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How much do cars really cost?

By Lawrence Henry
web posted August 13, 2001

My wife and I have lately gotten dinged with repair bills for our nicely ageing automobiles. My wife has a 1987 Mercedes that looks new. We just spent $315 to replace a wheel bearing. That should caution any prospective buyer of a Mercedes. Parts cost the earth. The hood clasp on my 1989 Cadillac is cracked. It still closes, but who knows when it might let go? Or where?

Sally has always described cars as "a wasting asset." I'd have to agree. But mostly, we don't really know what they cost. I certainly don't. So I'm going to explore some typical scenarios here on a per-mile-driven basis, the only measurement that makes any sense. You drive a car to get places. If certain ways of buying cars cost more than other ways of buying cars - measured per mile - then let's find out about it.

First, let's look at buying a mid-priced new car. Except for stockbrokers, almost no one buys a new car for cash. Whether buying or leasing, the monthly cost of the car is about $300. Add $2,000 to that for a down payment or front-end leasing fees. Most Americans drive about 1000 miles a month. At 20 miles per gallon average, with gas at $1.50 a gallon, that's $75. Car insurance for a new car will certainly include collision and theft insurance, pushing the bill to about $1000 a year.

We'll presume that repairs are covered by warranty, and that the new car owner-driver will trade in the auto after three years. Here are the basic prices:

Purchase cost: $12 800
Gas: 2 700
Insurance: 3 000
Oil changes 600
Miles driven 36 000
Cost per mile 53 cents/mile

I assume that, at trade-in, the trade-in price vs. the remainder of payments or lease cash-out balance will be a wash. That may not be true.

Now let's evaluate what Sally and I did, buying older cars for cash. The car costs, say, $7,500. For a big car, like mine, bump up the gas costs by 50 percent, to $4,050. Add in yearly repairs at $750 a year. Insurance costs can be halved, because you don't buy collision or theft insurance, so that's $500. Oil changes are the same. At the end of three years, if you trade in or sell the car, you may get $2000 for it, and yes, selling a car is a hassle. Here are the figures.

Purchase cost: $7 500
Gas: 4 050
Repairs 2 250
Insurance: 1 500
Oil changes 600
Miles driven 36 000
Cost per mile 38 cents/mile

But used car drivers do not behave like new car drivers. We kept our last used car for 10 years, and there's no reason these two cars won't last that long, either. So, for comparison's sake, let's do six years, doubling all the figures, except the first - the original cost, which doesn't change. Let's allow that the resale price will go down, too, perhaps to $1,000. Here's what it looks like:

Purchase cost: $7 500
Gas: 8 100
Repairs 4 500
Insurance: 3 000
Oil changes 1 200
Miles driven 72 000
Cost per mile 32 cents/mile

 

So what does this all mean? Not a heck of lot that should surprise anybody. But sometimes the simplest truths are the most important to remember. The single most expensive part of car ownership is the purchase price, no matter how you buy the vehicle. The less often you buy, the cheaper you drive.

Yes, I've left some things out here, including title, taxes, and registration, and how much cheaper it is to drive a used economy car. But these things tend to balance one another out. Higher taxes and registration fees on new cars are balanced off by the general unavailability, in the used car market, of low-mileage economy cars. (People drive economy cars hard, and a lot.) Statistically minded folks may be able to fine-tune these figures and make them into a graph, which should start to level out at a certain number of years. What questions would that answer? Two, perhaps: 1) How long should plan on owning a used car before selling it and buying another? 2) How high do your repair bills have to get before you should give up on the old machine?

Until then, find a good mechanic, and keep fixing. ESR

Larry Henry is a regular contributor to Enter Stage Right.

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