How Much is that Increase in MPG Really Worth?
With fuel prices near the $4 per gallon level, there has been a lot of discussion in the media about fuel economy. Last week, on the National Public Radio program, Marketplace, I was listening to a story about the rising demand for fuel efficient cars, and I was struck by this quote:
Jonathan Banks follows the used car market at the National Automobile Dealers Association. He says prices on used Prius models are up 30 percent since the beginning of the year. That’s more than for other used cars, though those are also in high demand.
Thirty percent seemed to me to be a quite a large price increase, and I decided to take a closer look at how fuel costs and fuel economy are related.
MPG vs. GPM
Most of us are familar with MPG as a measure of fuel economy, but it actually not the most intuitive measure to use. The problem with MPG is that it is inversely related to fuel consumption, and this can lead to misperceptions about the cost savings from an increase in MPG.
This effect is best illustrated with a graph. The graph below shows the cost of driving 10,000 miles for various measures of MPG. I assume a gasoline price of $4 per gallon.
It is easy to see that there is a diminishing return, in terms of fuel cost, as MPG gets higher. For example, increasing MPG from 10 to 20 saves $2000 per 10,000 miles traveled. However, increase MPG from 30 to 40 saves just $333.33 per 10,000 miles traveled.
If, instead of using MPG, we use the reciprocal, or GPM, the relationship with cost is linear. An example is shown here:
We can see from the graph that GPM and fuel cost are linearly related, so GPM is clearly a superior measure if our concern is operating cost. It is also a superior measure for those concerned about environmental impacts since GPM is also proportional to the gallons of fuel burned.
Fuel Efficiency for Common Vehicles
The tables below show the fuel efficiency for some common cars in both MPG and GPM. These tables also shows the fuel cost per 10,000 miles at $4 per gallon. This cost varies proportionally with GPM.
The first table shows the 10 bestselling vehicles for 2010:
|Sales Rank:||Model||City (MPG)||Hwy (MPG)||City (GPM)||Hwy (GPM)||City (Cost per 10,000 miles @ $4/gallon)||Hwy (Cost per 10,000 miles @ $4/gallon)|
This table shows the 10 most fuel efficient vehicles for 2010:
|Efficency Rank:||Model||City (MPG)||Hwy (MPG)||City (GPM)||Hwy (GPM)||City (Cost per 10,000 miles @ $4/gallon)||Hwy (Cost per 10,000 miles @ $4/gallon)|
|2||Ford Fusion (Hybrid)||41||36||0.024||0.028||$975.61||$1,111.11|
|3||Honda Civic (Hybrid)||40||45||0.025||0.022||$1,000.00||$888.89|
|4||Honda Insight (Hybrid)||40||43||0.025||0.023||$1,000.00||$930.23|
|5||Lexus HS 250h||35||34||0.029||0.029||$1,142.86||$1,176.47|
|6||Nissan Altima (Hybrid)||35||34||0.029||0.029||$1,142.86||$1,176.47|
|7||Ford Escape (Hybrid)||34||31||0.029||0.032||$1,176.47||$1,290.32|
|10||Volkwagen Jetta SportWagen (TDI)||30||42||0.033||0.024||$1,333.33||$952.38|
How Much is Fuel Efficiency Worth?
So, back to my original comment about the recent run-up in prices for the used Toyota Prius. Is a 30% increase in prices justified by rising fuel prices?
For comparison, lets use the fuel economy for city driving, where the Prius shines most, and compare that to the most fuel efficient car from the 10 best selling cars of 2010.
The Toyota Corolla and the Honda Civic both have an estimated fuel cost of $1,538.46 per 10,000 miles of city driving. The Prius has a fuel cost of $784.31 per 10,000 miles.
FuelCostDifference = $1,538.46 – $784.31 = $754.14
A savings of $754.14 is certainly meaningful, but this is total savings per 10,000 miles. Since the beginning of the year, the price of gasoline has increased by a little less than $1 per gallon, so the increase in savings is only about $189 per 10,000 miles. This doesn’t seem to be sufficient savings to justify a price increase on used Priuses of $5000 to $6000 over a 4 month period….unless the buyer expects very large near-term gasoline price increases or plans to drive the car for several hundred thousand miles!
I think that the increase in Prius prices must be the result of more than just the increase in fuel prices or even expectations of future fuel price increases. Instead, I think there are some consumers who simply want to burn as little gasoline as possible, even if they have to pay a premium to achieve this goal. There is nothing wrong with this viewpoint, but it seems the shortage of available Prius vehicles as a result of the Japan quake has caused the “eco-premium” to rise substantially.
I am a fan a fuel efficiency and low vehicle operating cost, but I think the relationship between fuel efficiency and driving cost is poorly understood as a result of our focus on MPG.
There is a big bang for your buck when moving away from a gas-guzzling vehicle with low MPG, but there is a diminishing return as MPG increases. If we condition ourselves to evaluate fuel economy using GPM instead of MPG we will be better equipped to properly evaluate the trade-offs between fuel economy and other vehicle selection criteria.
Note: The Google Docs spreadsheet used to generate the plots and tables in this post is available here. Public editing of the sheet is not enabled, so you will need to save a copy if you wish to make your own modifications.