Downsizing: Choosing a used car to save gas and money

As we've seen in earlier installments of this car downsizing series, trying to save money by trading in your aging gas-guzzler on a new, more fuel-efficient car may not deliver the instant savings you crave. The reason being, the depreciation on a new car can more than wipe out the savings from gasoline and repairs. Consequently, the easiest way out of the depreciation trap is to buy a good used car instead.

Say you have a 2006 Ford Explorer that's now five years old. Based on our tests, the 4WD, V6-powered Explorer gets 15 mpg, and that means the typical driver is paying almost $3,000 a year in gas to drive 12,000 miles at recent fuel prices.

Trading the Explorer on a 2011 Toyota RAV4 that gets 23 mpg overall could save you about $1,000 in gas a year. But the RAV4, which would run about $26,675 including a 5% sales tax, would cost you more than $5,800 in depreciation the first year. Despite the benefits at the pump, that deal wouldn't bring real savings.

But if you bought a used 2008 RAV4, for $20,600, (a fair price, according to our data), you could actually save a little money going forward. Our owner cost calculations estimate the savings at about $1,700 over the next three years, when all is said and done.

Clearly, it's a fine line whether trading for a newer, more efficient car will help you save money. A lot depends on how much your old gas hog costs to run, your urgency, and long-term vision. Recognizing that many car shoppers are eager for immediate pump relief, we again emphasize the importance of depreciation in charting the real costs for owning a vehicle and recommend shoppers look at our owner cost data to aid in decisions. It is often trade-in time that owners realize their vehicle has lost much of its value, and with gas prices racing to and potentially beyond the $4 a gallon mark, gas guzzlers are becoming less desirable and their trade-in or private sale value will dip to reflect that. Be forewarned: Just because you paid a fortune for your SUV, it doesn't mean it is worth much today.

Good news about poor fuel economy
The worse the fuel economy on your current car, the more potential benefit in buying a newer, thriftier model. For example, if you had a 2008 Dodge Durango V8 to trade even on a newer, 2010 RAV4, you'd save more than $2,000 the first year and about $7,000 over the next three years.

If your old car is somewhat more efficient, such as a three-year-old Chevrolet Impala that gets 20 mpg, it becomes even more important to pay attention to how much its replacement will depreciate. Trading the Impala for one-year-old Nissan Altima 2.5S will cost you money in the long run, even though the Altima gets 26 mpg and will save you about $500 a year on gas. Or, you could look for a slightly older Altima and come out ahead.

However, choosing a more efficient model, such as the 2010 Hyundai Sonata that gets 26 mpg, will save you a little money right off the bat, with savings adding up to more than $2,300 over three years.

Since it's important to find a fuel miser, we've provided a list of cars that get great gas mileage without sacrificing much utility. However, some of the cars on our list are expensive. And you won't save any money in the long run if the car you choose costs so much that it loses more value in depreciation than you're saving in fuel. So your best bet is to choose one of the less expensive cars from a brand with a good reputation for holding its value.

For this analysis, we assumed that you bought your old car when it was new with a five-year loan, and are considering trading it early to save gas. For the used cars, we assumed you took out a three-year loan (at 4.88 percent) with the value of the used car as a down payment.

As our analysis has illustrated, it doesn't make sense to buy just any car with better mileage to save gas. But if you choose carefully, it's possible to find a good, solid used car that can cut your expenses going forward - as long as you don't mind giving up on the investment you've already made in your old car.

Related:
How higher gas prices impact that appeal of car downsizing
Lessons in car downsizing
Downsizing: Choosing a used car to save gas and money
Downsizing: Right-sizing the sedan fuel bill is no easy challenge
Downsizing your SUV for better mpg—does it make cents?
How to know when it's time to downsize your car
Downsizing: The 12 most useful cars per mpg

—Eric Evarts