Car ownership costs
Before we address a way to reduce car ownership costs let’s first review the situation.
Americans have $1.2 Trillion in auto debt (source). If you’re reading this, there’s a good chance that you might have a monthly car payment. It’s legally required to be insured. When you drive over a nail you’re reminded that maintenance issues happen (in addition to scheduled maintenance like oil changes). If you live in California or another state with high fuel taxes the cost of gas can be astronomical.
It doesn’t stop there. There’s a few additional costs that we don’t usually consider. For example, is the cost of your garage spot included in your monthly apartment rent? If no garage, consider the street parking permit and parking meter fees. Hopefully we don’t get street cleaning tickets or parking violations!
The largest cost of car ownership is usually depreciation. When you think of depreciation you might think ‘declining value’ or ‘not worth as much’. This imaginary cost that accountants like to talk about is super important to consider when reviewing the costs to car ownership.
When someone talks about car depreciation they’re referring to a car declining in value over time.
Car depreciation in the real world.
Three years ago my friend Paige went to a car dealership, signed paperwork and received the keys for a brand new SUV. She drove roughly 12k miles a year and incurred normal wear and tear.
The other day she found herself back at the car dealership. She noticed her same SUV model, a more recent version, had very different styling than her three-year old model. The SUV had better features and smarter technologies. The ‘trade-in value’ for her slightly-aged SUV was way below her original purchase price.
Now Paige understands what depreciation is, first-hand.
Where did depreciation come from?
Depreciation came about formally in the 19th century thanks to railroad companies. Management wanted their accounting books to reflect how ‘used up’ a train was over specific time periods so there were less accounting irregularities or ‘one-offs’. Today it’s everywhere. Jump on any corporate earnings call and you’ll hear about it.
How serious is car depreciation?
“According to current depreciation rates, the value of a new vehicle can drop by more than 20 percent after the first 12 months of ownership. Then, for the next four years, you can expect your car to lose roughly 10 percent of its value annually. This means that a new car can be worth as little as 40 percent of its original purchase price after five years.”CarFax
Another big cost associated with car ownership is the monthly car payment. If a vehicle is leased or financed there’s a monthly payment. This can be substantial depending on a few factors like:
- the value of the vehicle
- how much money you put down
- cost of money (borrowing), interest rate, residual, etc.
- how long you financed the vehicle (shorter time periods means higher monthly payments but less overall interest expense)
Making car ownership affordable
Consider becoming a car share host to lower the cost of car ownership.
You’re a good candidate for car share hosting if you:
- own a vehicle
- live in a city or near a touristy area
- have a flexible job
- are good dealing with people
We walk you through getting started with car share hosting here.
Reducing the costs to own a car with Turo isn’t difficult. It requires a little work but for the most part it’s ‘passive income’. This means that you can still have a primary job and use Turo as your ‘side-gig’. The learning curve with Turo isn’t steep. I’m confident you’ll be up and running in no time.
Hopefully the resources here on Just Car Share can help.
By the way, 52 percent of Turo car share hosts said they use the service to pay off car loans, according to a company survey (source).
Like always, don’t hesitate to get in touch. I’m happy to help out. Seriously.