[joey]

As an example, my Taurus cost $2000, and I can reliably squeeze 30+mpg highway out of it (EPA highway rating is 26). The cheapest new cars you mentioned start around $14,000 off the lot, which leaves someone with a $2000 car with $12,000 extra to play with. At $2.60/gal gas, I get to drive 138,000+ miles before my purchase and fuel costs even catch up to (never mind exceed) what it cost you just to drive that Fit/Yaris/Rio away from the dealer. This doesn't even begin to take in the astronomical costs of insuring a brand new car compared to a 5-or 10-year old one, or the fuel you need to start paying for once the car is yours.

Factoring in insurance, maintenance, and fuel, the crossover point (where a new car achieves a lower cost than a low-priced used car) may not be reached for more than 300,000 miles--by which point, most drivers will be looking for a different vehicle anyway. If the mpg difference is slight, or if the purchase cost discrepancy is extreme (hello hybrid tax!), it's highly probable the crossover point will never be reached. There are very few fiscally prudent reasons to buy a new car, and the government cashback offer isn't an exception to the rule. I'd strongly advise you to focus on sub-$5,000 used cars and spend some time looking around. You don't have to choose between price, fuel economy, and reliability; it's very possible to have all three.