Chuck the Guzzler or Wait? | Green Energy News

June 12, 2008 – Vol.13 No.12

CHUCK THE GUZZLER OR WAIT?

A poll conducted by CNN/Opinion Research revealed that 86 percent of respondents in the US think that gas prices will top $5 a gallon sometime this year.

Some analysts are predicting oil above $150 a barrel this summer perhaps as soon as Independence Day. Others predict oil up to $200 within 18 months. Russian natural gas producer Gazprom thinks $250 a barrel is possible.

BP says oil speculation is not the reason for soaring oil prices. It’s low supply and high demand. The global oil company said in its new Statistical Review of World Energy that oil consumption in 2007 rose by 1.1 percent while total production fell by 0.2 percent or 130,000 barrels per day: The first decline since 2002.

The US Department of Energy says that oil should remain well above $100 a barrel and gasoline well above $4.00 a gallon through 2009.

Consumers, analysts, big oil and the government could be right.

But two analysts from Lehman Brothers say hold on, wait a second, not so fast. Oil prices could be set to fall, if not collapse by next year.

Oil consumption in Asian markets has been a big factor in oil’s price rise. But in those markets consumption may already be tumbling but we just don’t know it now and may not for months.

How can this be?

The trouble is how oil data is reported, say Adam Robinson and Michael Waldron at Lehman. Most industrialized nations release detailed data on oil production, demand and inventories on a weekly or monthly basis. But major Asian economies, such as China and India, typically release only output and trade data leaving analysts to only guess at consumption rates or oil stockpiles in those nations.

Demand destruction, as the analysts call a reduction in fuel consumption, is now becoming apparent in the United States. If Asian nations have already cut oil demand and supplies recover, then eventually oil could fall precipitously, below $100 a barrel. Gas would be less than $3 a gallon. The world would be awash once again in oil.

Of course Robinson and Waldron could be wrong too.

So whom do you believe? When is it time to dump the gas guzzler for something more efficient? It’s a matter of risk and math, but not making rash, emotional decisions. The risk is guessing whether gas prices will continue to rise, or fall dramatically in coming months or years. The math is whether it makes financial sense to dump the guzzler now or wait to the end of the vehicle’s normal replacement cycle. So regarding whether to chuck the guzzler now or to wait there are a series of questions you have to ask yourself:

1) How much can you cut back driving and save gas without trading the guzzler?

2) What is the guzzler worth as a sale or trade?

3) How much do you owe on it?

4) How much equity do you have in it? (Sale value minus what you owe.)

5) If you have a lease what will it cost to get out of it?

6) Does it need any major repairs or maintenance?

7) How much is it costing you per month, per year in fuel?

8) How much will you be paying if fuel costs rise?

9) What do you pay in insurance and maintenance for the current vehicle?

10) What would you replace it with? New or used?

11) What’s available in your local market?

12) How far are you willing to travel to buy something outside your market?

13) How much are you willing to pay for the new gas sipper?

14) Are you willing to pay a premium for the more efficient vehicle?

15) Is there a tax credit still available for a hybrid you might be considering?

16) What’s the expected fuel economy of the gas sipper you might buy?

17) How much would you expect to spend on fuel for the gas sipper for a month or year? (Use a variety of fuel per gallon costs in your calculations, even as high as $8 a gallon.)

18) What would be the insurance cost on the new vehicle?

19) If used, what might you be willing to spend on repairs on the gas sipper?

So get out a pad of paper and begin your calculations. In the US websites like the US Environmental Protection Agency/ Department of Energy’s Fuel Economy.gov can help in determining fuel cost scenarios. Kelly Blue Book and NADA Guides can help in determining new and used vehicle values. Sites like Cars.com and Autotrader can help search for new and used cars. And all the manufacturers have web searches for new vehicles.

Buying a new car is something you should do because you want to, not because you feel you have to.

Right now there is no shortage of fuel, just high prices.

A major, oil rig and refinery damaging hurricane in the Gulf of Mexico would certainly put a spike on the tip of oil prices and gas at the pump. But it would be just that, a spike.

For now, unless you’re planning to buy a new vehicle anyway it might be better to hold tight for awhile and cut your fuel consumption in other ways. There will be more high fuel economy vehicle choices available in the showrooms next year or perhaps by the Fall. Toyota, for instance, is promising a plug-in hybrid Prius, but not until 2010.

Ask the questions, do the math, then decide whether to ditch the guzzler now or wait.

Links:

US DOE Fuel Economy
http://www.fueleconomy.gov

Cars.com
http://www.cars.com

Auto Trader
http://www.autotrader.com

Kelly Blue Book
http://www.kbb.com

NADA Guides
http://www.nadaguides.com