The REAL Cost Of Car Ownership

by Don Elliott on January 19, 2012

For over 60 years, AAA has published a brochure titled “Your Driving Costs.” They go through an exercise to calculate how much it costs the average guy to drive the average car an average distance. While you might not consider yourself average, the hard reality is that you might not have left enough room in the family budget to cover the car costs.

The beginning of the year is a good time to start tracking car costs to see if you are driving the right car or are at least keeping your budget in perspective. The AAA provides a worksheet to help you calculate your actual costs. The AAA pamphlet calculates cost per mile. For this exercise, I have used costs per year and compared that to the AAA estimate for a typical medium sized sedan.

Gasoline – It seems like the price of gas is always higher than we want it to be. We actually set a record for average gas prices in 2011, even though the swings between high and low prices were not as great. If you saved all your gas receipts for last year, you can post your actual gas cost without using the calculation in the worksheet.

Maintenance – Include the normal wear and tear items that you would replace in the course of the year; oil changes, wiper blades, tire rotation, fluids, and new keys from an auto locksmith to name a few things. Average bigger items like a battery or muffler replacement over 5 years.

Tires – Depending how many miles you drive, estimate a tire replacement every 40,000 miles. Better tires cost more, but don’t need replaced as often so adjust accordingly. Divide the cost of tires used over 5 years to find the entry for the worksheet.

Depreciation – The AAA uses the cost of a new car versus the value after 5 years to estimate their depreciation. For your car, particularly if it was not new, another method is to take the price you paid and compare it to a pricing guide “trade-in” value of the same vehicle only 5 years older. Divide the difference by 5 to come up with the annual depreciation.

Finance Charges – If your car is financed, check to see how much you paid last year in interest expense and any other fees charged by your lender. This is where many of us gasp at the total!

Costs Yearly Totals Medium Sedan
Operating Costs
        Annual miles driven  ____________      15,000
        Average miles per gallon*  ÷___________      23.1
        Average price per gallon  x          $3.56**      $ 2.88***
                Total Gas  =$__________      $ 1,870
                Total Maintenance  +$__________      $ 643
                Total Tires  +$__________      $ 166
                Total Operating Costs  $___________      $ 2,679
Ownership Costs
         Depreciation  $___________      $ 3,534
         Insurance  +$__________      $ 948
         Taxes, License, Registration  +$__________      $ 577
         Finance Charges  +$__________      $ 796
               Total Ownership Costs  $___________      $ 5,855
Other Costs  $___________      $ 54
Total Driving Costs  $___________      $ 8,588
          Total Miles Drive  ÷___________      15,000
          Total Cost  $___________      $ .573/mile

*Miles driven divided by gallons of gas used

**Track your own cost for gas for the whole year and divide by the number of gallons used, or use the Energy Department’s U. S. Energy Information Administration’s national average price per gallon $3.56, a much easier solution.

***$2.88 is the price per gallon used by AAA to calculate their driving costs per mile for 2010 based on their average cost per gallon estimation

Are you surprised at your REAL car costs? Look at it another way. If you didn’t have a car, all of these expenses would go away. Of course, your lifestyle would have to change drastically to accommodate not having a car! A better approach is to address the car costs individually to see which you can control to maximize your used car value.

Google+ Comments

Previous post:

Next post: