New cars lose $3,000 annually in Depreciation
PORTLAND, Ore., – Owning and operating a new vehicle in 2018 costs an average of $8,469 per year or $706 per month according to AAA’s 2018 Your Driving Costs study. Small sedans are the least expensive to own and drive at $6,777 per year while pick-ups cost the most at $10,215 annually.
The largest expense associated with purchasing a new car is depreciation. In fact, it accounts for 37 percent of the cost of owning a new vehicle – more than $3,000 per year – and is influenced by a number of factors, including shifting consumer preferences.
“Most drivers don’t even think about depreciation when shopping for a new car. AAA urges consumers to think about re-sale value, not just the purchase price, especially if you like to change vehicles frequently,” says Marie Dodds, public affairs director for AAA Oregon/Idaho.
AAA’s annual study is based on the cost of fuel, maintenance, repairs, insurance, license/registration/taxes, depreciation and loan interest. The study examined 45 top-selling 2018 model-year vehicles across nine categories. It finds that car ownership costs about 4.5 percent or $380 more than last year. The increase is mostly due to higher fuel costs and finance charges.
The 2018 Your Driving Costs study finds demand for sedans has slipped as American appetite shifts to SUVs and pickup trucks. As a result, depreciation costs of these once-popular vehicles increased up to 13 percent as compared to last year.
Electric and hybrid vehicles, however, have seen a gain in popularity with 20 percent of Americans saying they will likely go electric for their next vehicle purchase, up from 15 percent the previous year. This year, these vehicles also saw a dip in depreciation and offer many cost benefits such as lower repair and maintenance bills, making going green a more affordable choice than in years past.
Buyers often focus on the purchase price and monthly payment when choosing a new car, sometimes selecting a vehicle based on the best deal available. The length of car ownership, however, is of equal importance. Consumers who plan to keep a vehicle for only a few years should be cautious of deep discounts and incentives offered by automakers and dealers. These are often designed to sell less popular models and directly influence depreciation. Low down payments and extended finance terms can also have a similar effect. Stretching a car loan over five, six or even seven years may be an effective way to lower payments, but owners may quickly find themselves owing more than the vehicle is worth.
Leasing is similarly affected since payments are based in part on the projected residual value of the car at the end of the lease, serving as a good indicator of which models experience higher or lower depreciation. Since resale value is not a factor at the end of the lease period, buyers who prefer less popular models or only want a vehicle for a short time, may consider leasing a more viable option.
“The secret to minimizing depreciation costs is to keep your car for a long time and take good care of it with regular maintenance,” adds Dodds. “Another option is to consider buying a quality used vehicle.”
While the latest technology, style and options make them attractive to car buyers, a new car may not be the most economical choice for some buyers. Vehicle owners looking for alternatives to new car ownership or ways to minimize their operating costs should consider the following:
- Buy (gently) used – By driving a pre-owned vehicle in good condition, ownership costs are significantly lower. A safe, reliable vehicle can be found at an attractive price point.
- Fuel responsibly – Avoid wasting money on premium grade gasoline unless your vehicle specifically requires it. If you’re one of the 20 percent of Americans considering an electric car, these vehicles offer lower fuel and maintenance costs.
- Show your car some love – It sounds counterintuitive, but spending money on routine maintenance can actually save you money in the end. To keep engines running cleaner and longer, consider switching to synthetic oil and upgrading to a higher quality fuel TOP TIER™ gasoline.
- Slow down – Small changes in the way you drive can make a big difference in your fuel efficiency and can also increase your electric-driving range.
AAA’s Your Driving Costs study employs a proprietary methodology to analyze the costs of owning and operating a new vehicle in the U.S., using data from a variety of sources, including Vincentric LLC. Additional information and detailed driving costs, including those for fuel, maintenance, repairs, insurance, license/registration/taxes, depreciation and finance charges can be found at NewsRoom.AAA.com or AAA.com/YourDrivingCosts.
As North America’s largest motoring and leisure travel organization, AAA provides more than 59 million members with travel, insurance, financial and automotive-related services. Since its founding in 1902, the not-for-profit, fully tax-paying AAA has been a leader and advocate for the safety and security of all travelers. Motorists can map a route, identify gas prices, find discounts, book a hotel and access AAA roadside assistance with the AAA Mobile app for iPhone, iPad and Android. Learn more at AAA.com/mobile. AAA clubs can be visited on the Internet at AAA.com.
AAA news releases, high resolution images, broadcast-quality video, fact sheets and podcasts are available on the AAA NewsRoom at NewsRoom.AAA.com.