2009 Toyota Prius
Usually I am more interested in cars that are faster or sexier than the 2009 Toyota Prius. Just like everyone else though, I have mundane commutes from point A to B. And, technology and frugality greatly interest me. The current generation Prius has been on the road since 2004 in its current form. In 2010, Toyota plans on releasing an all new, slightly larger and better performing Prius, but the 2009 Prius is virtually the same as previous years' models. The 1.5L, 76 HP internal combustion engine combined with a 67 HP electric motor give adequate, but noisy full throttle acceleration.
Where the Prius really shines is its ability to efficiently utilize space and very slow acceleration. When the internal combustion engine is fully warmed up, the Prius can accelerate silently up to 37mph under full electric power. Too much throttle and the starter will fire up the integral combustion engine. Used appropriately, stop and go traffic can run on battery only. Light use of the brakes also allows the electronics to use regenerative braking to very efficiently recharge the batteries. Full mechanical brakes are always available if needed.
However, Prius enthusiasts better stick to slow acceleration around curves. The body has excessive roll, the suspension is under-dampened, the tires do not provide much lateral grip and worst of all, the non-defeatable traction control is WAY too sensitive.
So is this the ultimate frugal vehicle? Optioned at $24,270 the 2009 Prius is priced $7540 more than a 2009 Honda Fit Sport. To really throw a wrench into the equation, the base Fit is $2000 less expensive than the Fit Sport. Doesn’t the Prius save money at the pump? At $3/gallon someone would have drive 100k miles to just recoup the $7540 difference between the Honda Fit Sport and the Toyota Prius. The new-age looking Prius might be for you, but the Honda Fit will be more fun to live with day to day. The 2009 Toyota Prius is still cool in a geeky kind of way. If you like it and can afford it, the Prius is a great car. But don’t delude yourself into thinking that the 2009 Toyota Prius is economical. Your current car is your cheapest car 97% of the time. Since most people do not drive their cars until they drop, a gently used car will always save money over a new car. For more information about saving money on cars, read my post titled "Frugal Motors".
Frugal Motors
Most people desire a brand new, shiny car. They also usually have a hard time saving enough money to buy one. The dealers and manufactures overcome that objection by offering financing. What a great solution, or is it a grand scheme?
The average car loan today is 66 months but most people only own their cars 3-4 years. Do the math and see that most people never even own the car they driving. The bank owns it. New models come out every year. The previous model year cars are less desirable than latest product. This leads to depreciation, even without driving that car. So what is the solution? Have you considered buying a gently used car? Many late model used cars still have some warranty coverage. The only thing you are losing is depreciation. Let the first owner pay the majority of that depreciation.
Let's consider buying a brand new Honda Accord EX, MSRP $24,405. Let's say you have saved $2,000 and will be putting that money down and financing the rest. Most states have taxes on cars and all have fees. In Illinois, after taxes, you will be still financing around $25,000 even after putting $2,000 down – ugh. That still comes out to $500/month for 60 months. Can you afford that for 5 years? Most people don't even know what their lifestyle will be like in 5 years. Will they have kids? Will they have a new hobby and need to haul a bicycle, boat, or giant dogs around? Even worse, let's say that the brand new car is totaled in an accident after owning it only 30 days. Hopefully everyone is ok! The insurance reimbursement will still be hundreds, if not thousands less than the loan payoff. In 5 years that loan will cost over $5,000 in interest even at today's historic low rates. Cars are depreciating assets.
A better solution is to step back and make payments to yourself. Keep the old clunker in your driveway a little longer. The dealer was only going to give you $1500 for it anyway. If you can afford a $500 payment to yourself, in 2 short years you will have saved $12,000 to buy a 3-4 year car for CASH. Even only $300 a month for 2.5 years is $9,000. That can buy a lot more car than you currently have. Keep making payments to yourself and get that debt monkey off your back forever.
Many people never learn, but it is worth repeating. Buying a brand new is the 2nd worst financial decision a person can make. The #1 worst financial decision is to finance that depreciating car.