## Saturday, January 05, 2008

### Cost of owning a car

I am thinking about buying a new car for myself. This time around, fuel efficiency is the highest priority for me. I want my new car to give me at least 30 miles per gallon of gas in this \$100 per barrel oil price environment. No, I am not going for a hybrid or ultra-compact car; but I am thinking about buying a Honda Accord, Toyota Camry or Nissan Altima. The 4-cylinder models for these cars give more than 30 miles per gallon.

In this post, I want to calculate the total cost of car ownership for me if I go ahead and purchase a vehicle right now. Now, I am a kind of person who buys a car and drives that car until it dies. I am thinking that all the models listed above will be with me until the odometer will say at least 200,000.

1. Cost. The car will cost me about \$20,000. I will finance about \$15,000, and pay \$5,000 down payment. On the \$15,000 loan, lets say that I will pay about \$2,000 in interest. So, the total cost of car will be \$20,000 + \$2,000 = \$22,000.

2. Gas. I usually drive around 20,000 miles per year. Since I am thinking that my car will be with me until it has 200,000 miles on it, I can say that I will be driving this car for 10 years. Lets suppose that this car will give me 30 miles per gallon. Now, divide 200,000 miles with 30 miles per gallon and this gives me 6,666 gallons of gas this car will use during the 10 years I will drive it. Lets also assume that I will pay on average about \$3 per gallon of gas over these 10 years. My total spending on gas will be 6,666 * \$3 = \$20,000. (I am rounding the numbers here). As you can see, I will almost spend as much as a car costs on gasoline in the next 10 years.

3. Oil changes. Lets say I will get oil changes done every 4,000 miles. Divide 200,000 by 4,000 and this gives me 50 oil changes that I will have to get done over the 200,000 miles. Today, an oil change at Jiffy Lube costs me about \$30. I will assume that on average over the next 10 years each oil change will cost me about \$35. Multiply \$35 by number of oil changes (50) and I get \$1,750.

4. Insurance. My insurance is about \$400 every 6 months as of now. Lets say that I will pay on average about \$500 every 6 months and \$1,000 every year on car insurance. So, the insurance will cost me \$10,000 over the 10 year time period.

5. 30k services. I will get the 30k maintenance services done at 30k, 90k, and 150k miles on the odometer. Let's suppose each of these services will cost me about \$500 (If I am lucky, otherwise it will cost a lot more). So, the 30k services will cost me about \$1,500.

6. 60k services. I will get 60k services done at 60k and 120k. I will skip the 180k service and not spend money on it because 180k is too close to 200k and I will not spend too much money on a car with that many miles on it. Lets say each 60k service will cost me about \$1,000 (again, if I am lucky). So, the two 60k services will cost me about \$2,000.

7. Tires. Tires are expensive. 4 tires at places like Sears or NTB costs about \$500 for a car like Accord, Camry or Altima. Lets say that I will get new tires at 70k and 140k miles. The total cost for the tires will be \$1,000.

8. Repairs. I am thinking that additional miscellaneous repair costs will run about \$2,000 over the life of this car. This could be more or less. But, I am thinking it will be more.

Lets sum it all up and see how much damage this car will do to my pocketbook.
1. Cost. \$22,000.
2. Gas. \$20,000.
3. Oil changes. \$1,750.
4. Insurance. \$10,000.
5. 30k services. \$1,500.
6. 60k services. \$2,000.
7. Tires. \$1,000.
8. Repairs. \$2,000.

I add it all up and the total comes to: \$60,250.

This new car will cost me \$60,250 over the next 10 years. Ouch! I will drive 200,000 miles. So, per mile cost will be \$60,250/200,000 = \$0.30. 30 cents per mile.

My overall tax rate is around 30%. I am in the 25% federal tax bracket and my state and local taxes are about 7%. But I don't pay 25% federal tax on all of my income. Some of my income is taxed at 10% and then 15% before I get hit at 25%.

Here is the last but I think the most important part of the calculation. What will I have to earn over the next 10 years to pay \$60,250 after tax expenses for my car? The answer is: I will have to earn about \$86,100 in gross income before taxes to get \$60,250 in after tax income. I will get \$60,250 after I pay 30% in taxes on my \$86,100 gross income.

After spending \$86,100 of my gross income on this car over the next 10 year what I will get in the end? Nothing. The value of this car at the end of 10 years will probably be zero or very close to zero.

The supposedly affordable midsize 4-cyle sedan all of a sudden is not looking too affordable to me. This will be very expensive.

Cory said...

Wow. I just bought a 2007 Honda Civic Si and now I refuse to calculate how much it's going to end up costing me thanks to your post ^_^ I was days away from buying a Corolla before I decided to take another look around. I HIGHLY recommend the Civic Si. I did a ton of research about the Camry, Accord, Altima, Corolla, etc. and the Si is just awesome.

Sure its expensive but it doesn't give you nothing. When you die you have nothing whatever you do. A car will give you freedom to move around a whole lot more and pickup roadkill.

When America becomes a mad max world where who owns the gas calls the shots, and tribes of gas crazed men shoot you down for the few litres in your tank, you will stand a better chance of survival for resources like women and hunting grounds dodging bullets with your car than without.

My Dollar Plan said...

30 cents per mile! Wow. Now the next step would be to look at how you can cut down on mileage.... of course that might make the cost per mile go up.

Anonymous said...

We purchased a 2008 Toyota Prius at a reasonable price, about the avg price I'd expect to pay for a mid-size family sedan.

So far, even though the gas tank is smaller by 7 gallons than our previous sedan, we stop at the gas station roughly half as often, and fill up to the tune of ~9 gallons each time.

I haven't done the math, simply because the need to own a car is full of intangibles for us (remote family, ski trips, errands in a city with woefully underdeveloped transit) - but I assume in 10 years I'll sell it for about 20% of what I paid for it.

*However*, my research (extensive) points to the Toyota HSD transmission and 4cyl engine as being extremely low maintenance and reliable. I definitely calculated this into my purchase decision. Even the fact that the brakes on a hybrid can last > 80k miles saves a few hundred bucks over the life of a car. These factors, plus the reduced gas expenditures due to ~50mpg made the math work out in favor of the Prius.

emeraldmaiden said...

Not to mention the approximately \$3,500 transmission that will certainly need replacing at least once over the lifetime of the car. Fuel pumps, water pumps, brakes, computer components - these will all wear. This will increase costs in the repair category substantially.

The last car I drove (til it died!) went through six starters before the real problem was discovered in the ignition wiring.

I'm currently driving a paid-off \$12,000 car, a 2001 with just under 46k miles on it. Glad I live fairly close to everything!

M0b1u5 said...

Cheap as dirt. 30 cents a mile? That's a steal. Try running a 4.7 Litre 1982 Porsche 928 as your daily driver. People ask me what the gas costs, but the answer is irrelevant because maintenance and repairs on the car are more than double the price of the gas.

Try spending \$9K a year in maintenance alone.

Sweet Baby Jebus, running a 4-cylinder Honda is probably the world's cheapest motoring, provided you buy new and run it until it's worn out.

How could anyone think 30 cents a mile is expensive?

Hell, here in New Zealand the average running cost (of the average car!) is 60 cents a KILOMETRE - so that's a dollar a mile.

Get real.

Anonymous said...

You think the price of gas is going to average \$3/gallon for the next ten years?!? Think again. You'll be lucky if its selling for \$10/gallon ten years from now, if at all. Google Peak Oil and rub a couple brain cells together.

finance girl said...

Too bad every consumer doesn't go through this calculation and understanding they are considering a depreciating asset that will wind itself down to 0.

I drive a 16 year old Acura Integra I have had since new, and am in the same spot as you considering a new car.

Except I am going to pay cash for it...but still...my point is, everyone should think TCO over life of car, not just "how much can I afford in car payment a month?"

This really shows up the accounting costs of owning a car, but not the opportunity costs of owning a car - which are different.

I ran through the same calculation - and thinking I was clever, held off the purchase of a car for years.

I then added up the cost of all the hours I spent waiting in the freezing snow for the public transport, dethawing my numb nuts, and scabbling through thickets and streams in the dark when the public transport didn't turnup when i worked late and missed it by 2 mins, tattered cothing etc.. and came to a different conclusion.

9 months working like that, was about 200 days of public transport grimness. The opportunity costs in terms of time wasted and physical depreciation and unplesentness actaully cost me more than the \$20 per hour x 200 hours = \$4,000. Add on the difference of being prepared for work, meetings, being able to enjoy the odd trip etc..

themicrokid said...

If you don't buy the car or you still going to drive the miles in a car you already have?

Or rent a car or take a taxi?

If so, I think you may have a bit too much packed in to your calculations.

I do have only one car for my wife and my self, based on logic not to far from yours.

And I spend about \$600-1,000 per year for car rentals for local use when we both need cars and they are not billable to a client.

Great analysis technique.

Micro
http://themicrokid.blogspot.com/

EU Reimport said...

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Anonymous said...

This is a good work-up for anyone looking to buy a new car. When I first graduated college I was all about buying a new car and 6 years since graduation it is a different story. For me at this point in my life I feel a used car which has already lost 30 % value after the first three years is a great viable option for me.

truck rental said...

I think there are so many different ways to check out a car you intend to buy- and I must say you checked it all! I was always an impulsive buyer- therefore I am very impressed by you post here :) I should learn from you a few tricks.