What's Your New Ride Worth to You?

cars.com On the Road Weekly Publication

Paying attention to long-term ownership costs when shopping for a new car or truck can pay off in the long run.

By Jim Gorzelany

CTW Features

As new cars continue to sell at a record pace, many browsers are turning into shoppers and shoppers into buyers. But experts caution that astute consumers need to look at more than a car or truck’s transaction price to ensure they’re getting the best deal. Keeping a watchful eye on long-term ownership costs – often cited on car-pricing websites and other sources – 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 (kbb.com) in Irvine, Calif.  "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."

One of the biggest costs of owning a car is its depreciation, or how well it’s predicted to hold its value over time based on economic factors and historical data. This is particularly important for those leasing a vehicle because payments are largely based on its projected value at the end of the contract’s term. The difference between one model and another after five years can amount to several percent of its original cost. One source for comparing the relative future values of vehicles is Automotive Lease Guide (alg.com) and its annual list of depreciation ratings.

Also consider fuel economy. With the cost of a gallon of gasoline at or over $4, buying a more fuel-frugal model can mean significant savings. According to the Environmental Protection Agency, at that price the annual estimated cost difference between a vehicle that gets 20 mpg in combined city/highway driving and one that’s rated at 30 mpg is $1,000 (based on 15,000 miles/year). That’s a difference of $5,000 over a five-year ownership period, with even greater savings at stake if fuel costs continue their upward trend. Fuel economy ratings and customizable annual cost estimates for all makes and models can be found at the EPA’s website (fueleconomy.gov).

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 assessed the costliest premiums. Always consult with an insurance agent when shopping for a new car to compare rates among various models under consideration. State Farm Insurance’s website (statefarm.com) includes a database with relative cost rankings for collision, comprehensive and medical/personal liability coverage for most makes and models.

Financing costs can likewise make a big difference over time, so be sure to shop among lenders for the lowest available rates. The difference in a five-year car loan with a $20,000 balance financed at four percent instead of seven percent amounts to $1,661 over the life of the loan according to Bank Rate Monitor (bankrate.com). Automakers and their affiliated finance companies often offer cut-rate or zero-interest loans on select models, though these are typically limited to buyers with spotless credit records.

Finally, maintenance and out-of-warranty repair costs often differ from one make and model to another, based on the manufacturer’s service schedule and the cost of parts, but this is difficult to quantify. Generally, luxury brand cars cost more to service than those from mainstream brands, in large part to cover the cost of amenities like free loaner cars, waiting-area espresso bars and the like. Buying a car that’s covered for a longer warranty period helps keep out-of-pocket repair costs minimal.

Generally, the more expensive the vehicle, the more important differences in projected ownership costs become over time, 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,” says KBB’s Flores. “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.”

That’s a return on investment few of us can afford to ignore.

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