Cost per Mile

 

Do you know what it costs to drive the averaged price new car, with all cost related to it, per mile? I have been trying to find this figure. I think most people would be surprised to find out what the actual cost is. It seems to me that last year that cost was around 44 cents per mile.
John W.

John's right. Many people are surprised when they find out how much their cars cost to operate each year. And what he remembers is right in the neighborhood for the average cost. Let's take a closer look and see if we can't show you how to know how much your car is costing you per mile.

The best source for information on auto costs is a firm that specializes in cost analysis called Runzeimer International. Each year they do a detailed report on the cost of auto ownership that's geared primarily to business clients. A summary report is made available to the public.

They compared 23 cars, light trucks and vans. Of the 1999 models they tested the lowest cost car to own was the Saturn SL2 at $6,756. On the high end was the Mercedes 320S at $18,710. But, to understand those figures we need to know what's included in them.

Runzeimer's includes all the costs associated with operating the car. Everything from the sales price to the trade in value. Not only do they include obvious operating costs like gas and oil, but others like financing costs, licensing and taxes.

They assume that the car is kept for three years and the owner uses the car for 20,000 miles per year. So based on that, the Saturn would cost $0.34 per mile and the Mercedes $0.94. John's estimate of $0.44 is right in the ball park for a typical family car.

But part of the problem with these averages is that even if you own a Saturn SL2 you might get an answer that's very different from the Runzeimer figure. Why is that? Because the different costs that make up the total can vary widely from owner to owner.

Another Runzeimer report compares the cost in different cities. A car driven in Los Angeles costs about 50% more than the same car driven in Sioux Falls, South Dakota. Taxes, license fees and insurance are the main differences.

The best way to actually figure your cost of ownership is to do the calculation based on your own circumstances. After all, you don't really care about averages. You want to know what your car costs.

To come up with our cost we're going to estimate the cost to buy and ultimately sell the car. To that we'll add the annual expenses for taxes, licenses and insurance. Then the costs that change with the amount of driving we do will be added. Finally, we'll total all those costs and then divide by the mileage we expect to put on the car.

Begin with the depreciation expense of the car. In simple terms, depreciation is the difference between what you paid for the car and what you get back when you sell it. To get that figure total the cost of your down payment and monthly lease or payments. Don't forget to add any sales taxes and the cost of extended warrantees.

Next, you'll need to decide how long you plan on driving your car. That's necessary so you can determine the value of your trade-in. Obviously, no one can tell exactly what your car will be worth two, five or ten years from now. The best you'll be able to do is to get a figure for a comparable car today that's as old as your car will be when you trade it in. You can get a feel for that from the Kelley's Blue Book or the classified ads in your local paper. When you've arrived at the trade-in value, you'll subtract it from the purchase price of the car (assuming that you bought the car instead of leasing). To get the cost per year, just divide the total cost by the number of years that you'll have the car.

For example, suppose five years ago you bought a used car for $15,700. With tax it was $16,000. You'll sell it next year and expect to get $8,000. That means it cost you $8,000 divided by 6 or $1,333 per year.

To that you'll add the annual expenses that stay about the same no matter how much you use the car. The list should include taxes, licenses and insurance. In some cases you'll also have the costs of parking garages or parking passes and tolls.

Next you'll need to consider the maintenance type of expenses. How much will you spend on tires, oil changes and repairs? Clearly, this part isn't an exact science. If your car is nearly new, you might only have oil changes in this category.

For our next step you'll estimate how many miles you put on each year. You'll also need to know about how many miles per gallon of gas you get. Our goal is to find out how much we'll spend on gasoline during the year. Divide the total mileage by the miles per gallon. That should tell you how many gallons you'll buy. Then multiply that by the cost per gallon. Suppose you'll drive 15,000 miles in a year and you get about 23 mpg. Gas in your area runs about $1.03 per gallon. So you'll use 652 gallons at a cost of $671.

Finally, you'll add all the expenses together and divide by the number of expected miles. That should give you the answer for your car.

Your cost may be lower than the $0.34 cost of the Saturn. Your answer isn't necessarily wrong. Remember, if you keep your cars for a longer period you'll have lower depreciation and cost per mile. Your cost per mile will also tend to decrease if you put on more miles each year.

Some of you will be surprised at how high your cost is. For instance, if you have a car that doesn't get driven much and you're in an area with high taxes and insurance, your per mile costs will be unusually high.

There you have it. A fairly straight forward way to find out what it really costs to keep your car on the road. Of course there's more to auto ownership than just dollars and cents. There's the environmental impact of the car and the time that you must devote to it's care and upkeep to consider. But, that's beyond the scope of this article.

Thanks to John for his letter. We hope his car is one of the low cost models.

Copyright 1996 - 2004 "The Dollar Stretcher, Inc." Used by permission. All rights reserved.