This is a little off topic, not really finance. But a couple of Duke Management profs have published a piece in Science that says folks suffer from mpg illusion. Basically, they argue that we focus on trying to get higher and higher mpg, when the biggest savings are for those people who drive vehicles that get really bad mileage.
The story is here...
News and Observer article here
The basic idea is this. If you drive some big ugly truck that gets 10 mpg, you'll use 1,000 gallons a year to go 10,000 miles. Now if you trade to a truck that gets 15 mpg you'll use 666 gallons. A savings of 333 gallons a year.
Now consider someone who is getting 25 mpg and they trade up to a hybrid that gets say 35. Their gas savings go from 400 gallons to 285 gallons. A savings of about only 115 gallons a year.
The point then is that the biggest savings come from fairly small improvements on poor mpg vehicles.
The idea is so obvious of course it is brilliant and what is really great is that these guys got it published in Science.
This does assume that there are fairly equal numbers of people that upgrade from 10 mpg vechicles and 25 mpg vechicles. If 85% of the upgrades are from 25 to 35 mpg, then the savings is more... how many people have vechicles that get 10 mpg and upgrade? My guess is that the largest segment of the population already has a car that gets 20+ mpg, and so the savings will be greater if most of them are upgrading.
ReplyDeleteThat's a good point. I guess it depends on whether you are viewing this from the overall impact, or from an individual's basis.
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