Everything they tell you about gas mileage is a lie.

January 4, 2013
It's a good idea to extinguish your cigarette before doing this

It’s a good idea to extinguish your cigarette before doing this

  • If your tires are underinflated, it can cost you 1 mile per gallon for every pound per square inch.
  • Slow down. Driving under the speed limit can save you 5 miles a gallon (and get you where you’re going later than you’d otherwise get there, but whatevs.)
  • An extra 100 pounds in your vehicle can reduce your miles per gallon by up to 2%.

And our favorite, from the taxpayer-funded functionaries at the Department of Transportation, presented here verbatim:

  • Aggressive driving (speeding, rapid acceleration and braking) wastes gas. It can lower your gas mileage by 33%

(The obvious solution? NEVER BRAKE.)

People love to repeat this nonsense as Holy Scripture, because it comes with the veneer of respectability. And why would the government lie to us? Governments always tell the truth, don’t they?

You don’t lose 60% of your body heat through your head, you don’t need to (and almost certainly shouldn’t) drink 8 glasses of water a day, you don’t need to chew each mouthful of food 100 times before swallowing, and being fanatical about gradual acceleration and gentle braking doesn’t make a difference to your gas mileage. (And the last one can kill you if you apply it uniformly without regard to the situation.)

There are hundreds of online threads in which drivers try to get to the bottom of this confounding problem, without ever reaching a conclusion. Instead, there’s a lot of talk about trivial variables and a stunning ignorance of how to gather data. To wit:

I usually hit 100-120 miles by the time it hits F (filling puts it past full)
250ish by the quarter mark
350ish by the half mark
475-500 on a tank.

those are summer numbers but you get the idea. we all deal with that.

…the last few days (minus monday) have been pretty warm so I have been seeing close to summertime numbers for fuel economy.

Hey genius: instead of looking at the analog marks on your gas gauge and estimating from there, how about keeping a log?

Not sure if you noticed this, but the pump measures fuel dispensed in thousandths of gallons. Your odometer measures tenths of miles. Divide the latter into the former, and you’ll have a reading accurate to one decimal place. Most of us, even the public school students, learn division by the 4th grade.

For the last month, your humble bloggers inadvertently conducted a fuel economy experiment. We drove the same vehicle, on essentially the same route, with the same cargo, and the same octane level of gasoline, through multiple fill-ups. We record our fuel economy on every tank as it is, and here are our miles per gallon readings in chronological order (taken to 2 decimal places, in our iconoclastic fashion):

29.87
21.42
20.55
25.02
22.34

You want to improve your fuel economy? Our experimentation indicates that there isn’t a thing you can do. (With one exception, which we’ll get to in a second.) We keep track of this stuff largely to look for any egregious movement: a 14 mpg tank would mean something is glaringly wrong. Smaller fluctuations don’t appear to be subject to any kind of improvement – again, with one exception.

It would appear that fueling up on a Tuesday can cost you 2.68 miles per gallon over doing so on a Wednesday, if you’re the kind of person who believes in fairies and tommyknockers.

Right now, some gullible and pedantic idiot is reading this and wondering, “Well, did they control for time of day? The tanks are full of condensation first thing in the morning, etc.” We didn’t control for the speed of the cars in front of us, either (which often dictates our own speed), nor did we control for battery cold-cranking amp capacity (which fluctuates). Sometimes we filled up with the car facing north, other times with it facing south, so yeah, that could change everything.

The only way to control for every single variable would be to take multiple models of the exact same vehicle, right off the assembly line, airlift them to the Bonneville Salt Flats, and drive one a day at the same time every morning until we had enough data points to plot.

Our conclusion: people love to mire themselves in easily understandable minutiae instead of looking at grand, tangible ways to improve their lot. There are several compelling reasons to keep your tires properly inflated anyway. Also, very few of us enjoy slamming on the brakes (and compromising the pads) for the sheer fun of it. The standard fuel-economy improvement advice is tired, ineffectual, pointless, and pays microscopic benefits if any. Aside from that, it’s very helpful.

Here’s what you can do, and it’s the only thing we’ve found that pays benefits of more than a few inches per gallon. You ready?

Don’t let the tank get too low. The numbers above positively correlate perfectly to the size of the fill-up. The 29.9-mpg fill-up was on around 3/8 of a tank, the 20.6-mpg fill-up when running on our last few molecules.

So why is this? Who cares? The most convincing argument we’ve heard so far is that the gas you fill up with displaces the vapor that fills the evaporation system. This goes into the intake. The more gas you have in the tank, the more powerfully the vapor is passed through the evaporation system, thus improving your gas mileage.

Some people argue that no, driving as long as possible on one tank is better because it means you’re spending more time driving a lighter car (i.e., one with less fuel in it.) These people can hypothesize all they want, but the data says they’re full of it.

Test your battery. Don’t strap pianos to your roof unless you’re delivering them somewhere. Stay out of 1st gear on level roads. But most importantly, fuel up as often as is conveniently possible.

Filed Under: Making Smart Choices, Travel Tagged With: , , , ,

A Whole New Way To Diversify

February 3, 2012

You can't have corporate fraud without a corporation

 

Every company you can invest in has to be a corporation by definition, right? The corner barbershop that operates as a sole proprietorship can’t trade publicly, nor can any partnership.

Not quite. One of the least publicized securities available to you, the private investor, is the master limited partnership. People buy these when they want income, rather than capital gains. And despite their obscurity, MLPs are easy to buy.

You already know what a partnership is – multiple people create a business; and for tax, credit and legal purposes, those people are the business. They have no protection against being sued for more than the business is worth, which is why most entrepreneurs will forgo a partnership to create a limited liability company or corporation. Long story short, the tax rate is more favorable. If you want the details, read Chapter X in “the best personal finance book ever written” (Len Penzo.)

The general form of a partnership is called, somewhat anticlimactically, a general partnership. In its variant, a limited partnership, some of the partners aren’t liable beyond what they’ve invested. For these limited partners, the partnership works like a corporation in this respect. The remaining partners, the general partners, are on the hook for everything. If you’re wondering what the advantage is to being a general partner, well, someone has to be. And the general partner(s) are the only ones who receive dividends. The limited partners enjoy a proportionate share of profits, or losses, but that’s it. As you can imagine, the general partners have enormous incentive for the company to do well. If it does, the general partners enjoy bigger dividends.

Master limited partnerships trade publicly. The limited partners again receive a share of the profits, while the general partner manages the MLP and gets paid contingent on how well it does. Managers form an MLP when they want to avoid the scourge of double taxation, which plagues standard corporations (a/k/a C corporations, as opposed to the S corporations that small businesses operate as.) Major corporations’ profits are taxed first when the corporations calculate their earnings. When the corporations pay dividends out to the shareholders, the shareholders also pay income tax on that.

There’s more to it, though. Not every limited partnership can qualify to be a master limited partnership. At least 90% of an MLP’s cash flow has to come from commodities, natural resources, or real estate. In practice, almost all MLPs are in the energy business.

MLPs offer “units” that pay out quarterly “distributions”, rather than “shares” that pay out quarterly “dividends”, a distinction largely without a difference as far as we’re concerned. Sell your units, regardless of how much the MLP appreciated while you owned it, and the IRS will charge you at standard income tax rates, rather than capital gains tax rates. Should the MLP depreciate while you own it, that’s what’s called a “passive loss”. If the MLP eventually appreciates, you can use the losses to offset the gains for tax purposes.

Enterprise Products Partners is the biggest MLP in existence. They transport natural gas and oil through 50,000 miles’ worth of pipelines. They also gather, process, ship and store it. The company is a giant, with $32 billion in revenue during its last fiscal year (comparable to Aetna) and shareholders’ (check that, unitholders’) equity totaling $11 billion, which is larger than that of M&T Bank. Enterprise Products Partners trades on the New York Stock Exchange, under the symbol EPD. Management owns 39% of the units, the remainder available to the public.

Let’s look at one of EPD’s biggest competitors, both to illustrate the similarities and to explain the subtle differences.  (And to show you how serious the general partners are about enriching themselves in concert with the company, rather than in spite of it.) Kinder Morgan Energy Partners (NYSE: KMP) also deals in stuff extracted from the earth, and clearly owes AC/DC a royalty whenever they produce something with the company logo on it:

To the casual observer, Kinder Morgan’s business is almost identical to Enterprise Products’. The former transports refined petroleum and natural gas, operates terminals, and also transports carbon dioxide. According to the company’s website, its namesake and CEO Richard Kinder draws a $1 salary and doesn’t receive stock options.

Ha! It seems they just wanted to see if we were paying attention. Of course he doesn’t receive stock options, there’s no stock. Only units. KMP also goes to the trouble of telling us that they don’t screw around with “unnecessary overhead…such as corporate aircraft, sponsorships, sports tickets…” And “we cap senior executives’ base salaries far below industry standards. (The executives’ bonuses) are tied directly to the performance of the company.”

Wow. Is it too late for Richard Kinder to run for president?

KMP’s equity stands at around $7 billion, its revenues $8 billion. And these two are just the tip of the industry. A disproportionate number of the players are situated in Texas, specifically Houston, for reasons that are hopefully obvious.

Like anything else that can be securitized, master limited partnerships can be packaged into mutual funds, too. One of the biggest is the ClearBridge Energy MLP Fund (NYSE: CEM). ClearBridge Advisors is a subsidiary of Legg Mason, one of the biggest mutual fund companies in existence. Another MLP Fund is SteelPath MLP Income Fund (NASDAQ: MLPDX), founded 2 years ago. CEM’s biggest component comprises less than 10% of the fund, MLPDX’s biggest barely 6%. MLP funds typically hold fewer components than do your standard mutual funds, largely because there are so few MLPs for the funds to be comprised of in the first place.

Master limited partnerships are attractive to many investors because the managers clearly have skin in the game. Managers are less inclined to jump ship, too: when you’re running a successful MLP, why would you want to leave? From our perspective, there’s plenty of reason to look at MLPs (and their funds) over more notorious securities. We don’t expect you to sit through consecutive posts about MLPs, so we’ll do something wildly different Friday and then hit this topic in detail a week from today. And, as always, look for value that most people can’t bother to find. ‘Til then, class dismissed.

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Your Smart Car isn’t saving the world

June 22, 2011

Gas prices too high? Congress will solve the problem, by forcing those greedy car manufacturers (who are in bed with Big Oil, you know) to increase their average gas mileage.

 

 

 

This model of Hummer actually gets NEGATIVE miles per gallon.

Gas prices low? That means people with low-mileage cars will drive more than they otherwise would, polluting our rivers (I think. Rivers might have something to do with it. Okay, oceans then) and keeping us ever more dependent on foreign oil. Which means it’s time for some intervention. Like legislating higher gas mileage.

Gas prices at their historical average? Well, there’s probably something nefarious about that, too.

Let’s go to the helpful folks at AAA for some numbers. AAA, the organization that will replace your flat tire (something any human should be able to do), bring you gas (if you’re dumb enough to run out, which should be practically impossible), give you maps (obsolete c. 2007) and send that godawful monthly magazine with prissy stories about the charming new vineyard taking root (haw!) in Sonoma County. “They make a Cabernet that is to die for. Best enjoyed with roasted squab. Tastings and tours daily.”

Take most of what AAA says with skepticism – they’d have you believe that checking your email at a stoplight is the equivalent of driving over the double yellow with a Stolichnaya bottle balanced on your knee – but we’ll use their estimates.

They claim the average American drives 13,500 miles a year. Meanwhile, the Corporate Average Fuel Economy standards mandated by federal bureaucrats and legislators require the average passenger car get 30.2 miles per gallon.

(Why they don’t simply legislate that the average car get 10,000 miles per gallon, run on kitchen waste and not be allowed to get into accidents is anyone’s guess.)

Back in the real world, that 30.2 figure is for the current model year. Of course, most of us drive cars from previous years. The mandated average has been constant at 27.5 for the previous two decades, so it’s safe to use that as our bellwether.

That means, grossly simplifying things, that the average driver should use about 447 gallons a year. There are around 250 million cars in the U.S., so that’s 2.7 billion barrels of oil we use every year, you filthy mechanized polluter.

A couple of qualifiers, first being the absurdity of mandating technological “advancement”:

Miles per gallon is easy to measure. Other, more important characteristics of a vehicle – like its ability to withstand fires or protect its occupants in collisions – aren’t so simple to quantify. Nor are they the concern of the particular bureaucrats who implement CAFE standards. Our political betters are collectively self-aware enough to know that they can’t set standards for two disparate variables simultaneously – cars should have at least gas mileage x while having fire retardation y – but that doesn’t stop them from measuring the one variable and enforcing an arbitrary, largely unforceable minimum.

Setting that minimum is a politically palatable way of what can only be described as fixing the market. The result is that auto manufacturers are forbidden from selling as many of their low-mileage vehicles as buyers want. Instead, said manufacturers can only sell a given number relative to the number of high-mileage cars they can sell. Otherwise, the average gas mileage of the cars they sell would decrease. Simply because people, for whatever reason, like to buy cars that burn a lot of gas.

It should be obvious that it’s not the flagrant gas-burning that people like for its own sake.

Honda makes a powerful if unglamorous SUV (the Pilot) that’s strong enough to tow 4500 pounds and roomy enough to carry 87 cubic feet of cargo. Which necessitates it getting 18 miles a gallon. The CAFE standard for “light trucks” is 20.7 mpg, which means Honda has to sell enough 36-mile-a-gallon Civics to raise its corporate mpg average, regardless of what the car-buying public wants (or would want, without government functionaries forcing Honda to meet 3rd-party standards, rather than maximize profit.)

Average fuel economy standards are a joke, created by politicians of both parties to feel good about themselves. If Congress wanted to truly “reduce our dependence on foreign oil*”, they’d order us to drive motorcycles.

The sad part is that more than a few dumb voters nod their heads and reelect these idiots, confident that legislating science is a) possible and b) worthwhile.

When you’re looking at buying a car, obviously you should think about how much you’ll spend on gas. But don’t make it your only criterion. By the way, our book Control Your Cash: Making Money Make Sense devotes an entire chapter to it. Which you can download free.

*Apparently, it’s perfectly fine to depend on foreign food, manufactured goods, software, banking, and cobalt, though. Only oil is sacred.

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