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Wednesday, November 19, 2008

Gas Guzzling SUV's- Bombs or Bargains

Chismillionaire votes Bargains. Lots of Capability, Lots of Room. Any alternative fuel is going to work with the motors. Hybrids, all electric and diesel would be perfect applications. We're big people, with a big country and lousy roads with lousy weather in places. Anytime someone is going to take ten thousand or more dollars off the price and it is something that will only take five years to pay, that my friends is arbitrage!

Gas prices are way down and incentives on gas guzzlers are way up. It's the perfect storm for right-thinking Americans who believe any vehicle weighing less than 5000 pounds is too sissified for consideration, because now the gas guzzlers are the cheap wheels. In your face, Prius lovers!

Of course, this glee could be short-lived. At this moment, gasoline prices in the U.S. are averaging $2.17 for a gallon of regular. One month ago, the national average was $3.11 a gallon. Could gas prices rise again just as quickly as they fell?

Not likely, says Gregg Laskoski, public relations director for AAA South. "As long as the demand stays down, prices should stay lower," he says. "And the demand is still down by about five percent." Suddenly, that jumbo SUV starts to look like less of a pariah and more of a deal.

Running Some Numbers

Consider the Toyota example. A 4Runner with the 4.7-liter V-8 and four-wheel drive lists for just under $33,445, but with discounts and rebates—the 2008 model has $2500 cash back, which is huge by Toyota standards—you should be able to buy them all day for $28,500.

The Toyota Highlander hybrid lists for almost exactly the same price as the V-8 4Runner, but good luck finding one at the sticker price of $34,945. For the sake of argument, we'll pretend you can.

The EPA rates the 4Runner at 15 mpg combined, the Highlander hybrid at 26. With gas prices dropping so rapidly in the past couple months, let’s assume a gallon of regular stabilizes between today’s price and what it was a month ago, at $2.64. Driving 15,000 miles a year, you'll spend $2640 a year on gas for the 4Runner, $1523 for the Highlander, a savings of $1117 a year.

Figuring that you can buy the 4Runner for at least $6000 less, you'd have to drive the Highlander for 5.5 years to break even. By then, President Obama will be well into his second term and alternative energies will have rendered gasoline obsolete. Your backyard spigot will dispense it nearly free of charge into your guzzler. Right?

Buzzy Four-Cylinder or Cushy School Bus?

For another example, let's look at the Ford SUV lineup. Sales of the Ford Expedition are down nearly 40 percent this year from 2007, and 2007 wasn't a great year. We'll compare that to the little Escape hybrid.

The front-wheel-drive Escape hybrid lists for $30,030—again, if you can find one. A rear-wheel-drive Expedition XLT with the 310-hp, 5.4-liter V-8 lists for $33,745. Our local Ford sales manager said we could expect to get maybe $6500 off that price, which would be $27,245. The difference: $2785, in favor of the Expedition.

Using the same gas price of $2.64 for a gallon of regular, the Expedition’s 16 mpg means it would cost $2475 to drive 15,000 miles. The Escape hybrid should average 32 mpg, and consume $1238 a year for gas.

At that rate, it will only take 2.2 years for the Escape hybrid to make up the difference. But looking longer term, over five years, the Escape owner will spend $6188 on gas, the Expedition XLT owner, $12,375. That's $6187 more. But subtracting the initial savings at purchase, the Escape hybrid owner is only $3402 ahead after five years. That's $680 a year—$13.08 a week—which doesn’t sound so bad if you need a full-size SUV with 310 horsepower, eight seats, and a towing capacity over 8000 pounds.

It’s the word “need,” though, that gets sticky for some. With 401(k)s tanking, there are few people across the country who couldn’t find some use for an extra $3402. The Escape buyer’s use might start with driving another 41,236 miles—the distance $3402 in gas would buy him.

Regardless, this is a buyers’ market unlike any we've seen in a very long time. Toyota is already laying a $1500 rebate on the nose of the 2009 Camry, just one indication of how almost every manufacturer will go to extremes to get your business. And if that business involves the need for an SUV, now isn’t such a bad time.