Gas Prices Begin a Rebound: 5 Things to Know Now Before You Buy Your Next Car

By Hal M. Bundrick CFP on 24 February 2015 0 comments

Five years ago, I traded in a nimble 500 horsepower sports car for a hulking half-ton pickup truck. That's quite a change in daily driving habits, no doubt. But I remember my biggest shock: that first visit to the gas station. It cost over $100 to fill up the truck, twice what I was used to. I felt a little twinge of dread in the gut.

It was really just psychological; the truck's gas tank was twice as big as the sports car's — they both got about the same gas mileage. But that pain in the pump stuck with me as gas prices rose for the next couple of years to about $4 a gallon.

We've all enjoyed the break in the cost of a gallon of gas over the last half year. But lately, those pump prices have begun to rebound a bit. The AAA reports the national average for a gallon of regular gas is up nearly 30 cents from a month ago, to $2.29. Though that's still more than $1 cheaper than the average of a year ago.

A lot of folks believe the pump price jump is just beginning. A national survey by the Consumer Federation of America (CFA) says most Americans believe we're going to see at least a 50% price increase in the next two years — to well over $3 per gallon — and an 80% hike in the next five years — back to near $4. Some experts are saying we're heading to $5 per gallon before too long. (See also: Best Credit Cards for Gas Rewards)

If we really think the good times of gas prices are numbered, how does that impact our next vehicle purchase? Here are five takeaways.

1. 28 MPG or Better

On average, the consumers surveyed said they would be looking for the gas mileage of their next vehicle to around 30 MPG, compared to the 25 MPG rating of what they're driving now. That's a solid step to savings. Based on the poll's price expectations, driving an 18 MPG gas guzzler would cost you nearly $5,000 more on gas over the next five years than driving a 28 MPG vehicle. Most of us keep a vehicle for an average of at least five years, and with where we think prices are headed, driving an 18 MPG vehicle would see your current $178 average monthly gas costs nearly double in five years to $325 per month. Maybe our motto should be "28 MPG or better."

2. Shop Smart — It's Not All Gravy

A hybrid vehicle can generally cost you a 20% premium over an identical conventional gasoline engine model. Electric or part-time electric models are usually even more expensive. The break-even point a couple of years ago was about four years, however these days it can take closer to eight years to recoup your investment. But as gas prices go higher, that investment break-even point will shrink once again. 

3. Green Cars Are Going for Less Green

While some consumers with short memories and unbridled optimism are buying trucks, SUVs, and other gas guzzlers while fuel prices are low, dealers are discounting the currently out-of-favor fuel-efficient vehicles, plug-ins, and hybrids. Discounts on green cars are running 15% or better, and you're banking as much as 40-50 MPG.

4. Get the Credit You Deserve

Some advanced hybrid and electric vehicles like the Chevrolet Volt and Nissan Leaf are eligible for a $7,500 federal tax credit, with additional credits available in some states.

5. Savings Are Not Just on New Cars

Cheap gas is also impacting the used vehicle market. The National Auto Dealer Association says used mid-sized and full-sized pickups and SUV prices are up as much as 5%, while midsize and compact cars are discounted that much, or more.

There's not a straight-up "final answer" on whether to go green on your next vehicle purchase. But fuel-efficient and fuel-alternative cars are getting cooler. With the introduction of the BMW i3 and the continued brisk sales of the upscale Tesla, going green has never been more popular. And keeping an eye on the MSRP and the MPG is a good way to boost your ROI.

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