Return of Request Monday: Car purchase under $12k

For a while, I stopped getting asked questions, so Request Monday went on hiatus.  For those who miss it, you can either ask me a question (which is what normally prompts a RM post) or visit a couple of other interesting blogs of similar nature:  Ask Umbra at Grist and Mr. Green.

Today's question came from some friends who did not give me permission to post their name, so they will remain the Tom and Trish Needacar from Chicago.  Tom has a job that requires him to drive about 500 miles a week, so they are now in the market, but can only spend about $12,000 for a new car.  They want to be as conscious of the environment as they can, so what do they do?

First, I need to make an assumption, which hopefully does not stretch too far.  If I assume a maximum cost in the neighborhood of $12,000, to me that means I will assume a maximum monthly car payment of about $225.00.  I used the rate from my credit union (3%) for a 60-month loan.  The exact cost and outcome of the analysis will vary if the term and rate change, but the relative comparison will not since I assume all of the cars will have the same term and rate of loan.

With that out of the way, I did a little shopping at Carmax to find a couple of used car options and found the following:

2005 Honda Civic ($10,500)
2005 Toyota Corolla ($12,000)
2007 Hyundai Elantra ($9,000)

All of these still get good gas mileage (around 30-35 combined city/highway), and have decent maintenance backgrounds.  Note that for this analysis, I will only consider the cost of purchase and the cost of gasoline as part of the financial analysis.  Because maintenance record varies by the manufacturer and dealer, the Needacars will have to determine their tolerance for used car maintenance versus new car maintenance.

For new cars, the only ones that fit into the budget of the Needacars are:

2013 Nissan Versa ($11,990)
2013 Chevy Spark ($12,170)
2013 Mazda 3 Sedan ($16,945)

I included the Mazda because it has the next step up in fuel efficiency (about 10% more efficient than either the Spark or Versa) and I wanted to see if that increase had any real impact on the value.  To consider hybrid and electric options, I added:

2014 Chevy Spark ($27,500)
2013 Prius c Hatchback ($19,080)

With this list of eight as the basis for the analysis, I used FuelEconomy.gov for the official combined miles per gallon, emissions and list MSRP (manufacturer's suggested retail price).  Then using a price of gasoline at $3.75 per gallon, I came up with a first year cost of ownership for driving about 25,000 miles per year.  The results are as follows:

First Place:  2007 Hyundai Elantra
It is hard to beat the lowest first cost.  At the current price of gas, the used option has the greatest value (again, ignoring maintenance costs) with better than average fuel efficiency.  Total annual cost: $4,910.64.

Second Place:  2005 Honda Civic
The low sticker price again provides value, and although the fuel efficiency - on average - beats the Elantra, the difference does not make up for the over 10% better sticker price.  Total annual cost: $5,064.33.

Third Place:  2014 Chevy Spark EV*
The surprise entry in the top three comes from the US-made electric Spark.  We should note that part of the reason for this is a generous tax credit of $7,500 that the owners must take to lower the overall purchase price (something that would take a bit of wrangling since they will need to find a way to monetize that, but it is possible).  The other piece that cannot be precisely determined is how much of the charging will be done where.  If all of the charging is done at home, then the Spark drops out of first, but if Tom's place of work will provide access to a vehicle charger, then the net cost is $5,136.05.

The rest all fall between $5,300 and $6,300 per year, with the Prius and Mazda coming in near the top and the new Versa and Spark (non electric) coming in at $5,400 and $5,500 respectively.  That puts the annual cost difference for used versus new at about $500.  Pending the warranty and maintenance deals that the Needacars can get, that gives them a starting point for comparison.

I should note that looking at the sensitivity of the analysis to the price of gas, if the price of gas climbs to $4.25 a gallon, then the Spark EV (with employer charging) holds onto its value and becomes less expensive annually than any other option.  The relative position of all other cars stays the same.  At $5.00 a gallon, the Spark EV betters the used cars by at least $500 making it cost competitive, even if Tom and Trish had to charge it at home.  Surprisingly, even a 25% increase in gas prices does not change the position of the Prius Hybrid.  It remains a better value than the cars in its class, but it cannot compete with the lower-priced options.

I will not provide a recommendation, because there are so many other factors that must go into a car purchase: comfort, size (for parking), reliability, and resale value.  Also, on the environmental side, the embodied energy of a used car getting used to its maximum has value over producing a new car from raw materials, and although this gets a little fuzzy (since its debatable that one car purchase actually prevents a new car from being made), it still is a consideration.  That said, if someone is looking to be cost and emissions conscious, the Chevy Spark EV provides a hedge against rising gas prices while still being within the total price range for a middle-class family.

* I should note that emissions-wise, the Spark EV - like all electric vehicles in the Chicago area - carries an emissions profile similar to that ove the Prius at about 50 mpg.  This is because a significant portion of Illinois electricity comes from coal.  As that changes (or if an owner charges from electricity generated only from renewables), then the emissions profile improves.