Enhance Productivity and Efficiency with Stephen’s Innovation Insights

Innovation Insights by Stephen Shapiro

We often make decisions based on emotion rather than logic. Especially in times of crisis (like our current financial situation), we choose options that address our “pains.”

Most people are feeling a pain at the pump with gas prices topping $4 a gallon in the United States; higher in other countries. If you own a gas guzzling car, you are really feeling the pain.

Newspapers have reported the following:

  • SUV owners are selling their trucks and buying more fuel efficient cars to save some money.
  • Chrysler is offering a $2.99 a gallon for 3 years deal with a new car (up to 12,000 miles a year).
  • The Toyota Prius is selling at record levels and can not be kept in stock.

Given high gas prices, these all seem like good ideas.

But (from a financial perspective) are they really?

My SUV gets 18 miles per gallon (mpg). I bought it in 2005 right before a cross country book tour through treacherous winter conditions. I needed a vehicle that could handle the worst snow. I love this car and would rather not trade it; Massachusetts winters can be miserable. But paying over $100 to fill the tank is getting to be too much. And with the economy, money is tight for everyone.

Should I trade my car? Emotion tells me, “Absolutely.” Logic tells me, “Maybe not”.

The trade in value of my car is $16K with 30,000 miles in excellent condition.

My dealer is offering a $2,500 rebate on the car I would trade for. The total price after taxes would be $21K. The car gets 28 miles per gallon. FYI…my SUV is a nicer car that retails for $33K new, so I am trading down.

Is spending $5K (and trading down) to save gas money a good deal?

Assuming gas prices climb to $5 a gallon, my break-even point is 4 years. That is, it would take me 4 years of driving 36,000 miles a year before I saved $5K in gas. Not exactly the return I was hoping for.

A $2,500 rebate is nice. But is it as good as Chrysler’s $2.99 a gallon gas deal (up to 12,000 miles a year for 3 years). Which feels better? Many feel that the Chrysler arrangement is a better one.

As it turns out, you should take the rebate up front. A car that gets 28 mpg would save $2,5000 over 3 years with the Chrysler deal (again assuming gas climbs to $5 per gallon). Most of their cars get worse gas mileage, so you would save even less. Therefore the $2,500 rebate is a better deal – unless gas prices soar beyond $5 per gallon.

What about a Prius?

The base Prius is $25K (if you are lucky – no discounts here) and it gets a whopping 46 mpg.

What’s the break even point for me? I would have to drive the Prius for four and a half years before I got my money back.

The creative option might be to trade your used car for another used car of the same age. If you work it right, you can come close to breaking even on the trade while saving the gas money. If saving money now is important, that is the smart move. Of course driving less – riding a bike, car pooling, taking the bus – are also good ideas.

I realize that there are many other factors to consider, such as the environment and long-term savings. But most people are making these decisions because of short-term gas prices. People are spending thousands to save hundreds. Emotion is prevailing over logic.

During recessionary times, focusing on customer pain can make your product or service more appealing.

My “How to Use Innovation to Recession Proof Your Business” is now one of my most popular speeches.

Address the emotional concerns before addressing logical issues. As Aristotle once said, “Ethos, Pathos, Logos.” And if you don’t know what that means, read my blog entry on that topic.

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