Annual car ownership costs nearly $9,000 and new cars depreciate more than $3,000
Denver—If you bought a new car in 2018, you might have focused on the purchase price and monthly payment when it came time to calculate just how much car you could afford. That means, per AAA’s 2018 Your Driving Costs study, you likely overlooked the single largest expense associated with purchasing a new car: depreciation.
All told, depreciation accounts for almost 40 percent of the cost of owning a new vehicle – more than $3,000 per year, a figure influenced by a number of factors, including shifting consumer preferences.
“New vehicles offer the latest designs, cutting-edge technologies, and warranties that offer peace of mind,” said AAA Colorado spokesman Skyler McKinley. “Still, car owners who like to change vehicles frequently should be thinking about the resale value, not just the purchase price, when choosing their next ride.”
AAA’s Your Driving Costs found the average cost to own and operate a new vehicle in 2018 was $8,849 per year. The figure is calculated based on the cost of fuel, maintenance, repairs, insurance, license/registration/taxes, depreciation, and loan interest. The study examined 45 top-selling 2018 model-year vehicles across the following nine categories.
• Small sedan: $6,777
• Hybrid: $7,485
• Small SUV: $7,869
• Electric vehicle: $8,384
• Average: $8,849
• Medium Sedan: $8,866
• Minivan: $9,677
• Medium SUV: $9,697
• Large sedan: $9,804
• Pickup truck: $10,215
SUVs and pickup trucks grow in popularity
AAA’s annual analysis found demand for sedans has slipped as American appetites shift to SUVs and pickup trucks. As a result, depreciation costs for sedans increased up to 13 percent as compared to 2017. Electric and hybrid vehicles, meanwhile, have seen a gain in popularity – with 20 percent of Americans saying they will likely go electric for their next vehicle purchase, up from 15 percent the previous year. In 2018, those vehicles also saw a dip in depreciation and offer many cost benefits such as lower repair and maintenance bills, making going green a more affordable choice than in years past.
Buyers often only give priority to purchase price and monthly payment when choosing a new car, sometimes selecting a vehicle based on the best deal available. The length of planned car ownership, however, is of equal importance. Consumers who plan to keep a vehicle for only a few years should be cautious of deep discounts and incentives offered by automakers and dealers. These are often designed to sell less popular models, and directly influence depreciation. Low down payments and extended finance terms can have a similar effect. Stretching a car loan over five, six, or even seven years may be an effective way to lower payments, but owners may quickly find themselves owing more than the vehicle is worth.
Leasing is similarly affected, since payments are based, in part, on the projected residual value of the vehicle at the end of the lease. Since resale value is not a factor at the end of the lease period, buyers who prefer less popular models or only want a vehicle for a short time may consider leasing a more viable option.
“The secret to minimizing depreciation costs?” McKinley said. “Keep your car for a long time and keep it well maintained — or consider buying a quality, pre-owned vehicle.”
AAA tips to get money’s worth
While the latest technology, style, and options make them attractive to car buyers, a new car is rarely the most economical choice. Vehicle owners looking for alternatives to new car ownership or ways to minimize their operating costs should consider the following:
Buy (gently) used – By driving a pre-owned vehicle in good condition, ownership costs are significantly lower. A safe, reliable vehicle can be found at an attractive price point.
Work with an autobroker – An autobroker serves as your personal car-buying advocate, making sure you get the most bang for your buck and the best financing and warranties available. Find one at AAA.com/BuyACar
Fuel responsibly – Avoid wasting money on premium grade gasoline unless your vehicle specifically requires it and, if you're one of the 20 percent of Americans considering an electric car, know that these vehicles offer lower fuel and maintenance costs.
Show your car some love – It sounds counterintuitive, but spending money on routine maintenance can actually save you money in the end. To keep engines running cleaner and longer, consider switching to synthetic oil, if recommended by your owner’s manual, and upgrading to a higher-quality fuel. Find a mechanic you can trust at AAA.com/Repair.
Slow down – When gas prices are high, small changes in the way you drive can make a big difference.