The Cost of Car Ownership

I purchased a new car last Sunday. My day-to-day supervisor at work owns four cars and talks about the cost of ownership in dollars per mile. That got me thinking to work on analyzing the cost of the car I currently own.

That car was purchased in June 2007. The note was paid off in 2011. Our plan is to continue to own the car since it has been designated the Dog Transportation Vehicle (DTV). It is a 2001 model Lexus RX 300 that now has 170,000 miles on it. I regularly service it at Lexus of Seattle and they expect it will hang around until 225,000 miles. That should take us to five years with the current amount of driving. Now that I have another car, the Lexus should only see regular driving on Tuesday and Thursday. Statistically, that should decrease the miles driven per week by 60%. Reducing 10,000 miles per year by 60% yields 4,000 miles per year. That means, based on mileage, the car should survive another 12.5 years.

When it comes to analyzing the cost of ownership, I have experienced four categories of costs:

  • Purchase
  • Insurance
  • Maintenance
  • Gasoline

There are also parking costs, but they are so low, compared to the other categories, that I have included them in the Gasoline category. These categories are interesting from a planning perspective; here is what I mean: Purchase is a fixed amount but non-persistent. Insurance is fixed and persistent. Maintenance is variable and persistent. Gasoline is variable and persistent in a limited fashion.

I mention that maintenance is persistent because it must be performed based on mileage or based on a calendar date. Now that I will be driving the car less, I expect to the hitting the calendar date rather than the mileage. Contrast that with gasoline which is only required if the car is being driven. The cost is variable in that sense because it is variable to miles driven per week and variable to price per gallon purchased.

After I gathered all of the costs of ownership of this car, I was surprised to see I had spent $64,500 in just under six years. That seems like a lot of money, but the breakdown makes it seem reasonable. The purchase cost (this is principle plus interest) is $26,000. This number is now set and will no longer change. The expectation is the cost per mile will start to substantially decrease and with one year without payments, that is what I have seen.

Surprisingly, insurance has only been $5,500. I guess I had just not thought about it but I have been accident and ticket free for the duration of my ownership. Also, since the bill shows up every six months, it always seems like a large sum of money. There is one conclusion to draw: the cost of insurance is less than 10% of the total ownership cost. This number is only good for this point. Because of the loss of monthly purchase payments, the insurance expense will start to grow as a percentage of the cost of ownership.

Maintenance will require some analysis and merits itself as a watch item. I have currently spent $16,400 in this category. This will need to be watched in case it starts to grow. With the loss of the monthly payments, I will need to calculate the percentage of expenses that maintenance consumes. If that percentage starts to grow, it should be a leading indicator that cost per mile will begin to grow. At each step, a decision will need to be made regarding the retention of the car. Part of that decision will be comparing the cost of maintenance and the reliability of the car. For example, if the car retains its reliability, the increasing maintenance cost might be justifiable.

The final category, gasoline, is where the real surprise was at $17,000 spent. That is about 25% of the total amount. I would have guessed it was lower, but much like the insurance expense, I lose the total cost in the small charges at a high frequency. Isn’t that an interesting psychological insight?

In six years, I have driven the car almost 100,000 miles at a cost of $0.69 per mile. Since the end of the monthly purchase payments, that cost is near $0.30 per mile.

I will have a good time comparing the expense curve to the new car. The new car gets 30 miles per gallon and has a lower monthly purchase expense versus the (nearly) 20 miles per gallon of the Lexus.

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Author: dmcnic

Educated as an economist, I now work as an Analytical Professional for a manufacturing firm. I have have a second job as a part-time lecturer at the University of Washington in Bothell. While all baseball interests me, the Mariners are my home town team. Married with one dog.

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