So I threatened in my earlier post to compare the operating costs of three Toyota vehicles, the Matrix, Corolla and Prius. I chose those three cars because I have firsthand experience with them. I still own a '99 Corolla (102,000 miles, baby, and still going strong!) and J drives a '04 Maxtrix (90,000 miles).
However, the April 2010 edition of Consumer Reports* makes the comparison pretty easy for me, and actually solved the problem of what category a Prius actually falls into. Right now, Consumer Reports classifies it as a family car with a price tag of around $26,750 and a cost per mile of 47 cents. This is comparable to a Volkswagen Jetta ($23,939, 48 cents per mile). A Toyota Camry has a price tag of about $22,850 and a price per mile of 53 cents. The cost per mile, by the way, includes depreciation, fuel costs, insurance premiums, interest on financing, maintenance/repairs, etc.
The Toyota Corolla LE, which is a more upscale version of the one I own (a CE) is $16,205 with a cost per mile of 45 cents. So yes, it would be cheaper for me to own an LE by about 2 extra cents per mile, but it would be a small car comparatively and that's not what I wanted. Unfortunately, Consumer Reports didn't provide a cost per mile for the Toyota Matrix, so I can't offer you that information right now.
Overall, the Prius has one of the lowest cost per miles provided by Consumer Reports. The really high costs -- over $1/mile -- belonged to cars most of us can only dream about such as the Mercedes-Benz S550 at a whopping $1.70/mile and the Porsche 911 Carrera S at $1.53/mile. The Mercedes-Benz, btw, is the most expensive car to operate. The cheapest looks like the Honda Fit at 42 cents per mile. The most expensive small SUV is the Land Rover LR@ SE at 83 cents/mile and the most expensive mid-sized SUV is the Jeep Commander Limited (V8) at $1/mile. The car that surprised me the most was the Honda Civic, which came in at 58 cents/mile and the Dodge Charger at 71 cents/mile. I always thought of the Civic as a more economical, fuel-efficient car, so it surprises me how much more expensive it is per mile compared to the Corolla. I think a Fit might be a better value and I anticipate (though I don't know for sure) it might be a bigger car.
I would probably have to redo my cost per mile for the Prius as mine was nowhere near the $26,750 price tag listed in Consumer Reports. I suspect my cost would probably drop 2 to 3 cents as a result. I was also pleased to find out that Consumer Reports has my model -- the 2009 -- selling at $20,000 to $24,000 used, which means given what I paid for mine, I could sell it today and actually break even or come out slightly ahead.** I don't think that's a bad deal. Maybe I should take back my earlier statement about cars not being a good vehicle for investment...
*I think most of you know this, but I'm using Consumer Reports as an independent reference; no money is changing hands here -- we pay for our subscription. Second, I'm not being compensated by Toyota in any way; after 10+ years of driving Toyotas and having 5 of them in the family, I'm just a very loyal consumer. **My Prius is not impacted by the recall as it was manufactured in Japan (vin number starting with J).
That this was coming was nothing short of obvious: these countries are building their economies on $100/barrels of oil so if demand falls, their only option is reduce production. OPEC decides to curb overproduction. And no, offshore drilling is not the answer.
I read this article last week in Calgary called "The Cost of the Next Barrel of Oil." The article is now only pay-per-view and/or available through google cache, but the really interesting part of the article is here. It talks about where oil companies are going to look for the next barrel, the issues, struggles, successes, and results of it, and some of the trends going on. Example:
"Cost of technology in the Gulf of Mexico: The added depth adds to the cost. While it costs around $1-million (U.S.) a day to hire a rig to explore in shallow water, Chevron is spending about $1.6-million a day for a deep-water drill ship to work on its Tahiti prospect; it costs around $200-million to drill a single well in the area. Analysts estimate that to produce a barrel of crude from the ultradeep area would cost above $50 a barrel."
It's definitely worth a read, but click fast -- who knows when it will turn into pay-per-view only.
The latest "high gasoline price" spin has been the drop in truck and SUV sales. I'm happy to hear this. No one needs a Hummer to go grocery shopping. And no, I don't feel sympathy because people are paying $100+ to fill up those things because low gas prices are what encouraged people to shift to the suburbs and buy gas guzzlers, thus increasing our consumption rate here in the US. So that's the upside of high gas prices -- people are shifting their behaviors and thinking about conserving and to an extent, environmentalism. Problem is, we've been there done, that before, and succeeded in bringing prices so low that people forgot about being held hostage to OPEC. Let's hope that doesn't happen again.
I've given up explaining the economics of high gas prices to people. Truth be told, I'm not an apologist for the oil and gas industry, even though that's what's been keeping me gainfully employed for the last five years, but there are many things the industry does that I don't approve of, but price manipulation isn't one of them. Price manipulation is what people come up with when they are unwilling to face the plain and simple truth -- consumption is coming to bite us all in the butt. You combine consumption with any number of geopolitical factors (Hello Iraq! Hello weak US dollar! etc) and the price of oil is going up and it's going to keep going up. I think we're going to see $4 gasoline in the next 2-3 weeks easily, if not by the end of the Memorial Day weekend. I think it's going to keep going up all summer and no gas tax holiday is going to stop it.
I find it fascinating that ordinarily intelligent people just refuse to believer or understand in the concept of supply and demand. I find it amazing that they believe that oil prices are US-centric rather than existing in a global market where the US is no longer the prominent, influential player it once was. I think people refuse to understand because it's difficult, it's complicated, and they don't want to have to make sacrifices. It reminds me a lot of that book -- "What's the Matter with Kansas?" -- where the GOP made in-roads in Kansas by focusing on a "simple" issue: abortion. It was easier for people to focus on abortion rather than the economic issues and as a result, Kansas went red, when in truth, going blue is probably best for most people there. That's how I feel these days when I'm trying to explain the new oil economy -- people could understand, but they don't want to, especially since the explanation invariably means some kind of sacrifice on their part.
So I've decided to stop explaining because it takes too much effort and no one really cares about complex situations that have no easy answers. If people really want to understand, they will make an effort. But most people like the idea of price manipulation -- even though it's patently false -- because it's simple to understand, even if there is no basis in reality. "Price manipulation" is a great bandwagon for politicians to pander and it allows people to shift "blame" to the oil companies, rather than focusing on why they're driving 80 mph in a Hummer in an urban area that looks nothing like a war zone.
Some of the most expensive gasoline in the world is in Sierra Leone. Cost is somewhere in the neighborhood of $18 plus a gallon. My mind boggles at the very idea that it could cost $180 to fill my Corolla or a total of $720/month.
I looked up Sierra Leone in the CIA Factbook because all I know about the country is the blood diamond thing and civil war thing and that I believe it's in western Africa. Literacy rate is 35.1 percent (US = 99 percent). The country's a constitutional democracy, which surprised me because I was sure it was a dictatorship of some kind as 70 percent of its population lives below the poverty line (12 percent in the US). Sierra Leone's GDP is $4.83 billion (US = $13.86 trillion) but it has a higher growth rate than the US -- 6.8 percent versus 2.2 percent -- but then Sierra Leone has to deal with an inflation rate of 12 percent versus 2.7 percent in the US.
In 2007, Sierra Leone's GDP per capita was approximately $800 -- or about the amount it would cost to fuel a Corolla for one month. Comparatively, the US GDP per capita is $46,000, which is very close to the average income for an American family. In Sierra Leone, the average income is $200. You put all that together and look at $18 plus a gallon and then you think about what it might cost to feed a family on $200/year and just... wow.
I've seen mention of a gasoline tax holiday here and there, and seriously, it's one of the lamest political moves ever. Today, taxes over all make up 13 percent of a gallon of gasoline; crude itself is 72 percent. Back in January of 2000, taxes (federal, local and state) made up 32.1 percent of the price of a gallon of gasoline and crude was 47.1 percent. The world price for crude back in January of 2000 was between $23 and $25. In April of 2008, the price has ranged between $103.46 to $118.53/barrel (ignore the hijinks during the day -- it's the closing price that matters). In January of 2000, the average price for a gallon of gasoline was $1.50.
If you look at January of 2000, we paid approximately 48 cents per gallon in taxes. Average price in April of 2008 is $3.50, and we pay approximately 45.5 cents per gallon in overall taxes. Federal taxes -- which is what the gasoline tax holiday is all about -- are 18.4 cents* per gallon so the rest of the 45.5 cents goes to local and state taxes. You slice out the 18.4 cents and you drop the price of gasoline to around $3.32 for about 3 minutes, because the fundamental problem still remains -- the price of crude is what's going up, not the taxes which are a fixed cost (not to mention it would be politically unpopular to raise taxes on gasoline, even though personally, I think it might be a smart idea).
The proposed federal gas tax holiday would go from Memorial Day to Labor Day, which is approximately four months. Indulge me and pretend for a moment that the price of crude doesn't go up during the driving season. So someone like me with a fuel-efficient vehicle and a 10-gallon tank who fills up four times a month would save somewhere around $30 for the duration of the gas tax holiday. I can save that much by just eliminating two dinners out a month or heck, just waking up early enough so I don't take the toll road to work. And note from the exercise above -- it's the price of crude that's causing the pain, not the taxes. And crude's going to keep on going up and up unless we change our behavior, and that's not going to happen at all.
The taxes go to a highway fund that helps with road construction. When you have no funds, you have no road construction. When you have no road construction, you lose jobs. We don't want to lose jobs so we have to make up that shortfall *somewhere* and guess where the money comes from? Ding ding ding if you guessed China or some other foreign entity. The US is so deep in debt right now that China et al essentially owns our collective butt and that doesn't help with the value of the dollar.
So, in a nutshell, the gas tax holiday is stupid because:
1. In the grand scheme of things, most drivers won't be saving that much money to make a significant difference in their economic situation
2. Reducing the price of gasoline through government intervention will not change behaviors; instead, a reduction will influence people to drive *more*, thus driving up the price once again, essentially negating whatever savings might have been gained through the gas tax holiday
3. The US has to borrow money to finance this hare-brain scheme, which means we, as a nation, we're even deeper in debt and while I'm no economist, I'm pretty sure that doesn't help with the weak US dollar
I want to point out that crude is priced in dollars and for every 10 percent decrease in the value of the dollar, crude rises $4. I haven't figured out the exact way our debt figures into the devaluation of the dollar -- I only know how it impacts my daily life. What we need is a stronger dollar, less consumption on our parts, and then maybe we'll see a meaningful impact in the price of fuel. But the gas tax holiday, now that's just stupid pandering by politicians -- including *my* candidate -- who really want to be president.
Taxes on diesel are approximately 24.4 cents, so if you're driving a diesel vehicle you'll save around $40 for the gas tax holiday
The US government has one of the best websites out there on energy issues and prices. Check out this link to learn what the price of a gallon of gas is composed of. It's pretty easy to read and understand. The bottom line is, if we see $70/barrel any time soon, I'll be surprised. It wasn't too long ago that I thought $50/barrel as the ceiling was crazy. Now I'm anticipating $110/barrel in the not-so-distance future. My concern is demand destruction if we see $105-$115 range for more than 6 months and the effect on the world economy. My suggestion? When you get your tax rebate, bank it or pay down debt. Don't spend it on things you don't need. The two things might not seem related to you, but the higher those prices go, the more likely it is our economy is going to slow down even more than it already has.