Costs of car ownership--and lack thereof

Yesterday, I came across an article at The Dollar Stretcher called, "Could You Give Up Your Car?", which maintains that doing so can bring "substantial" savings. Naturally, you would expect the article to back this up by calculating both the costs of car ownership and the costs of getting around without a car, and then comparing the two. However, it actually does only half of this, and it doesn't do that half very thoroughly. It cites a Consumer Reports article saying that "the median car costs more than $9,100 per year to own," but it doesn't mention any of the assumptions underlying that figure or explain how it breaks down by purchase price, insurance, gas, and so on. As for the costs of not owning a car, they aren't even mentioned. The article merely says, "If you live in an urban area with an established transit system of buses or light rail, for goodness sake, use it!"—as if bus and train tickets were completely free, and it were just throwing away money not to use them.

As it happens, I had just recently seen evidence of how inaccurate that idea was. Last weekend, I visited New York City for the first time in years, and I was astonished at how much subway fare costs now—$2.50 for a one-way fare. That means just getting to and from work each day would cost $5. Of course, if you take the subway regularly, you can lower that rate by buying an unlimited pass: a 30-day pass costs just $112, which comes to $1,344 per year. However, this kind of pass can only be used by one person at a time. Two people riding the subway together would pay $2,688 per year; three people would pay $4,032. A car, by contrast, can carry four or five people at a time for roughly the same amount of money. (The added weight will reduce gas mileage slightly, but adding one or two passengers certainly won't double or triple your fuel use.)

The cost of getting around within the city, however, positively pales in comparison to the cost of getting into the city from out in the sticks. Last Saturday, we rode into New York from Hamilton station, and the fare was $15 per person, each way. Probably very few people actually commute to New York from Hamilton, but people certainly do it from our home station, Edison, and the round-trip fare from there is still $24.50. Once again, you can cut that payment down with a monthly pass, which costs just $349. But that's still $4,188 a year—on top of the $1,344 a year for the subway pass, since you still need to get from the train station to your workplace. Add in the cost of renting a car from the nearby Avis rental for the occasional longer trip—say, one week twice a year—and that tacks on another $500, plus maybe $250 more for the gas and tolls. Altogether, you're looking at more than $6,200 a year for not owning a car—and that's with only one person commuting by train. Two people living in Edison, both commuting to New York, would pay over $11,800 per year to get along without a car—about $2,700 more than what the Dollar Stretcher article cites as the "median" cost of owning a car.

That median cost itself, moreover, bears some scrutinizing. First of all, if you go to the Consumer Reports article that it's based on, you'll see that the editors identify a "median" car as "a midsized SUV such as the Nissan Murano or an upscale sedan such as the Lexus ES." A Honda Fit like ours, by contrast, is described as one of the best auto values on the market, costing "just over $5,300 a year to own for five years." That's less than 60 percent of the cost of their theoretical "median" car.

You may also notice that the editors have calculated the cost of ownership based on the assumption that you will keep the car for only five years and then trade it in. The problem is, when you do this, nearly half the cost of ownership is depreciation: the difference between what you paid for the car and what you can get by trading it in. However, the longer you keep a car, the less depreciation costs you each year. The article notes that "Most people keep their new vehicles for five or eight years," and choosing the latter figure will lower the per-year cost by about 15 percent. The editors don't say how much you can save by keeping the car even longer than that, but they do note that "In the end, it is almost always less expensive to hang on to your current car than to buy a new one," since the cost of repairs on an old car almost never outweighs the cost of depreciation on a new one. So presumably, the cheapest way of all to own a car is to do what we do: just keep driving it until it can drive no more.

The graphs accompanying the article also show that for the average car owner, about 11 percent of the cost of ownership is interest. This is another reason it's cheaper to keep a car longer, the editors say: you can continue to use it "for a few years after the loan has been paid off." However, if you don't finance your car, but instead pay with cash on the barrelhead (or get one of those zero-interest loans and pay it all off before it comes due), you can avoid this cost of car ownership completely.

So what do you get if you combine all three of these strategies: buying a cheaper car, paying cash for it, and keeping it until the wheels fall off? The folks at Consumer Reports don't say, but I've done a little number crunching on my own. Assuming that our current car will last us at least 15 years (which seems a safe assumption, when you consider my family's track record with cars), then the cost of buying it works out to just over $1,000 per year. Add in what we currently pay each year for gas, maintenance, insurance and registration, parking, and tolls, and our total cost of ownership is just under $3,500 a year.

Of course, if we were really commuting into the city like the hypothetical couple I described above, owning a car would cost us a lot more than that. We'd be putting more miles on it, for one thing, and we'd pay a lot more for parking and tolls. And if we lived in the city, it probably would actually be cheaper to skip the car and pay $2,688 a year for a pair of subway passes, plus another $750 to rent a car when we needed one. I'm certainly not trying to argue that owning a car is always cheaper than not owning one; that obviously isn't the case. My point is merely that in some cases, owning a car is cheaper than going without one—and the only way to know which is cheaper for you is to actually do the math, instead of assuming that dumping your car will save you "a ton of money" just because some article on a financial site says so.