Sure, you can buy it. But can you afford to drive it?
Americans can easily spend $250,000 on cars during their lifetimes. But you can save big - with the right choices.
Anyone who has ever shopped for a new vehicle knows the drill: Compare offers, work down from the sticker price, and don't be beguiled by the sales patter. But before you buy your next car, consider the long-term equation: How much do you want to spend on vehicles in your driving lifetime? The minimum? The average? Is it more important to save a few dollars or have the right car?
These long-term questions are important because, depending on what they drive, Americans typically will spend at least $240,000 to $350,000 each for the privilege of driving for 50 years, according to the American Institute for Economic Research (AIER) in Great Barrington, Mass.
Put another way: If you're like most Americans, you spend much more each year on your car than you contribute to a retirement plan, or spend on healthcare or education.
Granted, most people don't think long-term when they go car shopping.
"The act of buying a car is all about that new-car smell, that great-sounding stereo, the excitement," says James Bell, publisher of IntelliChoice magazine, which tracks automotive costs and values.
That's understandable, says Mr. Bell. But getting a handle on the full financial outlay associated with ownership - insurance, depreciation, maintenance - can help steer buyers around some long-term financial potholes.
For a start, some types of cars are cheaper to buy and operate than others. If you stick with small sedans during your lifetime - think Honda Civic or Chevrolet Cobalt - and hold on to each one for 12 years, you'll pay on average just over $4,800 a year or $240,704 over 50 years, according to AIER.But drive large sedans - a Mercury Grand Marquis or Toyota Avalon, for example - and under the same assumptions you'll shell out an average of $7,000 annually or $349,968 over 50 years. SUV and passenger van costs fall somewhere in-between. (See chart, page 16.) But the cheapest car isn't always the least expensive over the long term, experts warn. When you buy - and even how you finance the purchase - can make a big difference.
"Because of the way financing programs are going now, being extended by six, seven, even eight years, and [with] zero percent financing, and rebates, people - especially young, first-time buyers - are putting themselves into really bad economic cycles," Bell says. They're taking on too much debt and stretching payments into a period when depreciation and wear leave them with little equity in their vehicles.
Add to that the stealth costs. Operating a new car - independent of payments - cost Americans an average of $8,431 last year, according to the American Automobile Association (AAA), which expects to release a 2005 figure soon. That's up from less than $6,000 in 1994.
AAA's annual estimates run higher than AIER's ownership calculations because most consumers don't hold onto cars for 12 years. Nevertheless, the longevity of cars is creeping up.
"Cars are on the road for longer periods of time now than they used to be, and that's good news for consumers," says Jack Gillis, director of public affairs at the Consumer Federation of America (CFA). Even the fairly dramatic repair costs associated with older cars should be viewed in context.
