MPG: Two vehicles boost fuel economy by 3 mpg; one saves $5,500 more. Why?

 In CEO's Corner, Inside FleetCarma

Today’s a quick post using fuel economy (mpg) numbers to estimate potential gas savings.

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More specifically, this is about a common mistake.

Let’s say you’re considering two options:

  1. Replace your SUV with a new one that gets 3 mpg better.
  2. Replace your commuter car with a new one that gets 3 mpg better.


Which option will save you more money?

For this simple example let’s assume both new vehicles would be driven the same distance over their life. And let’s set aside the “Your Mileage Will Vary” problem (yes, I know, I am holding my breath as I write that) and assume the 3 mpg bump will be seen in real-world application.

Running the numbers for option one, bump fuel economy by 3 mpg in a large SUV:
(200,000 miles) / (15 mpg) * ($4/gallon) = $53,333
(200,000 miles) / (18 mpg) * ($4/gallon) = $44,444
Savings = $8,889.

Option two, bump fuel economy by 3 mpg in a compact car:
(200,000 miles) / (25 mpg) * ($4/gallon) = $32,000
(200,000 miles) / (28 mpg) * ($4/gallon) = $28,571
Savings = $3,429

…if your next car won’t rack up 200,000 miles over its life, or if you don’t feel that $4/gallon is the right price, ok. The point of this post isn’t to debate those numbers. The point is to show that the impact of increasing fuel economy by 3 mpg on your wallet depends heavily on what your starting point is (in fuel economy terms).

So in a way, fuel economy & fuel savings is a bit like flipping houses.

Taking a decent house and re-doing the kitchen will get you a bit of money, but not a lot. Instead, the big-money opportunity is in taking the decrepit house and revamping it. And in this case, the 1996 gas guzzling truck is the real-estate equivalent of that run-down house of the corner with the floral wallpaper.

ps. for the math-nerds in the group that want to know why mpg and fuel savings work this way, I’ve put the curve of fuel costs versus mpg. As you can see, the curve is far from straight. Increasing from 10 to 15mpg has a much larger impact than 35-40 mpg.

Gas costs for increasing MPG[/caption]
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