Tuesday, February 24, 2015

How much does it cost to own a car? Say, 57.5 cents a mile, or 59.2 cents a mile? At 15,000 miles a year, that's $8,880 — or $740 per month.

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That's what the IRS and the American Automobile Association (AAA), respectively, think it costs for you to operate your daily driver. But there is an awful lot of guesstimating between those two numbers, including purchase price, fuel, maintenance, depreciation, and repairs. And if you spend your career in the car business like me, you may find that there are an ocean of lobbyists and paid-for special interest hacks who pare down that cost even further for a chosen few.

Thanks to the inequities of our modern tax policy, your ownership costs can vary by a wide margin based on where you live, the type of car you buy, and what you do for a living.  When I left northern New Jersey and moved to the quietude of western Georgia, I soon found out my insurance premiums would be cut in half; a study earlier this year found that the same driver charged $560 for a year's coverage in Buffalo by one company could get hit with a $4,607 tab for the same policy in 

Minneapolis. (Even in Buffalo, the swing among insurers was $1,500).
Car dealers and other businesses that purchase or operate a large number of vehicles usually have fleet insurance which is typically lower on a per-vehicle basis. A car dealer in Georgia with 100 vehicles and a clean record typically pays less than what a middle-aged guy like me shelled out back in Jersey.

Road warriors and executives also get the luxury of expensing some or nearly all of their car costs as well. The IRS allows you to deduct your expenses or on a per-mile basis if you own a business. Also, employers often times will foot part to all of the bill based on the type of work you do. If you have the added fortune of living in one of these 23 states, Uncle Sam and his state government siblings will help you buy a new electric car with subsidies ranging from $8,500 and $12,500.

The mechanics of subsidization are so finely tuned in Congress these days that even the right gas guzzler could have been completely expensed out in 2014, thanks to the handy work of both political parties. And while the tax deduction rate for businesses gets adusted upward almost every year, that same per-mile rate for charity or medical work does not.

If you are an employee who commutes back in forth, you pretty much pay for it all and then some. Young families, middle-aged parents and the more experienced among us may get thrown a bone every now and then. The good news, if there is any, is that the direct costs we pay can be hacked down to less than half of the IRS and AAA averages. For most of us unsubsidized car owners the largest expense we can manage is...

Depreciation: The average new car costs nearly $34,000 according to Kelley Blue Book. Five years later you can expect that car to lose over 60% of its value, and by the time it hits year nine that total depreciation is closer to 80%. If you buy at the bottom of that curve (a.k.a, an older used car), your annual depreciation is usually in the few hundreds instead of the several thousands.
From there it's a matter of craftily avoiding the Four Horsemen of the Carpocalypse: Neglect, Abuse, Rust & Crap.

Buy The Simple Car: Get something that’s easy to diagnose and maintain. An older compact, like a 10-year old Nissan Sentra will usually cost less to own than a brand new Nissan LEAF over a seven-year period. Even if gas climbed back up to over $3 a gallon and states offered a $5,000 tax credit across the board, an older Sentra would still likely beat out the highly subsidized LEAF by a healthy 25% in overall costs, thanks to lower insurance rates, taxes, and depreciation costs along with its relative ease of repair.

Keep it Clean: One of the dirty secrets of car ownership is that vehicles that are kept clean are, on average, kept by their owners for far longer time periods. Besides giving your car a good wax and detail once a year, most owners would be shocked to find that paintless dent repair companies can easily pop out dings and dents for a small fraction of the cost it would take to replace a body panel. My 18-year old Toyota RAV4 is still drop-dead gorgeous thanks to this extra step.

Don't Buy Problems: The biggest mistake I see in the world of retail car buying are used cars that are bought without having a thorough, independent inspection done beforehand. This one step, which usually costs less than $100, can easily save thousands.

Open The Hood: If you can keep track of your oil, coolant and other fluids, you can likely take care of the little problems before they become big ones. An older car can be kept picture perfect if you track and maintain the fluids that keep it purring along. Also, when you're bored at work, take the time to visit an enthusiast forum for the specific model you own. Besides solving common issues for your car, these communities can also point you to the best parts and long-term maintenance needs that may not be mentioned in the owner’s manual.

A cheaper car begins and ends with the right owner, and performing a little due diligence helps to figure out what older used vehicles are worth buying. So long as you do that and avoid the new car propaganda, you can, on average, drive and keep your car for 30 to 50 percent less per mile than what the averages say — and that's worth more than a nickel or two. 

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