So a barrel of crude oil cost has finally shot north of $93 a barrel in late October 2007, and the record price is already apparent in the price of gasoline. That hurts, but fuel is just one factor in the high cost of driving an auto, and it's seldom the biggest one.
The truth is that cars are expensive to run, and you'll be lucky to find one that will carry you a mile for less than 50 cents. According to the 2007 edition of the AAA's "Your Driving Costs," you could drive a small sedan 15,000 miles a year for 41 cents per mile. The cost can reach 66 cents per mile if you put 15,000 miles on a four-wheel-drive. That's an annual cost of $9,997—a difference of $3,750 between those two options.
And that's just the beginning of your annual costs. Many factors feed into the cost of driving: financing, depreciation, repairs and maintenance, insurance, and driving habits. Let's take a look at how you can save on these costs.
Depreciation is the first thing that happens after the salesperson hands you the keys and you drive off the dealers' lot. Even before your new-car joyride is over, your car has lost value. The rate of loss can be considerable. In fact, AAA estimates the average annual depreciation on a sedan driven 15,000 miles per year at $3,392, a full 60% of the estimated total cost for driving that car.
Depreciation—the decline in value—results from several factors. There's wear-and-tear: A car with 50,000 miles is that much closer to the scrap yard than a new car, and more likely to be in the repair shop. In terms of resale value, older vehicles suffer a reduced "wow" factor, since they lack eye-catching new features.
Depreciation is real. Figures from Kelley Blue Book show that after five years, the average piece of automotive rolling stock is worth 35% of its original price. So if you pay $25,000 for four wheels and a motor, it will be worth $8,750, on average, after 60 months.
But you're not buying an average car; you're buying a specific one: In 2007, Acura and Honda were tied for the highest resale values, meaning their cars will lose considerably less than 65%. We would not mention names, but the averages also disguise plenty of cars that will lose far more than 65%.
Ignoring residual value (what a used car is worth now) can put you in the dreaded "upside-down" position if you trade in a car and have to pay off the loan: Your equity in the car is less than the principal on the loan, and you must fork over some cash to make the lender happy. (Trading cars frequently is a sure-fire way to raise the overall cost of driving, leading many cash-conscious car consumers to cop a concept from Wall Street: Buy and hold.).
AAA estimates insurance expense for the average sedan at $985 per year, which would cover a 47-year-old male driver with a good record and a short commute. Drivers who are male, younger than age 25, poor students, or have a record of moving violations and/or accidents are more expensive. Drivers who combine several of these drawbacks find insurance the most expensive.
Regional factors can matter: Big-city rates tend to be much higher than rural ones. Raising the deductible and reducing the maximum coverage on the policy can lower premiums substantially, but both options also increase your risk. Make sure to ask about discounts for multiple cars, good driving records, lower annual mileage, and good grades (for students).
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