Cars, Or How To Waste Money In Style: Part 3

If I haven't made the impression on you in the last two weeks, cars can be very expensive. Even if you don't finance, buying a new car outright can be substantially more than a used alternative. But, of course, costs don't stop there! You have ongoing costs with any vehicle - gas, oil changes, belts, tires, etc. And, of course, the more expensive cars typically cost more to maintain. Oh, and after hauling around town for years, your once-amazing ride has now lost thousands of dollars in value. So let's spend this third blog on cars covering the true cost of ownership.

Modern cars come with photographers that take pictures over your shoulder as you drive.

The Little Things Add Up

You've decided to save some money and buy a used car. After some research, you've bought a used 2016 Toyota Camry with 35,000 miles (or 56,327 km for my international readers) for $17,000 and are ready to show it off! But after dropping that cool $17K, you're far from done paying. Every time you fill up the tank, get an oil change, or take your car into the shop, you're spending on a vehicle! To put some numbers to how much you'll spend over the life of a vehicle, I calculated some realistic costs for owning an average vehicle. My assumptions are based on general numbers I found for assumed maintenance.

You're almost buying another car with how much you spend over the life of the vehicle!

If you think this is bad, try buying a luxury car! Repairs and general maintenance can be double this cost. Or how about a truck? Take that fuel economy down to 15-20 miles per gallon, which over 100,000 miles would add about $4,000.

Only time I've had someone in white gloves open a door for me was to escort me outside.

The Great Depreciating Asset

I could (and probably will) dedicate an entire blog to a conversation about assets. Assets are tangible items you attain in your life that have a resale value. Think house, 401(k), furniture, appliances, or anything you own that would have some value if sold to someone else. There are assets that appreciate (gain value) over time, and assets that depreciate (lose value) over time. Most items we buy and use depreciate over time. For example, a new refrigerator may cost $2,000, but would you ever pay that much for the same fridge, but used? Cars would be a perfect example of a depreciating asset - an item that loses money over time and/or use.

Using the example above, that 2016 Toyota Camry is going to be worth a lot less than $17,000 after putting on 100,000 over a period of time. In the U.S.. the average mileage a person drives in a year is 15,000. Let's just assume 6 years of use. For comparison, I looked up a 2010 Toyota Camry with 135,000 miles (remember, it was purchased with 35,000 miles already). I picked a Camry intentionally as they are known to hold their value over time. I found a beautiful red 2010 with 134,135 miles for $5,999 plus fees. So, over 6 years of use, you've lost $11,000 in vehicle depreciation! Combined with the overall maintenance, you've spent over $25,000 in 6 years, or over $4,000/year! And, remember, you just bought a used Toyota Camry... what if you bought that fancy new pickup truck? I found 2014 GMC Sierra 1500's with about 90,000 miles (15,000 miles/year over 6 years) for about $22,000. Now, a new 2020 with comparable features? $58,000. Over six years, that's $36,000 in depreciation, or $6,000/year!

You have options. Like staring at diverging paths for hours instead of picking one.

What Can You Do?

While we've established that cars are costly, what are we supposed to do? We have to be able to drive to work, tote kids around town, and run errands. So is there really any way to avoid all this cost? Of course! If you live in a major metropolitan area where public transportation or ride-share services are readily available, do you really need a car? If you have an occasion where you do need one, you could rent one as needed. There are boutique rental companies operating in major cities for this very circumstance. Depending on your needs, it may be cheaper (especially if parking is expensive) to avoid a car altogether. I'll leave you with some homework to work those numbers yourself for your situation.

If you live somewhere where it would be impractical to not own a vehicle, consider the size/cost before buying. To take my last dig at trucks, how often are you really using the 2,000 lb. payload? If you need to help a friend move, there are ample options for renting moving trucks/vans that are very affordable, with the minor inconvenience of renting one as needed. By my simple math, if you could do without that new GMC Sierra and go with the used Toyota Camry, you would have enough savings for 20 full-day rentals of a moving truck ($100/day) per year in depreciation alone!

When to Sell

It's now 2026. With your 2016 Toyota Camry at 135,000 miles, is it time to sell? This is the the other side of the equation. When deciding when to move on to a new vehicle, there are two variables I consider. First, does the car still meet your needs? If you're driving a coupe and have kids on the way, you may want to get a sedan. If you're driving a rusty conversion van and get a new job where you need to drive to meet clients, you may need something more presentable. Second, have you had to (or do you anticipate) a lot of maintenance being needed soon? While repairs aren't always predictable, certain components (e.g. tires) have fairly accurate life cycles. If you can sell before replacing, this makes sense. But, if you sink $1,000 into a car, it would probably make more sense to hang onto it to maximize the utility. You're unlikely to get an extra $1,000 in sales price for basic repairs.

Conclusion

Cars are a significant expense in our lives. Even if you can avoid financing, the ongoing maintenance and depreciation really add up. You can save yourself some money and buy used over new, avoid financing, and buy only as much vehicle as you need. But does it pay to drive ancient used cars your entire life just to save some money? Completely a personal call. For me, I learned my lesson with that Jeep Patriot and will be buying used (but nice) used cars for the foreseeable future. The extra expense is not worth it to me in the long run. But you earned your money, and you can spend it however you wish. As I always say, just know the alternatives and what you're giving up before making the decision. Drive safe!