You have to crunch your own numbers, but this sort of thing can work out.
Earlier this year, I "traded down" from a 1996 Volvo 850 wagon to a 1999 Chevy Metro and 1992 Buick Roadmaster Wagon. I sold the Volvo for $1650, and bought the Metro for $1000 and the Roadmaster for $700. So dollars-in was pretty close to dollars-out upfront on this "trade".
The Volvo was too much of a relative gas guzzler (~26MPG avg) for 90% of our miles, and too small/unable-to-tow for 10% of our miles. The Metro gets me 45MPG all day (and the cheapest/easiest maintenance and repairs ever), and the Roadmaster seats 7 if desired, fits four medium sized dog crates if desired (plus driver and passenger), has a towing capacity rivaling plenty of pickup trucks (5,000lbs with the towing package), and still manages to hit 20MPG on the highway while using A/C (it's quite a greenhouse so unfortunately A/C isn't as optional as in other cars in the summer).
So the Metro is my go-to daily driver (and for trips if we don't need the big car), and the Roadmaster sits 90% of the time (I'm sure the neighbors look out at it every morning and admire its beauty). It only gets used if we're transporting a crapload of people, traveling with multiple crated dogs, towing, etc. It's also useful in a pinch for the times when we need a second vehicle (luckily not terribly often).
It's been a win-win for us. The only increased constant costs have been registration and insurance, which totals about $500/year for us. I've already saved more than that much in gas by driving the Metro instead of the Volvo. And the Roadmaster has been incredibly handy to have around. I think the benefits will only increase with time.