While many families will put nearly as much money into owning and operating their vehicles in a given year than they will sink into their retirement accounts — and will certainly be more passionate about what they drive than where they keep their cash — few motorists will pay the same attention to getting the most out of their automotive investments than they will their portfolios.
To wring the most value out of your ride you’ll have to work the bottom line like an accountant and think long-term like an investment adviser when you go out shopping for a new car or truck. That doesn’t necessarily mean settling for the cheapest car on a dealer’s lot just to save a few bucks. No matter what type of vehicle you favor, keeping a watchful eye on long-term ownership costs can mean substantial savings over a typical five-year ownership period.
“Car shoppers should take the time to compare vehicles on their consideration lists to fully understand the financial implications involved with cost of ownership,” says Juan Flores, director of vehicle valuation for Kelley Blue Book. “While a vehicle might be less expensive up front, the cost of fuel for that model, insurance and other expenditures could make it the less appealing choice for their wallet in the long run.”
Fortunately, the Internet makes comparing new-car ownership costs easier than scouring financial reports to pick stock-market winners. We consulted Kelley Blue Book, which recently announced its inaugural Total Cost of Ownership Awards. The kbb.com website tracks anticipated depreciation, fuel costs, insurance costs, financing, repairs, maintenance, and average state sales taxes and registration fees over a five-year ownership period for most makes and models, and even provides a per-mile expenditure for easy comparison. The accompanying slide show highlights models in 20 separate categories that kbb.com predicts will be the cheapest to own, based on the above cost assumptions.
Generally, the more expensive the vehicle, the more important differences in projected ownership costs become, simply because there’s more money at stake. “Total cost of ownership among relatively less expensive vehicles does not vary by more than $1,000 to $3,000,” Flores explains. “But in the luxury or near luxury segments, the variance can be within $8,000 to $10,000, and in the high-end luxury segment, total cost of ownership can vary by $20,000.”
When looking for a car that’s cheapest to own, you’ll get the biggest return on your investment by picking a model that’s predicted to hold its value better over time than others in its class, based on economic factors and historical data. This is likewise important for those leasing a vehicle because payments are largely based on its projected value at the end of the contract’s term. According to Flores, Kelley Blue Book begins its depreciation calculations with the average new-vehicle transaction price, based on what car shoppers are actually paying for a new car (not the Manufacturer Suggested Retail Price, or MSRP).
The next most-important cost variable to consider is a car’s fuel economy. With the national average price for a gallon gas at $3.51, according to the AAA (with $4.00/gallon a probability by summer), buying a more fuel-frugal model can mean significant savings. For example, the annual estimated cost difference between a vehicle that gets 20 mpg and one that’s rated at 30 mpg is $878 (based on current gas prices and 40 percent highway/60 percent city driving at 15,000 miles/year) according to the EPA’s fuel cost calculator at fueleconomy.gov. That’s a difference of $4,390 over a five-year ownership period, with even greater savings at stake if fuel costs continue their upward trend.
Another major cost factor is the price of auto insurance. While rates are based largely on a person’s driving record, age, gender, credit rating, address and miles driven, some cars are inherently cheaper to insure based on their claims histories and repair costs. Family-oriented minivans and crossover SUVs generally garner the lowest rates, with high-performance sports cars and top-of-the-line luxury cars being assessed the costliest premiums. Always consult with an insurance agent when shopping for a new car to compare rates among various models under consideration and shop among several companies to garner the best deal.
The kbb.com cost estimates we cite here assume a driver with a clean record using the vehicle for personal use. Quoted coverage includes liability, physical damage protection and (where applicable) personal injury, based on the most-often-selected limits and deductibles.
The maintenance cost projections from kbb.com we cite are based on the manufacturers’ recommended service schedules, with labor costs at the national average of $84 per hour, plus replacement parts and service items purchased at the suggested list prices. Repair costs are based on the retail price of a zero-deductible extended-warranty service contract that covers the vehicle for its initial five-year term of ownership.
Among the models represented in our list, it should come as no surprise that the smallest cars are both the most affordable to buy and deliver the lowest long-term operating costs. Thanks to high gas prices, a sagging economy and a wave of more-upscale models like the Ford Focus and Buick Verano, small cars are on pace to outsell midsize entries for the first time in nearly two decades, according to J.D. Power and Associates.
One final word: Never pay full list price for a new car or truck. While a Ferrari or Lamborghini dealer may not see the need to haggle, and a few in-demand models might actually command price premiums if they’re in particularly short supply, an astute buyer can pay less – sometimes by a substantial amount – than what’s quoted on the window sticker. Many cars can be driven off the lot for at or near the so-called invoice price, which is a slight percentage above the dealer’s actual cost for a given model. What’s more, choosing a vehicle for which the manufacturer is offering a cash rebate will further reduce a buyer’s costs.
Segment: Subcompact Car
Base MSRP: $11,770
State Fees/Taxes: $1,045
Total Five-Year Cost: $25,868
Cost Per Mile: $0.34
Segment: Compact Car
Base MSRP: $14,650
State Fees/Taxes: $1,315
Total Five-Year Cost: $28,451
Cost Per Mile: $0.38
Segment: Midsize Car
Base MSRP: $20,455
Maintenance: $2,166 State Fees/Taxes: $1,814
Total Five-Year Cost: $35,438
Cost Per Mile: $0.47