Buying a car for mileage alone a huge mistake
Filed under: Shopping, Transportation
Would you buy a house because one-fourth of it suited you needs? Then why buy a car solely for its gas efficiency? According to Consumer Reports (subscription required), fuel only accounts for 26% of your overall vehicle cost. Depreciation claims a huge 46%, interest on your loan 12%, insurance 10%, maintenance/repair 4%, and taxes 3%.
Obviously, then, a driver interested in traveling cheaply will focus first on depreciation. The first rule of thumb to reduce your out-of-pocket for depreciation; stay away from the new car lots. Depreciation can easily suck away half of your car's value in the first two years.
If you absolutely must buy new, look for models that hold their value. For 2008, bankrate.com lists these vehicles as the best at holding value: the Volkswagen R32, Jeep Wrangler, Mini-Cooper, Scion XB, and the Honda CR-V. The worst five value holders are the Hyundai Entourage, Chevrolet Malibu Classic, Kia Optima, Suzuki Forenza, and Hyundai Accent.
If you're going to buy used, you might want to avoid those cars at the top of the "holding value" list. Let someone else pay for their depreciation.
Since insurance represents 10% of your driving cost, choosing a vehicle that costs less to insure can further pad your wallet. In 2008, bankrate.com's least expensive to insure list was topped by the Jeep Patriot, Pontiac Vibe, Mazda 5, Chrysler PT Cruiser and Scion xB, The most expensive? The Jeep Compass, Chevrolet Uplander, Pontiac Torrent, Jeep Wrangler and Mazda Tribute.
The most surprising bit of data here for me was the miniscule percentage of overall vehicle cost eaten up by maintenance. As a criteria for purchase, this seems relatively unimportant.
To cut your costs to the bone, look for a car that has already depreciated through the steep part of its curve, that isn't expensive to insure, and gets at least average mileage. Steer clear of those care that get great mileage but kill you in depreciation. Paying $4 at the pump beats tossing $10,000 out of the window.
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Reader Comments (Page 1 of 1)
9-11-2008 @ 11:59AM
Bridget said...
Tom, please check that bankrate list again. The list is entitled "10 cheapest cars to ensure" so ALL the cars on that list were cheap. Your post says the last five on the list were "the most expansive", and they aren't, they are explicitly cheap too. I would imagine the most expensive cars to insure list would start out with very pricey sports imports, not a Pontiac Torrent or Mazda Tribute. :)
Just a little correction, thanks.
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9-11-2008 @ 12:31PM
Tom Barlow said...
Yikes- thanks! My bad.
9-13-2008 @ 3:36PM
Jason Accurate Auto Advice said...
Tom - I really like the topic of your blog post, but I'm dismayed by some of your advice.
First, depreciation is only important when you're planning on keeping a car for a relatively short time. The best car advice (financially speaking) is to buy one car and keep it until the "wheels fall off." In other words, 8-10 years. No vehicle holds its value over that length of time, so depreciation becomes a non-issue. If you're being financially responsible in the first place, depreciation is a mostly minor concern.
Second, you advise people not to buy cars that do a good job of holding value. Yet these vehicles hold their value precisely because they're worth owning.
I appreciate what you're trying to convey, but hopefully people will see that some of your advice here is incorrect.
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9-29-2008 @ 2:33PM
Penny @ InsureMe said...
Hi Tom,
I just ran across your blog and wanted to say what great information I think you're providing here.
Though people buy certain cars for their own reasons, I actually heard on the news recently that more people are purchasing cars today not for gas mileage, but for car type and model.
I think this falls right in line with what you've said about depreciation: because a car's value will drop over time, most people would rather buy used than new--or buy a car that holds its value better than most (case in point, the Honda Accord or Toyota Camry).
Another thought: they say it usually takes something like 12 years to save enough in gas mileage to recoup the expense of trading vehicles. So regardless of the reason for buying a car, we all need to take this into consideration before making the trade.
Thanks for providing this information. I work for an insurance marketing service and am always researching, looking for the latest information to provide consumers on our site. It's hard weeding through all the garbage out there, but it's great to occasionally find well-written, easy-to-understand information. Hats off to you for an informative blog!
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