Could Gas Cost More Than Your Car?
A major story on the NBC Today Show was about the sharp rise in the price of gasoline. One “expert” claimed that, unless you have a very fuel-efficient vehicle, over a car’s lifetime gasoline will cost you more than the purchase price. Really? Say a new car costs $20,000, and is driven for 10 years, 12,000 miles/year. If gasoline is $4/gallon, and the car gets a paltry 24 miles/gallon, today’s average for new cars, gasoline costs $20,000. So, even without discounting, the “expert” is wrong.
Even if gas were $5/gallon, unless one discounts the future at a rate below 1 percent, the present value of the gasoline purchased is less than the price of the car. I doubt that there are many new vehicles for which the expert statement is true, even if gas prices rise permanently far above the current price. I do wish so-called “experts” knew the basics of Econ 1.