Should you downsize?

Should you downsize?

With gasoline prices stretching toward $4 a gallon and beyond, many Americans are thinking about trading in big cars for something a little more fuel-efficient. In a recent poll conducted by the Consumer Reports National Research Center, more than twice as many consumers said they’d choose a small car as their next vehicle, as would choose a small, midsize or large SUV; a minivan; or a pickup.

But there’s a lot to consider before you decide to trade in your old gas guzzler:

First, how much utility are you willing to sacrifice in the quest for mpg? You might save thousands of dollars a year trading your Suburban for a Subaru, but if you can’t fit everybody in to go on vacation, you’ll likely be miserable and want to trade back as soon as gas prices go back down.

Second, how much gas will you really save? Will the new car really get the mpg you want? We’ve found in our testing that real-world overall mpg (combining city and highway mileage) is often considerably less than the EPA highway mileage figure that manufacturers advertise.

Third, and most importantly, will the money you save on gas make up for the increased depreciation on buying a new car? In our previous analysis, we’ve found that downsizing to a new car rarely pays off, unless you’ve owned your car for several years and were planning on buying a new car anyway.

To really understand the financial impact of trading a car for a smaller model requires understanding the factors that go into cost of ownership more broadly. Consumer Reports calculates owner costs for every vehicle on the market. The factors that go into our owner cost estimates include:

Depreciation (calculated from CR's Auto Price Service data).

Fuel costs (based on 12,000 miles a year, Consumer Reports real-world overall fuel-economy test results, and our estimate of the national average gasoline price of $3.60 a gallon).

Interest on financing (national average rates from 2005 and 2008, applied to 60-month terms).

Insurance costs (derived from quotes and Insurance Institute for Highway Safety data).

Maintenance and repair (based on survey responses from 675,000 Consumer Reports and ConsumerReports.org subscribers).

Sales tax (based on the national average)

Operating expenses, such as fuel, insurance, maintenance, and repair costs slap you in the face every time you write a check. But the other expenditures, known as carrying costs, are more subtle. They slowly erode the value of the car-and your bank account- over time.

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