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Scott Burns / Syndicated columnist
Dumping gas guzzler a savvy investment move

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Allow me to introduce a new investment vehicle: your car.

I'm not talking about investing in cars that rise in value. We all know that virtually never happens. Cars lose value faster than money. Buy one in the morning; it will lose value before we get it into the garage.

So your car isn't a true investment vehicle.

But its fuel efficiency can be. Exchange your fuel-inefficient vehicle for one that gets better gas mileage, and you'll consume less gasoline. Every gallon not consumed is money not spent.

The basic math isn't difficult. The Burns family started driving the Toyota Prius hybrid last year. By my calculations, trading in my 18 miles-per-gallon turbo New Beetle for the 45 mpg Prius saves about 500 gallons a year. At $2 a gallon, that's $1,000 a year.

To have $1,000 a year to spend on gasoline, I would need to have $1,176 in dividends before the 15 percent tax rate on a stock investment. And to earn $1,176 in dividends from the S&P 500, I'd have to invest $78,431 — since the S&P 500 yield is only about 1.5 percent.

That's a lot of money. It is more than most people have in their 401(k) accounts.

It isn't so bad if you start comparing the gas savings to the amount you'd need to invest in bonds or CDs, either.
 
To have $1,000 to spend on gasoline, a person in the 25 percent tax bracket would have to earn $1,333 in pre-tax interest.

With five-year Treasury obligations yielding about 3.73 percent, you'd need to invest $35,746 to come up with $1,000 for the gas pump.

That's still a lot of money. Indeed, it's the price of a rather nicely equipped luxury car. Is there a message here?

I think so. The market is telling us there's more opportunity in how we select the car we drive than in how we invest our savings.

Note that I said "car." I didn't say "Prius."

This idea can work on any two cars. All you have to do is exchange a low-mileage car for a better-mileage car. The improvement doesn't have to be heroic: You don't need to exchange a 10 miles per gallon Hummer for a 60 mpg Honda Insight.

To explore the benefits of trading cars, I built a little calculator. It allows me to enter the mileage of the cars to be exchanged, the estimated miles to be driven each year, and the current cost of gasoline.

From this information, it automatically calculates the gallons consumed by each car, the annual gallons saved, and the dollar value of the fuel savings.

Then it goes a step further. It calculates how much you would have to invest in stocks or bonds to provide the money from the fuel savings. The results are surprising. Here are two samples:

• Replace an older Jeep Cherokee four-wheel drive with a four-wheel drive Toyota RAV4. Suppose you replace your car (15,000 miles a year, 18 mpg per gallon) with a moderately more efficient 24 mpg car? You'll save 208.3 gallons a year, or $416.67. To generate the necessary money in stocks, you'd need to buy a portfolio worth $32,680 — or bonds worth about $13,889.

• Change your lifestyle: Replace your aging Land Rover with a new Mini Cooper.

You are getting rid of a 13 mpg guzzler and trading it for one of the sexiest little cars out there, even at 30 mpg. And you're sure to drive at least 15,000 miles a year. This will save you 653.8 gallons a year, or $1,307.69. Earning the money on investments would require an equity portfolio of $102,564, or a bond portfolio of $43,590.

I could go on, but you get the idea. Fuel efficiency doesn't have to be extreme to pay off.

Questions about personal finance and investments may be sent to Scott Burns at The Dallas Morning News, P.O. Box 655237, Dallas, TX 75265; by fax at 214-977-8776; or by e-mail at scott@scottburns.com

Questions of general interest will be answered in future columns.