First of all, the cost of a barrel of oil changes from day to day, month to month. While the cost of a barrel of oil did reach $146 US dollars in 2008, it was not that price for the entire year; that wasn't even the average. Fortunately, we can cut through the political bull and check the data ourselves at www.macrotrends.net. First, let's look at the year 2008:
| Ontario Historical Gas Price Charts Provided by GasBuddy.com |
While this doesn't go all the way back to 2008, it does provide better data as to the relationship between the cost per barrel of gas and what we pay at the pump, and what it shows is that, in actual fact, the cost that we pay per liter of gas today is more in-line and consistent with the price per barrel of gas today than it was at the end of 2015. There is a relationship between the price per barrel of gas, but as we can see from this data, it is not direct and we actually appear to be insulated somewhat from the wild variations of the cost of a barrel of oil in the international market. While the price of a barrel of crude fluctuated wildly, the price we paid at the pump wasn't so dramatic. Do notice that, after November 2014, the price of a barrel of oil and the price we paid per liter of gas tended to be a lot closer than they were in previous years. There is one other thing that we need to consider that would explain this trend: The value of the Canadian dollar.
I remember for a fact that, for most of 2008, our dollar was stronger than the US dollar. to prove this, we only need to visit the Bank of Canada's web site and download the historical exchange rate data. In the year 2008, we went past $1.23 for a few days, but the Canadian dollar was worth, on average, $112.53 to $100 US dollars. This means that a barrel of oil that averaged $114.09 USD in 2008 would have cost us, on average, $101.39. 2014 was the last year for a strong Canadian dollar, which averaged $109.77 US dollars for $100 Canadian. In 2015, that dipped to an average of around $98, and in 2016, it dipped further to $94.98. We did a little better in 2017, averaging $97.20. These averages do not account for the day to day trends of the market, where there were days when our dollar would have been significantly weaker and when a barrel of oil cost more, which accounts for the variations we see in this graph; however, these averages do illustrate the overall trend and illustrates the true reason why what we pay at the pump did not go down as significantly as the cost of a barrel of oil.
As I write this today, the cost of a barrel of oil is $67.97, and our dollar is worth $0.78 US dollars, so that barrel of oil today actually costs us $87.14, which is only a $14.25 difference from the 2008 average. Since I'm comparing a specific data point (today) to an annual average, the comparison is not entirely fair, which makes the chart from GasBuddy.com so valuable. However, it illustrates one very important fact: The price of a barrel of oil is in US dollars, while the price of a liter of gas in Canada is in Canadian dollars. As our dollar has been trending downwards compared to the US dollar and other international currencies, this means that the increase in the price of gas actually has more to do with our weakening dollar than it does with anything else.
Don't get me wrong; I disagree with taxes like the carbon tax on fuel, because it unfairly penalizes people living at or near the poverty line, and believe that there are more fair ways to tax, but the fact of the matter is, the price of gas will go up as our dollar trends down and the price of a barrel of oil trends up, regardless of whether or not we have a carbon tax, and you can flip a coin to see if political Party A will do a better job than political Party B, but the fact of the matter is, the frugal Canadian knows how to insulate themselves from these inevitable market fluctuations.
Ironically, this comes at a time when Ford has announced they are doing away with their economy sedans, to replace them with trucks and SUV's. A quick browse through the data at fuelly.com shows that the popular 2018 Ford F150 averages 14L/100km and the 2018 Edge averages 11.4L/100km, while the 2018 Focus averages 8.4L/100km and the 2018 Fusion averages 8.6L/100km. The Focus has an MSRP of $15,678, the Fusion starts at $22,488, the F150 starts at $25,149, and the Edge starts at $31,999.
Let's break this down into a spreadsheet, looking at fuel cost differences between models, based on an average driving of 20,000 kilometers per year, with gas at $1.30 per liter, and $1.50 per liter:
| Model | L/100KM | $1.30 | $1.50 | 20k km @1.3 | 20k km @1.5 |
| Ford F150 | 14 | $18.20 | $21.00 | $3,640.00 | $4,200.00 |
| Ford Edge | 11.4 | $14.82 | $17.10 | $2,964.00 | $3,420.00 |
| Focus | 8.4 | $10.92 | $12.60 | $2,184.00 | $2,520.00 |
| Fusion | 8.6 | $11.18 | $12.90 | $2,236.00 | $2,580.00 |
| F150 vs Focus | $1,456.00 | $1,680.00 | |||
| F150 vs Fusion | $1,404.00 | $1,620.00 | |||
| Edge vs Focus | $780.00 | $1,680.00 | |||
| Edge vs Fusion | $728.00 | $840.00 |
Consider this: The difference in running costs of the Ford F150 between $1.30 and $1.50 per liter is $560 per year, but will cost the Focus driver $336 more per year. However, the savings in model differences is even more significant. The amazing thing is, the Fusion and Focus aren't even the most fuel efficient models in their price range on the market! Now let's look at the 5 and 10 year cost of ownership of these cars, including the purchase price:
| Model | MSRP | $1.30 @5yr | $1.50 @5yr. | $1.3 @10yr. | $1.5 @10yr. |
| Ford F150 | $25,149.00 | $43,349.00 | $46,149.00 | $61,549.00 | $67,149.00 |
| Ford Edge | $31,999.00 | $46,819.00 | $49,099.00 | $61,639.00 | $66,199.00 |
| Focus | $15,678.00 | $26,598.00 | $28,278.00 | $37,518.00 | $40,878.00 |
| Fusion | $22,488.00 | $33,668.00 | $35,388.00 | $44,848.00 | $48,288.00 |
| F150 vs Focus | $16,751.00 | $17,871.00 | $24,031.00 | $26,271.00 | |
| F150 vs Fusion | $9,681.00 | $10,761.00 | $16,701.00 | $18,861.00 | |
| Edge vs Focus | $20,221.00 | $20,821.00 | $24,121.00 | $25,321.00 | |
| Edge vs Fusion | $13,151.00 | $13,711.00 | $16,791.00 | $17,911.00 |
Once again, we notice some interesting trends. When we factor in both the purchase price and the running fuel costs, after 10 years of ownership, the Edge ends up being cheaper at both $1.30 per liter and $1.50 per liter than the F150 even though it costs quite a bit more to buy. Also, the difference between the Edge and the Fusion after 10 years is enough to buy a brand new Focus even at $1.30 per liter! Alternatively, the difference between the Edge and the Focus is enough to buy a brand new Fusion after 10 years at even $1.30 per liter. The most interesting comparison is between the F150 and the Fusion; even though the two are fairly close in price to buy, the difference between the two after 10 years will buy a new Focus.
What the data shows is that driving a more fuel efficient vehicle will do significantly more to save you money than will a change in fuel prices by 20 cents a liter. Once again, these are not even the best fuel economy value for your dollar; for example. the 2018 Chevrolet Cruze is currently averaging 6.3L/100km and starts at $16,395. At $1.30 per liter, running 20,000 kilometers over 10 years, the fuel costs are $16,380; nearly as much as the MSRP of the car! At $1.50, it's $18,900 over 20 years.
Safety
The main reason many people cite for wanting a larger, less fuel efficient vehicle is because of safety. My opinion on safety is that if people put down their cell phones, paid attention, and took a defensive driving course, they would be safer in a car with the worst crash test rating than driving inattentively and aggressively in a truck with the best crash test rating; however, wanting a vehicle that protects better in a crash is a valid reason, as we can't really put a price tag on the safety of those we love. It is true that small cars used to be death traps in an accident, but they've come a long way. Consider this video showing a modern Nissan Versa crashing into an older generation Nissan Sentra (known as the Tsuru in other countries):
Or, how about this modern Toyota Corolla crashing into an older generation Toyota Corolla:
It's pretty dramatic, and it goes to show how much safer modern cars are across the board.
Should you replace your truck or SUV with a smaller car?
The short answer is, no, unless your truck or SUV is old enough to be unsafe or will cost you a lot in ongoing maintenance, or if you're in a financial position to buy a new car. If you're driving an SUV or truck that is reliable and reasonably safe, you can buy a lot of gas for the finance payments of even a sub-compact economy car. For example, to finance a bare bones Nissan Versa, it's going to cost at least $86 semi-monthly to lease, or $95 semi-monthly to buy. Over a year, that's going to cost an additional $2,064 for a lease or $2,280 to buy per year. Remember, you still have to put gas in that car, and over 20,000 kilometers at $1.30/L, it'll probably cost you around $9.88 per 100 kilometers, or $1976 per year at 20,000 kilometers. Combined, that bare bones Versa will cost you over $4,000 per year either way.
The long answer is, maybe. If gas is going to go up to $1.50 a liter and you're driving a 2007 F150 that gets 17L/100km on average, you're going to be out $5100 per year. At that point, the cost in fuel is significantly greater than would be car payments and fuel for a new small car. However, I'll let you in on a little secret: Many of these small cars loose nearly half their value after only two to three years, and yet have the same safety features, ratings, and fuel economy as the latest model. If we assume that we will keep the car for 10 years, that's like paying half price for a car that will last 70-80% as long. Because the depreciation continues, you can buy a small but still reasonably safe and fuel efficient small car for what you'd pay in gas for a couple of years for that old 2007 F150. You're probably looking at an 8 year old car but with a reasonable amount of mileage left to go on the clock. The 2-3 year old used compact or mid-sized car has been something many frugal-minded people like to exploit, and it's not uncommon for people in my trade to have a 15L/100km truck for doing the things they really need a truck for, and to buy a 2-3 old compact or mid-sized car that gets around 7L/100km for daily commuting paid for with the savings in fuel. Of course, it all depends on the length of the commute, how often a truck is needed, and other details that are beyond the scope of this blog post, but let's run some numbers.
A 2015-2016 Nissan Versa Note can be bought for around $10,000, and after 8 years at $1.50/L of fuel, will cost $17,040 in fuel costs at 20,000km per year. With 40,000km of driving, the fuel costs will be $34,080. Even though we are only going to run this for 8 years instead of 10, when we factor in the cost of the car, it's easy to see how the savings are realized compared to the $36,000 in fuel it would cost to drive a truck that gets 15L/100km 20,000 kilometers a year for 8 years.
Hybrid, electric?
Whether or not a hybrid or electric car is right for you depends on many factors. Many of my frugal-minded friends really like the Toyota Prius, which does not really depreciate all that much in the used car market. With a starting price of $27,650, and an average of around 4.5L/100km, we can run the numbers and see how it adds up:
| Model: | Price: | L/100km | @$1.30 | @1.50 |
| Prius | $27,650.00 | 4.5 | $5.85 | $6.75 |
| Annual fuel costs: | After 5 years | After 10 years | ||
| @$1.30, 20,000km | $1,170.00 | $33,500.00 | $39,350.00 | |
| @$1.50, 20,000km | $1,350.00 | $34,400.00 | $41,150.00 |
So it's pretty clear that the cost of running the Prius is actually comparable to a compact car like the Ford Focus for someone commuting 20,000km per year. However, if someone is commuting 40,000 kilometers per year instead of 20,000 kilometers, the Focus is going to have a total cost of $59,358 at $1.30/L and $66,078 at $1.50/L after 10 years. Compare that to the Prius at $51,050 at $1.30/L and $54,650 at $1.50/L, and it's evident that the Prius becomes significantly cheaper. With that in mind, however, we must still compare it to something like the used Versa. 80% of $54,650 is $43,720, which just slightly beats our used Versa that will come in at around $44,080. That's pretty phenomenal, but only if gas averages $1.50/L and your commute is 40,000 kilometers per year. At lower gas prices, the used compact car is still the more frugal option.
As for electric cars, it's difficult to tell. A car like the Nissan Leaf starts at $35,998, but its range may limit you, and there's a question as to whether or not you'll have to change out the battery pack after 7 years, and what will that cost? Then there's the Bolt EV for $44,400, which does significantly better in range, but without the discounts, may end up being no better, or maybe even worse than, the Prius, because we can drive the Prius for 40,000km per year for 8 years for the MSRP of the Bolt. I honestly believe the future will be electric cars, and we are at the point today where I believe they could represent a viable alternative for certain frugal-minded people. At the very least, I can say that an electric car will insulate you almost completely from the market fluctuations that exist in the gas and oil industry, because we buy our electricity from generating stations in Canada, not from a global market. However, gas would have to get pretty expensive before it would be viable for me.
Conclusion
This study is very simplistic and is not comprehensive when it comes to the cost of owning a vehicle. There are other factors, such as taxes, insurance, maintenance costs, reliability, and so on that really affect the cost of owning a car. However, it is a good starting point, and illustrates the importance of good fuel economy. We can complain all we want about the cost of gas, but as long as we buy a commodity that's price is governed by international markets, we need to understand the risks and rewards of doing so, and make our choices accordingly.
