Thursday, January 06, 2011

The Endless Money Pit That Is Owning A Car

We've been thinking about getting a new car lately.  A bigger one, with room for the kids to put all their stuff.  Specifically, an SUV.  This has prompted me to dig into the broader business of car cost and return on investment and what we  should or should not be buying.

The bottom line: cars are money pits.  We forget that because they all seem to be sold in little bits and pieces.  The car is separate from gas, insurance, maintenance, and taxes, so each one on it's own seems quite reasonable.

The reality: when you add them all up, the cost of owning a car is like $9,000 to $10,000 per year.  I compared four different mid size SUVs that we were thinking about buying.  First off, I ruled out any hybrid SUV.  Not because I'm green, but because a $10,000 premium for an extra 2-3 miles per gallon is crazy.  SUVs do not yet have anything close to the efficiency gains comparable to cars.

The hands down winner, on paper at any rate, is the Subaru Forrester with a TCO that's a full $10k lower than it's nearest competitor over 10 years - the best measure of total ownership with the car fully depreciated.  The Subaru has both the lowest price and the best mileage of all the smaller SUVs.

The worst offender: the Nissan XTerra, primarily because of it's poor gas mileage, though I liked the look and style of the Xterra along with the Element the most.  The overall conclusion, however, was that buying a car is a $100,000 investment over 10 years when you include the cost of the car, the opportunity cost of the investment, and the running costs - a good rule of thumb is probably to multiply the sticker price by a factor of 4 to get the true cost.

The result: no car purchase, at least not this year if we can avoid it.

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