Wednesday, May 21, 2008

Guest Post: Economics of Fuel Saving Devices

This is a guest post from Basic Financial. If you are interested in guest posting on Money and Such, I would love to hear from you. Please take a look at these guidelines and drop me a line.
Without further delay, it is my pleasure to introduce Basic Financial:

Recently I posted on my site about the hydro4000, a hydrogen based fuel economy booster for your car. The biggest surprise to me in writing that post was the $1350 investment required to get the thing working, and that's if I installed it myself. It turned out that it would take 1,125 gallons at $4.00 to recover the investment, which would be around 1.5 years for me. Sure, gas prices will continue to rise for a while, but remember this is not a fuel shortage fallout like there was in the 70's when demand drastically outstripped supply. There is plenty of supply today, it's mainly that prices are skyrocketing due to increased demand in Asian countries and the weakness of the dollar. This leads me to think that the price of gas will fall below or around $3.00 a gallon within the next 3 years.

So the question remains, what time frame is OK for a return on your fuel savings costs? I prefer a 1 year ROI on just about anything I buy over $100 that is supposed to save me money, anything less I can amortize over 1 year and take it out of any discretionary income. So how much better fuel economy will I need to get to achieve a 1 year ROI. I drive a 2002 Ford Explorer Sport that gets around 20mpg I fill up 3 times a month with a 16 gallon tank. Here is my breakdown assuming $4.00 a gallon: a 5% improvement in gas mileage would save me 3 gallons, 10% would save 6 gallons, 20% would save 12 gallons and 30% would save 18 gallons.

Using these numbers, it would take me 9 months to pay off a fuel saver that gave me a bump of 5% in fuel efficiency and that cost $100. A $500 item that provided a 20% boost would take 11 months to pay-off, and a $1,350 device would take 29 months to pay-off if it were able to provide a 20% improvement to fuel economy. This is a pretty long time. While I still have 3 years left to pay off my vehicle if I don't pay it off early, in 3 years, I'll have to reinvest. Why not pay off early, and get a car with better fuel economy? I just don't think any of it is really worth it. Besides the EPA tests a majority of these devices and they only average a 6% bump, which makes only the $100 item economical, and I don't think that even that would be worth my time. I'll stick to combining my trips and driving less.

Editor's note: in e-mail correspondence with Basic, he explained to me that he does not think devices purported to improve vehicle fuel economy really work. His post is meant to show that even if they worked as advertised, the return on your investment would not justify purchasing them. Here is a link to a CNN article debunking the idea of add-on fuel saving devices.

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