As always, I ponder economics as a leading reason to think about LTP, and as my 1997 Jeep starts to experience some really interesting noises in its 3rd transmission, I ponder the economic impact of buying a 4th transmission vs. buying a new vehicle.

As a quick aside - we have no debt, other than a Mortgage, and we owe far less than the house is worth, even in this terrible, terrible real estate market. We never use debt to buy non-performing depreciating assets.for example,
I'd never use credit to buy a boat.
I would use credit to buy a boat, if income was dependent on having a boat and the income much greater than the debt cost of the boat over the term of the loan.

So, back to vehicles. Gas here is $3.09 a gallon now, and with oil closing above $100, expect gas to hit $4 to $5 a gallon very soon.

So, let's do some economics what-ifs.

At the current cost of gas, here's how I look at the cost of operating the old Jeep

Miles Per Gallon 15.5
Miles Per Month 1500
Cost Per Gallon $3.09
Monthly Fuel Cost $299.03
Annual Fuel Cost $3,588.39

Insurance (Annualized) $350.00

Maintenance & Such

Routine Fluids Etc. $525
Annual Inspection $120
Annual Registration $40
Mechanical Repairs $2,400

Subtotal $3,085

Monthly Payments $0
Annualized Payments $0
Annual Cost $7,023.39

Now, if I look to a new vehicle, I can compare these figures side by side:
Old Car/New Car
Miles Per Gallon 15.5/40
Miles Per Month 1500/1500
Cost Per Gallon $3.09/$3.09
Monthly Fuel Cost $299.03/$115.88
Annual Fuel Cost $3,588.39/$1,390.50

Insurance (Annualized) $350.00/$600.00

Maintenance & Such
Routine Fluids Etc. $525/$525.00
Annual Inspection $120/$120.00
Annual Registration $40/$40
Mechanical Repairs $2,400/$250
Subtotal $3,085/$935.00

Monthly Payments $0/$480
Annualized Payments $0/$5,760
Annual Cost $7,023.39/$8,685.50

So for the new car, my annualized cost - even factoring in $2400 a year in repair work on the old car - is still $1662.11 LESS than the annualized cost a new car.

In fact, using the same basic formulas, I learn that if gas goes to $5.46 a gallon, then - and only then - does it get cheaper to buy and operate a new car.

So the question is - do I think gas will go to $5.46? Yes, I do. When? Maybe not in 2008, but then again, Summer's coming. We hate debt. Car payments are expensive. But then again...gas might be more than car payments soon.

Something to think about.