The class didn't have a vary wide range. The last three vehicles I bought all feel within 1 - 3 MPG of the others I considered in that class.
6. No hybrids were available in the class / price range I was looking at.

Even if there was a real ROI, many consumers are hesitant to switch over to a newer, less proven technology. (Hybrids).

It's like adapting to new electronic. The people who buy Priuses are equivalent to those who pay $500 for the first bluray player to impress others.

Very few people actually bought Priuses for financial reasons. It's more to make a politcal statement about the environment.

Ben

First of all, these are pretty easy questions (although the last one takes more than a few seconds). I'm certainly not surprised by the idiocy of the average American, but if you claim to be a "transportation scholar" and you could not answer any of them (Holy sh%@!!) then you ought to look for a new job. It's gonna be kinda hard for me to take your columns seriously from now on. God forbid someone asks you how a fuel cell works.

Tuxster

I can answer all 6 questions very comfortably. I also drive a Toyota RAV4 (2002), and gas economy was one of (but clearly not the only) factors we considered when buying the vehicle. And I don't think I am obsessively green. I do recycle normally, but don't go overboard with my actions to save energy. Yet, I find that knowing the mileage of my car actually allows me to figure out when something might be wrong with my car. So, making that basic calculation every time I buy gas is not really a burden.

And, you don't need to be able to do all the fancy math to see if a hybrid vehicle makes sense. Many websites have already done it, so all you need to do is Google it. Of course, I know most people will also not research the most basic things to be knowledgeable (e.g., death panels) so I'm not surprised to see they don't when it comes to this as well.

Hillary

well, I could answer 1-4 if I opened my car spreasheet and input the two receipts in my wallet. I have fuel/mileage data from the first tank of gas I put this car to present, as well as the car I previously owned. In case you're interested, I spent $1050.97 on gas in 2008, filled the tank 37 times, and drove 10160 miles. it's a 2004 Civic. My mileages ranges from 30-35 mpg depending on percentage of highway and the time of year.

(yes, I'm a geek. but it also helps me know if something's going wrong with the engine.)

I don't know the answers to 5 and 6, but if I was in the market for a car I'd take the time to figure them out.

Imad Qureshi

I just read first couple of paragraphs but here are my thoughts. I was in market recently to buy a new car. I considered hybrid because of its fuel savings but I decided not to buy a hybrid because without doing any sophisticated maths I thought that it was not worth it. Lets say if it even saves me a $1000 over the lifetime (I am guessing it wont save me more) than its not worth it because of the comfort I am giving up in buying Prius rather than Accord.

econobiker

A 1995 Dodge Neon with 250,000+ miles on it getting 27-31mpg and valued at less than $1,000 is better value than any new car. It used to get closer to 39mpg but I think a ring is broken or something along that line as the car runs like crap now- but still gets 27-31mpg.

1. See above- known to understand if something is broken.
2. Don't know and don't care since the car is paid for.Only care how many miles between oil changes.
3. 10 gallon stock fuel tank but can ease upto 11 gallons in there if needed
4. Could figure out due to keeping #1 records.
5. My car gets better fuel mileage than a much smaller new Honda Fit. Why the heck is that?
6. Not enough fuel savings to balance out the increase in car insurance alone from basic liability to full coverage much less the interest on a new car loan...

Tucker

Umm. I don't buy your explanation as a reason that people will be buying high cost electrics. People are just weighting fuel economy more in their purchasing decision, within their price range. In the range of people who buy $20,000 or more cars that might lead them to buy a hybrid. People aren't trading in a compact car for a Prius that cost a few thousand dollars more. They are trading in an SUV or midsize car for a Prius of roughly equivalent cost. Heck my grandmother traded in a 1982 Jag for a hybrid. Or just look at the cash for clunkers- the most popular cars were compacts half the weight of the vehicles traded in, not hybrids.

Tom

Andy #3

The post did say that consumers were irrational. Being irrational allows some to comfortably be on two sides of an issue.

dan

i've found fuelly.com to be an effective way of tracking my fuel economy and also comparing my fuel economy with that of other people who own similar cars

sarahmas

@12 Steven F: You're pretty proud of yourself, huh. I live in Orange County, CA and my husband and I make it work with 1 car and a coupla bikes. It would be impossible for me to rely on public transportation no matter how much I want to. No need for you to sit in judgment there, buddy.

I get 25 MPG, drive about 30K miles a year with a 110 mile round trip commute, spend $30-$35 to fill my Beetle (paid for), and spend about $1200 per year on gas. We live 3 miles from my husband's work so he can bike commute. I suck it up so we can stick with 1 car which would be impossible if we split the distance halfway. sigh.

keith

1. 20.5-22.5 depending on highway to street ratio. This means a mile is less than half a pint of fuel.
2. About 20K.
3. $28-32
4. Monthly, 4-5x 28-32. Ballpark $135
5. Don't know
6. Don't know

I have a 1998 Rav4, and the writing's on the wall for a replacement. When gas was pushing $4 per gallon, I started a savings program for a replacement, such that each time I fill up, I later that day transfer $50 - (fill up) to the special ING Direct account. This is why I know 1-4 off the top of my head. Since $50 was my tank cost at $4 gas, this program gives me budget smoothing for the next time gas is at the $4 level, and I'm building reserves for replacement. I would appreciate it if a bank or credit card company could set up this savings plan as an automated benefit - it would be much more useful to me than the Wachovia "Way2Save" or Bank Of America "Keep the Change" programs.

paula

1. approx 35 mpg depending on conditions.
2. 15K miles
3. approx $35
4. $70/month and $840/year
5. Best in class
6. I'm driving a camry hybrid.

I didn't buy a hybrid for years b/c the math didn't work out. I have to admit I didn't do the NPV calculation either. I could ball park it close enough with the figures I had to determine a hybrid wasn't a good ROI candidate. However, eventually I needed to get a new car. I had an accident in my Jeep and it just plain hurt to drive it even though I wanted to keep it as it was in good shape and paid for. When I went to the dealership I found a camry hybrid on the clearance lot which meant I wasn't paying the normal hybrid premium. The numbers were much closer so I decided to try it even though it was possible I was paying slightly more for the hybrid.

My life simply won't fit on a motorcycle or a tiny car so those aren't even options. There is no decent public transportation service locally or in much of America. Many of the comments I see above tout options which are not really workable for most American people's lifestyles.

Now that I have a hybrid I realize the calculations are even more complex. When faced with mandatory attendance at a family wedding, we chose to drive thus saving the air fare and rental car cost. Approx savings: $1300

On business trips where I drive, I actually make a profit at the $.55/mile expense rate.

Our vacation choice this year was made within driving distance so we could once again avoid air fare and rental car costs.

My original calculation was that I would break even on the cost difference of owning a hybrid in approximately 2.5 years. After a couple of random gas hikes, a few business trips, a vacation, and a wedding I actually broke even on my car purchase in approximately a year. Having the hybrid option added to the calculations in ways I could not have foreseen or valued correctly. I'm glad I took the leap. I may change my mind if/when the batteries need to be replaced, but the current status is happy consumer.

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Jeremy Miles

1. 46, it's very consistent.
2. about 12000 miles, in that car.
3. $30
4. I'd guess $1500. Don't know.
5. Best.
6. Already have one.

However, the purpose of driving a hybrid (to me) is not simply to save money. We have many features in our car that don't save money - most people pay more for electric windows and automatic gearboxes, they don't save any money either.

Driving a Prius (or hybrid) is partly a statement about wanting to save money by using less fuel, but it's also a political statement - it's a vote for more economical cars, and higher gas taxes.

Should you not also take into account you estimate of the future cost of gas? If you believe that gas will increase in price, the hybrid looks more economical.

Ihatelettuce

1. 38.5mpg. I calculate every time I get gas
2. 14,000miles. I drive 55miles/day just for work
3. ~$20
4. Monthly $90, Yearly $1080
5. My car rocks! 2003 Toyota Echo (but I also drive to save gas!!).
6. I wouldn't save anything! Small hybrids (not suv "hybrids") rate pretty close to mine.

This is my second car ever. When my first car was totaled I went out looking for an inexpensive car that was cute, had great gas mileage, and was around $10,000. I bought it used and got a great deal. The car had the best mileage on the lot without putting my name on a waiting list for the first Prius. I always wonder why the stopped making these cars. They're very reliable and are adorable!

assumo

I just ride my bike and the train . . . very irrationally.

Andy M

Not surprised in the least. The number of times I have had the following conversation:
Q) How many litres per 100 does your car get?
A) Dunno, but it's pretty good, gets 600km to the tank!
Q) How big is your tank?
A) What?

Sure, if a "tank" was a standardised measure, that would be fine, but given that small cars have tanks as small as 35L, and SUVs etc can sometimes be over 100, then the km/tank measure is fairly useless. Come on consumers, get crafty!

John

@12 and @15 you seriously have not driven any vehicle at all over the past year? I get $100 for gas driving my parents' cars plus a U-Haul I rented one time.

The U-Haul trip from Hell's Kitchen to the LES was surely the least efficient trip I've ever been on, covering about 5 miles with 6 or 7 gallons.

casey

Of course I do.

Edmunds Total Cost of Ownership..

Simple.. i've used it for my last two car purchases.