The Largest Expense of Car Ownership Is Invisible

Owning a car comes with a variety of expenses. There’s gasoline (or diesel fuel or electricity), routine maintenance and insurance, for starters. But nearly 40% of the cost of owning a car is one you might not even notice.

Depreciation beats them all. According to a new study from AAA, the average annual cost of owning and operating a new car in 2018 is $8,849. The costs vary depending on the vehicle. A small sedan like the Honda Civic or Toyota Corolla costs $6,777 annually to own and operate, while a half-ton pickup like Ford’s F-150 or GM’s Chevy Silverado costs $10,215.

For the small sedan, depreciation accounts for $2,268 of the annual cost, while depreciation on a pickup rings in at $3,518. The cost is calculated based on 15,000 miles driven annually.

How much your vehicle actually depreciates depends on how many miles you actually drive — more miles equals more depreciation. But another influence on depreciation is, in some ways, out of your control.

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John Nielsen, managing director of AAA’s automotive engineering and repair group, said:

New vehicles offer the latest designs, cutting-edge technologies and warranties that offer peace of mind. But, car owners that like to change vehicles frequently should be thinking about the resale value – not just the purchase price – when choosing their next ride.

U.S. consumer demand for passenger cars has dropped while demand for sport utility vehicles, crossovers and pickups has increased. That led to a 13% year-over-year increase in depreciation on some cars.

That indicates that if you intend to purchase a new vehicle every two or three years, buying a new car that is in greater demand should reduce the cost to you of depreciation. In that vein, depreciation on electric cars, whether hybrid electric or all-electric, actually dipped last year according to AAA. More Americans (20% in 2018, up from 15% in 2017) say they are likely to buy an electric car for their next purchase.

AAA’s Nielsen offers this advice on reducing the impact of depreciation:

The secret to minimizing depreciation costs? Keep your car for a long time and keep it well-maintained or even consider buying a quality, pre-owned vehicle.

A new brochure from AAA can help you calculate — before you buy — the cost of owning and driving a new car based on your driving habits and actual costs.

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