Fuel prices vs. car prices

I filled up the hire car today. It had a quarter of a tank remaining, but my obligation as a hirer is to fill it up if it dips below that level. So I did. It cost £67 for standard unleaded, at 137.9p per litre. (BTW, that’s £6.27 per gallon in old money, as my dad, and oodles of other dads, still say to this day.) That would make it around £89 for a full tank by my reckoning. Ouch.

I got to thinking about what fuel efficiency was worth when purchasing a new car.

Having done the analysis it seems that, to me, marginal fuel efficiency has a surprisingly small impact on the cost of car ownership. At 12,000 miles per year, a car running at 40 miles per gallon will guzzle 300 gallons per year at a cost of £1,880.72. At 41 mpg, the cost will be £1,834.85, an annual drop of a mere £45.87, less than a pound a week. And obviously, as the mpg increases, the marginal price differential of a single extra mpg reduces. So the difference between the fuel costs for a 50 vs. 51 mpg car falls to £29.50.

So assuming depreciation over five years and other things being equal, a new car offering 45 mpg can justify being priced £1,044 higher than one offering 40 mpg.

Now switch your attention to the gas guzzlers. A car running at 10 mpg will cost £2,507 more per year to run than one running at 15 mpg, so the more fuel-efficient 15 mpg-er can justify a price tag £12,538 higher than the 10 mpg-er. As an aside, for such cars to average 12,000 miles per year, the school to which the car is driven twice daily would need to be 15.8 miles from the home. 😉

(Environmental arguments were left to one side in the writing of this post.)

Comments

5 Responses to “Fuel prices vs. car prices”

  1. Peter on March 8th, 2011 00:06

    It’s not that long ago that the Green party in the UK suggested that putting the price of fuel up to £5 per gallon would put people off driving. We’re beyond that now.
    A short while before that, the Austin Metro boasted about averaging 45 mpg.
    They should link fuel efficiency demands to inflation.

  2. Nicola on May 10th, 2011 15:41

    please can you do the math for me. I chopped the gas guzzling Merc (average 24mpg) for a modest Mini (average 45 mpg).

  3. nicola on May 11th, 2011 12:35

    btw……

    “It had a quarter of a tank remaining, but my obligation as a hirer is to fill it up if it dips below that level”

    therefore surely you only had to put in a couple of quid to get it back over the quarter mark – not £67?

    Please explain….

  4. Dan on May 11th, 2011 12:37

    You pay for the fuel using an onboard credit card. So it matters not to me whether I fill it up or add £2-worth, apart from the time taken. As a nice chap, I always fill it up to save the need for the next person to have to stop for fuel.

    🙂

  5. Dan on May 12th, 2011 16:50

    Nicola,

    You will save £1,218.98 per year on fuel, £250 on insurance and £200 on road tax, totalling £1,668.98 per year.

    You will recoup the £7K you lost on the Merc in four years, two months and ten days.

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