When I buy a vehicle, I usually start looking around about one to two years before I make a purchase. That way I have time to find the perfect match for my needs at a price that I'm willing to pay.
I currently have two Ford Escapes’, one for my wife and one for me. A Ford Escape is a small SUV. We have three kids but have refused to join the mini-van trend. In college, I had a sports car, but living in MN is not easy without four wheel drive and a larger vehicle for halling kids around.
The recession is creating opportunities for some and losses for other. One of the keys to successful personal finances is to always look for opportunities. Last summer, when oil prices when to $145 per barrel, my friend bought a Chevy Suburban at a price that was never before imaginable.
The collapse of GM and the increase in oil prices are once again going to push down SUV prices - at least until the inventories are reduces, at which point prices are going to spike due to the increase in commodity prices which are used to produce these vehicles. GM is in the process of selling off the Hummer brand, which will further reduce demand as people worry about who will serve the vehicle warranties.
My wife doesn’t like a lot of vehicles and for some reason she likes the Hummer. I would prefer a black BMW, but then I would have to park it in the winter and I couldn’t take the kids anywhere. A Hummer on the other hand could do all of these and would also be larger then our Ford Escape – of course we would get the smallest Hummer the H3.
We don’t drive a lot of miles per year because we live fairly close to most of the places we travel too. That allows us to purchase a vehicle with higher miles for an even better price. I like to purchase a 1-2 year old vehicle with high miles and then drive it for 7-8 years.
This strategy seems to work out the best for our low mileage needs. The only way to put a lot of miles on a vehicle in a few years is highway miles. Therefore, most newer vehicles with a lot of miles are just bairly broken in - yet they sell for 1/2 or 2/3 the value if they were new.
Cost of Gas
Because we only drive about 8k per year (compared to the national average of 12-15k), we don’t have much of an impact with higher gas prices. For example, if gas goes from $2 to $3 per gallon, our additional cost per year is only, (8k / 22 miles per gallon * $3 per gallon = $1090) - (8k / 22 miles per gallon * $2 per gallon = $727) = $363.
A H3 Hummer gets 14 miles per gallon. If gas prices increase to $3 per gallon, then driving a H3 Hummer vs. a Ford Escape will increase our gas cost per year by, (8k / 14 miles per gallon * $3 per gallon = $1714) - (8k / 22 miles per gallon * $3 per gallon = $1090) = $624. That is about $52 per month. Over 7 years, a Hummer will increase our cost of gas by $4368.
Taken together, that is a lot of money. But any other larger vehicle will increase our cost of gas to some degree.
Total Cost Per Mile
Another matrix that I like to calculate is the total cost per mile. The total cost per mile is the cost of all expenses divided by the miles driven. For example, in collage I drove a small car for 7 years and averaged $0.33 per mile.
Here is my estimated cost per mile of a Hummer
Annual insurance - $600
Annual maintenance (tires/brakes/cleaning/oil changes/etc.) - $1200
Annual gas - $1700
Cost to purchase subtracted from selling price - $20,000 - $7,000 - $13,000
Yearly Cost of Ownership = $600+$1200+$1700 + ($13,000 / 7 years) = $5,360
Cost per mile = $5,360 / 8,000 miles = $ 0.67 per mile
In Summary, here is a list of reason I'm considering in purchasing a Hummer
- Collapse of GM, drop in demand – better price
- Increase in gas prices, drop in demand – better price
- Larger vehicle for growing kids
- My wife likes them
- Luxury vehicle
On the Other Side
Ok, so I could get a good deal on a Hummer, but as you know I believe the recession will continue to get worse and its very hard to tell when we will even see the bottom until the government reverses course on its monetary policy, which Obama is just starting to realize he is going to be forced to do.
So I like to dream a little. If the economy continues to worsen and my job become a victum of the recession, then I would regret making this purchase - and we may end up selling one of our other vehicles just to survive. The recession is far from over, but if the bond market collapses sending interest rates higher and gold and oil prices spike - as they are starting to, then my investments will payoff big time and I will have the money to purchase a Hummer in a year or two when we are looking to purchase a newer vehicle.
What you do think, would you purchase a Hummer?