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Controlling the High Cost of Fuel

Financial Planning

July 2008

Controlling the High Cost of Fuel

This space is not typically taken up with discussions of automobiles and gasoline, but these are not normal times – at least for motorists. With the nationwide average cost of gasoline exceeding $4 per gallon, the typical U.S. consumer is feeling real budgetary pain. Add to that the cost of food and other products transported by petroleum-powered vehicles and the cost of living is putting a strain on many Americans.

While politicians debate whether we should drill or not – and where - it seems an opportune time to revisit an issue our newsletter raised several years ago: the value of hybrid vehicles. Our conclusion at the time was that hybrids were not a source of savings, but actually cost more than their traditional competitors. The savings in fuel costs simply did not offset the increased cost of the vehicle, but times have changed. With the cost of fuel nearly doubling, it’s time to take a new look at the value of hybrid vehicles.

Please note that this article is in no way intended to endorse, or not endorse, any particular vehicle. The following vehicles were chosen only because of their inclusion in the Edmunds top ten hybrid vehicles. Other companies’ vehicles should also be considered whenever you consider purchasing a new car.

The Competitors

To test the current economy of hybrid vehicles, we looked at two of the higher-rated vehicles, according to Edmunds. We chose the Chevrolet Tahoe Hybrid and the Toyota Camry Hybrid. The Tahoe Hybrid manufacturer’s suggested retail price (MSRP) for 2008 is $50,490 and the Camry MSRP is $25,200. A comparable traditional Tahoe’s MSRP is $46,540 and the traditional Camry goes for $21,590.

The Statistics

The Chevrolet Tahoe Hybrid is rated at 20 miles per gallon in both city and highway driving vs. the traditional Tahoe, which rates 14 miles per gallon in the city and 20 miles per gallon on the highway.

The Toyota Camry Hybrid is rated at 33 miles per gallon in the city and 34 miles per gallon in highway driving vs. the traditional Camry that rates 21 miles per gallon in the city and 31 miles per gallon on the highway.

Tax Considerations

The Chevrolet Tahoe Hybrid still receives a $2,200 federal tax credit for fuel-efficient vehicles while the Toyota Camry no longer has any available credit. In all, 13 vehicles still qualify for some form of credit if the vehicle is purchased before the end of 2008. This does not take into account any credits that may be offered by various states.


The nationwide average for a gallon of unleaded gas on June 30, 2008 was $4.095. Assuming you drove your vehicle 10,000 miles per year, with 40% of that being highway usage, you would find the following:
  1. The net cost of the Tahoe Hybrid (cost of vehicle, less tax credit plus fuel cost) would be $58,528 versus $58,533 for its more traditional cousin.

  2. The net cost of the Camry Hybrid would be $31,295 versus $29,453 for the traditional Camry.
The comparisons in 2008 between hybrids and traditional vehicles are much closer than they were several years ago. When you add to this that some insurance companies are beginning to give discounts to owners of hybrid vehicles, the hybrids become equal to or less expensive than the traditional vehicles with which they compete. This suggests that, when replacing your current vehicle, you might want to consider purchasing a hybrid - for both the environment and your pocketbook.

Life’s Realities

It would be great if all you had to do was trade your gas-guzzler in for a new hybrid, but most of us don’t have that luxury. What, then, can you do to reduce your gasoline consumption instead? Here are a few tips:

Slow and steady sometimes really does win the race. Studies by Edmunds and Consumer Reports suggest that less aggressive driving can save gasoline and money. According to Edmunds, you can save up to 37 percent on your fuel consumption simply by driving moderately (light foot on the accelerator and longer stopping distances) and up to 14% by driving slower speeds.

Setting the car on ‘cruise control’ when driving keeps the vehicle at a steady speed and can help conserve a fair amount of gas.

Idling for too long can be an unnecessary waste of gas. While it is not possible to control traffic signals, you can limit the time you keep your car running at a store or in other parking situations.

Failure to keep your cool does not necessarily save much gas. Years ago, the load placed on an engine by the air-conditioner probably did cost more in terms of gasoline usage, but today the cost is only minor, so go ahead and use your air-conditioner.

Parting Thoughts

Whatever the reason, the cost of gasoline has skyrocketed recently and doesn’t show signs of dropping anytime soon. There are a number of ways to minimize your fuel costs by either acquiring a newer and more efficient vehicle or at least changing your driving habits. Regardless of your position on global warming, it just makes good economic sense to minimize your costs by conserving gasoline. Good luck and have a great July 4th.

These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact their CPA regarding the topics in these articles.

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