If Your Gas Guzzler Is Financed - Don't Trade It Just Yet!
George Boelcke FCI
June 11, 2008
The pain at the pump and the reality of $4 gas has hit everyone driving an SUV or other gas guzzler the hardest. 15 miles to the gallon has become a huge pain in the wallet as a tank of gas goes north of $80 or $100.
Many of those people are becoming desperate and looking for a way out – any way, and at any cost. If that´s you, but your SUV is financed, stop and think before doing something that can potentially make things worse and not better.
While the pain of the current gas prices are hitting you hard, there are hundreds of thousand of other people in the same boat, and the rest of the world sure isn´t interested in buying your gas guzzler right now, at almost any price.
Reports show that the price of used SUVs has dropped around 20 percent just in the past few months for that exact reason: All sellers – no buyers. In fact, many dealers won´t even take them on trade because they know how tough SUVs will be to re-sell, and the profit on your new, fuel-efficient vehicle won´t make up for the loss they may take on your trade.
First, do some basic math before hitting the panic button and running to the nearest dealer. You´ll need to calculate the shortfall of what you owe versus what the vehicle is worth. A call to your lender (or leasing company for the early payout) will get you the former. Now you´ll need to get a real figure of your vehicle´s value. That is not the "for sale" figures in the paper or on-line. Like houses, the sale price is NOT what someone may pay for it. There is the "wish" price and the "real" sale amount. You will need an actual sale comparison on a similar year, make, model and options vehicle from an advertised vehicle that´s sold, or the cash price a dealer will pay you. The difference between these two figures is the shortfall.
If you didn´t have much of a down-payment and the vehicle is three years old or less, you will likely be short, under-water or upside down by $10,000 or more. What are you currently spending on gas in a month? With that figure, let´s assume you had a much more fuel-efficient vehicle at double the gas mileage. Now take half of your monthly gas costs and divide that amount by $10,000. That´s how long it will take you to make up for the loss of your SUV sale alone!
For example: You´re currently paying $400 on gas a month, a new vehicle may cost around half of that, or $200. The $10,000 loss on your SUV divided by the $200 a month in savings means 50 months, or more than four years, before you´ve recovered your losses! And, let´s be honest: If you didn´t have the huge payments on that SUV, wouldn´t you have much less of a problem justifying the gas price? Yet, you´re closer to having it paid off than starting from scratch.
But it gets worse: The shortfall on your current vehicle is another big lesson that vehicles never go up in value, that the best payment is no payment, and your vehicle shouldn´t be a financial nightmare. Yet, you may be prepared to buy another new vehicle with no down-payment AND part with that huge shortfall or hide it by over-financing the new one? Let´s take an inexpensive $20,000 car. Yes, it´ll be good on gas, but it will also depreciate 20 to 30% in the first year. The minute you drive it off the lot, you´re out another $6,000 along with the $10,000 or so shortfall from your trade.
The end result: $10,000 or more short on your SUV, another $6,000 or so for the new vehicle, and payments stretched for years more. Even if you are considering a hybrid, keep in mind that some of them have a payback (the time to get back the difference between the hybrid price and a regular gas engine) of more than a decade!
Don´t do it! Your math may be different, the amount you owe may be less, and you may have become smart and never buy a new vehicle again. But do the five minutes of math before jumping into the sale of your SUV, and read the vehicle chapter of the It´s Your Money book. If you had read it before buying that gas guzzler, that $15 book would now have $10,000 or more in your pocket.
Many of those people are becoming desperate and looking for a way out – any way, and at any cost. If that´s you, but your SUV is financed, stop and think before doing something that can potentially make things worse and not better.
While the pain of the current gas prices are hitting you hard, there are hundreds of thousand of other people in the same boat, and the rest of the world sure isn´t interested in buying your gas guzzler right now, at almost any price.
Reports show that the price of used SUVs has dropped around 20 percent just in the past few months for that exact reason: All sellers – no buyers. In fact, many dealers won´t even take them on trade because they know how tough SUVs will be to re-sell, and the profit on your new, fuel-efficient vehicle won´t make up for the loss they may take on your trade.
First, do some basic math before hitting the panic button and running to the nearest dealer. You´ll need to calculate the shortfall of what you owe versus what the vehicle is worth. A call to your lender (or leasing company for the early payout) will get you the former. Now you´ll need to get a real figure of your vehicle´s value. That is not the "for sale" figures in the paper or on-line. Like houses, the sale price is NOT what someone may pay for it. There is the "wish" price and the "real" sale amount. You will need an actual sale comparison on a similar year, make, model and options vehicle from an advertised vehicle that´s sold, or the cash price a dealer will pay you. The difference between these two figures is the shortfall.
If you didn´t have much of a down-payment and the vehicle is three years old or less, you will likely be short, under-water or upside down by $10,000 or more. What are you currently spending on gas in a month? With that figure, let´s assume you had a much more fuel-efficient vehicle at double the gas mileage. Now take half of your monthly gas costs and divide that amount by $10,000. That´s how long it will take you to make up for the loss of your SUV sale alone!
For example: You´re currently paying $400 on gas a month, a new vehicle may cost around half of that, or $200. The $10,000 loss on your SUV divided by the $200 a month in savings means 50 months, or more than four years, before you´ve recovered your losses! And, let´s be honest: If you didn´t have the huge payments on that SUV, wouldn´t you have much less of a problem justifying the gas price? Yet, you´re closer to having it paid off than starting from scratch.
But it gets worse: The shortfall on your current vehicle is another big lesson that vehicles never go up in value, that the best payment is no payment, and your vehicle shouldn´t be a financial nightmare. Yet, you may be prepared to buy another new vehicle with no down-payment AND part with that huge shortfall or hide it by over-financing the new one? Let´s take an inexpensive $20,000 car. Yes, it´ll be good on gas, but it will also depreciate 20 to 30% in the first year. The minute you drive it off the lot, you´re out another $6,000 along with the $10,000 or so shortfall from your trade.
The end result: $10,000 or more short on your SUV, another $6,000 or so for the new vehicle, and payments stretched for years more. Even if you are considering a hybrid, keep in mind that some of them have a payback (the time to get back the difference between the hybrid price and a regular gas engine) of more than a decade!
Don´t do it! Your math may be different, the amount you owe may be less, and you may have become smart and never buy a new vehicle again. But do the five minutes of math before jumping into the sale of your SUV, and read the vehicle chapter of the It´s Your Money book. If you had read it before buying that gas guzzler, that $15 book would now have $10,000 or more in your pocket.
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