Car Ownership - Weighing the Cost?

As the world's leading culture of consumers, perhaps our preoccupation with sale price is perfectly understandable. But when it comes to cars, the bottom line really isn't the end of the story. Unlike vacations, TVs, cell phones and other consumer goods, cars are almost never single-owner, maintenance-free devices. Financially speaking, cars are more like a piece of property. The real measure of automotive value is the use you get out of the vehicle while you own it vs. the true total cost to you. Typically, cars, trucks and SUVs are financed, maintained, insured, fueled and eventually sold or traded in. With so many variables, it's definitely tunnel vision to lock in on just one aspect of the total ownership process. Let's take a look at the key costs of ownership, and see if we can save you some money in the long run.

Residual Value When it comes to cars, the bottom line really isn't the end of the story.
Choosing the right car is more than a matter of finding a vehicle you like at a good price. You need to take the long view to determine if what seems like a bargain up front will really be a wise investment. One of the best ways to do this is to compare the expected residual value of the car or truck in question with that of other vehicles of similar type. Residual value is the amount you might expect to get for the car when you trade it or sell it when you're through with it. The industry benchmark for comparing residual value is Automotive Lease Guide, which is an independent firm that estimates how each model will fare miles and years down the road. Many car-shopping and manufacturer web sites provide ALG residual value information; with it, you might discover some surprising facts. For example, stack up a loaded Honda V-6 Accord against a Nissan Maxima GXE. Both cars carry an MSRP of about $25,000, but after five years of ownership, the Accord will fetch about $1,500 more when you sell it or trade it. This is real money in your pocket, every bit as important as the original purchase price. Residual value coupled with reliability ratings can also tell you a lot about how well made a given car is.

Insurance
Once you've developed a short list of several cars that perform well based on purchase price and eventual resale value, there are a few other things to consider. Insurance research is worth doing at this phase, since it can often help you rule out some vehicles on your list. Premiums vary by model, and the swing in annual premium can be big enough to make a "cheaper" car more costly to operate than a more "expensive" one. If you're SUV shopping, compare pricing on two-wheel drive vs. four-wheel-drive models. Four-wheel-drive generally costs you more (since off-road driving typically results in more accident claims), so if you plan to never go off road, two-wheel drive can save you money.

Mileage
Fuel mileage can be worth considering too, since a significant difference in fuel use can hit you right in the wallet. This is normally a smaller issue than you might expect, however. A fuel-thirsty SUV that averages 15 mpg would burn about $1,400 in fuel in a typical 12,000-mile year. Go for something that gets a more respectable 20-mpg, and you save about $350 per year, or about a dollar a day. Not chicken feed, but if you really need the space and utility, it might be money well spent. And it can be a minor amount of cash compared to what your financing, insurance and morning trip to Starbuck's is costing you.

Rebates, Etc.
Rebates, incentives and special financing deals can make a big difference in what a particular car costs you to own. Compared to a typical auto loan, a special low (or zero percent) interest factory-backed loan can save you over $5000 on a $30,000 car loan. Free manufacturer-backed maintenance programs can also save you significant money, as can free extra-long warranty coverage. Extended warranties you pay extra for at the dealer are a different matter: These are basically insurance policies that cover specific repairs. Odds are, you won't need this coverage, but if your car has real problems down the road, an extended warranty can save you thousands. Deciding whether to purchase one of these warranties should be based on how long you plan to keep the car, and on how comfortable you are with spending money today to maybe save you money in the future.