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.