AAA now estimates that its costs 58 cents per mile to operate a new vehicle, down from 59 cents just a year ago on the wave of weak gas prices we've been seeing for much of this year.
Yet despite the lower cost of gasoline this year, fuel costs only account for less than a fourth of the expense of car operation. So where is all the money going?
Depreciation. When you buy a new car, the value drops like a rock the minute you drive it off the dealer lot. Other factors that figure in the 58 cents per mile cost are insurance, maintenance, the interest on a car loan and more.
What are the best cars for resale value?
Speaking of depreciation, Kelley Blue Book recently published its annual Best Resale Value Awards for 2015 vehicles.
The absolute winner across all categories is Subaru. Subaru retains almost half of its value after 5 years of ownership. That's extraordinary when you consider most cars only hold roughly 20% of their value when you're 5 years in! Other brands that did well include Chevrolet, Toyota, Lexus, Honda and Mazda.
The question of depreciation is why in many cases buying a used car is better than buying a new car. Considering how much value cars lose the minute they drive off the lot, isn't it great to be the second owner of that car -- not the first one?
If you are a used car buyer, these are best to look at buying secondhand because they all take steep depreciation losses in the first year of ownership:
- Hyundai Genesis - after a year, it loses just under 40% of its value. So, for example, a $50,000 Genesis new would sell for roughly $30,000 when it's 1 year old!
- Cadillac CTS - loses 37% of its value after a year
- Chevy Impala - loses 33% of its value after a year
- GMC Yukon XL - loses 33% of its value after a year
- Mercedes Benz S class - loses 33% of its value after a year
The message is clear: Cars lose so much in value over time. They are a depreciating asset. Remember that a new vehicle purchase is almost always a lifestyle purchase and keep that AAA figure in mind. For every mile you drive, 58 cents vanishes from your wallet.
Consider buying used
I’ve long told people to buy used wheels and keep them for 4 years or to buy new and keep the car 10 years. Changing how you handle that auto expense in your life is huge. Don’t grow weary of a car before its useful life is up!
The big thing working in your favor right now is that the value of used cars is going steadily down as so many people are buying new cars. So you’re in a position to do very well.
As far as operating costs, the hot spot in the marketplace are SUVs. But the cost to operate an SUV per year is on average $2,000 more than the cost of a sedan. That doesn’t mean that an SUV for your lifestyle won’t work. I just want you to know it is about $150 to $200 more a month out of your wallet versus a sedan.
Should you rent a car or drive your own on vacation?
More than 80% of people that will travel over summer will do so by car, not by plane. So what's the right way to do that?
If you're talking about the typical 1-week summer road trip with substantial miles, it almost always makes more sense to rent a car than to drive your own.
That's because the miles you put on a rental car are cheaper than your own car. I already told you AAA estimates say that it costs 58 cents per mile to operate a car. Of that 58 cents, you're only paying around 11 cents in gas. The other 47 cents goes for expenses like insurance, maintenance, and depreciation.