Avoiding the “Herd Instinct” of Unnecessarily Anxious Americans

One of the first lessons I can remember learning from my mom was, “Don’t follow the crowd.” Her advice, of course, was focused on teaching me the difference between right and wrong and on the importance of doing right even though everyone else was doing wrong.

But not following the crowd can have a host of other benefits as well, not the least of which is monetary. Take the current gasoline price issue. Everyone, it seems, is freaking out over spiking gas pump numbers.

Some families have cancelled summer driving vacations. Some of my fellow-retirees are worried that they won’t be able to drive beyond going to the store. A lot of people are completely rearranging the way they spend money (not a bad idea anyway). But is this really necessary?

Today I heard on the news an example of the “herd instinct” to which I referred in the headline. I’m not picking on Californians, but that’s where this story came from. It seems some auto dealers there who sell high-gas-mileage hybrids are pocketing up to a $6,000 premium per vehicle (above MSRP) on the Toyota Prius and other such hybrids – because apparently people will “pay anything” to cut gas costs. Huh?

Now, wait a minute, folks. The tendency of Americans to panic in unison and flock to make questionable decisions, has always amazed me. Why in the world would a person pay a $6,000 premium, not to mention a $30,000 auto expenditure, to “save” money? Has anyone bothered to do the math?

Actually, my son Gregg did so about a year ago. With his older Caravan all worn out anyway, he bought a very nice, pre-owned Toyota Prius that he says gets about 35 miles per gallon overall average. It’s obvious he and Elaine made a wise move back then – and it holds true especially now.

But back to the math on what’s generally happening around the gas pump. Let’s look at a theoretical example. If you drive a paid-for car that gets an average 18 miles per gallon (like I do), your annual gas cost (at today’s $4/gallon national average) is $2,222 for each 10,000 miles you drive. Your car’s amortization is a separate issue and is only affected (goes UP) if you buy or lease a new vehicle.

If you DO acquire a new hybrid vehicle that averages 30 miles per gallon (like the pictured Ford Escape Hybrid I’ve looked at) your gas costs for each 10,000 miles will drop to $1,333 if gas remains at $4/gal. That’s a savings of $889 on gas per 10,000 miles.

But it cost you $36,000 for the privilege (much more in some cases), ignoring, for a moment, the plummeted trade-in value of your present gas-guzzler. Does this make any economic sense?

Now before you start yelling that commuters can drive 50,000 miles or more a year, I fully acknowledge that the situation is somewhat different if you drive a lot. However, in this example, you’d only break even after driving 400,000 miles and only begin to have actual savings after that. To put it another way, there are no savings until you’ve driven your new hybrid for 400,000 miles! How many YEARS will it take for you to drive 400,000 miles?

If gas prices continue to rise to $6/gal, as some have predicted they will by Labor Day, there will still be little cause to think about an immediate hybrid. Because even at that, the breakeven point (on a $36,000 hybrid) is at 270,000 miles. That's a lot of miles, folks, even if you reduce it by the slimmed-down value of your trade-in.

What does all this mean? By Fall, even if you drive 100,000 miles a year, it'll take you a little more than TWO AND ONE-HALF YEARS before you'll actually save money over your present vehicle (assuming the aforementioned conditions). And even if gas prices continue to rise after that, all that happens is that the breakeven mileage point will correspondingly continue to drop, but at the same slow rate.

So, if you’re like my wife and me, who barely drive 12,000 miles a year in our retirement (a lifestyle, not a car), it’s probably far better not to panic into a new hybrid and to just drive our 18 mpg “guzzler” with a light foot. It'll cost us 35-cents a mile for gas in the Fall, if all goes as predicted. When the Acura wears out, hopefully not before some time has passed, we’ll then calmly and rationally consider a Ford Escape Hybrid, rather like my son did. And we'll avoid running over the money cliff right now with the crowd.