QoD: What percent of the cost to drive a new car is the fuel cost?

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Mar 08, 2020
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Question of the Day, Budgeting, Research

Answer: 19%

Questions:

  • The largest cost element above is depreciation. Why do you think that a new car depreciates (or loses value) over time? 
  • Changing the number of miles you drive will reduce your fuel cost. Will it change any of the other costs listed above?
  • Insurance estimates are based on someone with 6 years of driving experience. Do you think the cost of insurance would be lower or higher for a teen just getting their license? 
  • The figures above are provided for a new car. What costs do you think would be lower if you drove a used car? What costs could be higher? 

Click here for the ready-to-go slides for this Question of the Day that you can use in your classroom.

Behind the numbers (AAA):

AAA’s analysis covers vehicles equipped with standard features and optional equipment including automatic transmission, air conditioning, power steering, antilock brakes and cruise control, to name a few.

  • Depreciation — Depreciation is based on the difference between new-vehicle purchase price and estimated trade-in value at the end of five years and 75,000 miles.
  • Finance — Costs are based on a five-year loan, with 10 percent down, at the national average interest rate for five credit rating categories weighted by market share. The
    loan amount includes taxes and the first year’s license fees, both computed on a national average basis.
  • Fuel — Fuel costs are based on average prices for the 12 months ending May 31, 2019, as reported by AAA Gas Prices at www.GasPrices.AAA.com. During this period, regular
    grade gasoline averaged $2.679 per gallon. Fuel economy is based on Environmental Protection Agency ratings for 55 percent city and 45 percent highway driving. Electric vehicle charging costs are based on a rate of 12.6 cents per kilowatt hour.
  • Insurance — Costs are based on a full-coverage policy for personal use of a vehicle by a driver who is under 65 years of age, has more than six years of driving experience, no accidents and lives in a suburban/urban location. The policy includes discounts for passive restraints and an anti-theftsystem, and provides $100,000/$300,000
    personal liability, $25,000 medical, $100,000 property and $25,000/$50,000 uninsured/underinsured motorist coverage. A $500 deductible applies to all collision and comprehensive claims.
  • License, Registration and Taxes — Costs include all governmental taxes and fees payable at time of purchase, as well as fees due each year to keep the vehicle licensed and registered. Costs are computed on a national average basis.
  • Maintenance, Repair and Tires — These costs include retail parts and labor for routine maintenance specified by the vehicle manufacturer, a comprehensive extended
    warranty, repairs to wear-and-tear items that require service during five years of operation and one set of replacement tires of the same quality, size and rating as those that came with the car. Sales tax is included on a national average basis.

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About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.