The Cost of Ownership: Financing a Car Hasn't Gotten Any Cheaper, Says AAA

Matt Posky
by Matt Posky
the cost of ownership financing a car hasnt gotten any cheaper says aaa

The American Automobile Association (AAA) suggests that long-term loans are encouraging ownership costs of new vehicles to climb. In some instances, the group suggests customers could be on the hook for well over $10,000 per year. While this only applies to larger and more expensive automobiles, AAA says the trend is all-encompassing — spurred largely by changing finance conditions.

According to AAA’s latest research, finance costs on new vehicle purchases have jumped 24 percent in 2019, elevating the average annual cost of car ownership to $9,282 ($773.50 per month).

“Finance costs accounted for more than 40 [percent] of the total increase in average vehicle ownership costs,” elaborated John Nielsen, AAA’s managing director for Automotive Engineering & Repair. “AAA found finance charges rose more sharply in the last 12 months than any major expense associated with owning a vehicle.”

The American Automobile Association’s annual driving cost study has been in place since 1950. This year it sampled 45 of the U.S.’s most popular models from nine different segments. Cost of ownership presumes vehicles will be driven 15,000 miles annually and is calculated against six categories: fuel prices, maintenance/repair fees, insurance rates, license/registration/taxes, depreciation, and finance charges. Annual average costs increased in each category over the last 12 months. The latest study covered the period between June of 2018 and May of 2019.

Depreciation is typically the single biggest contributor to a vehicle’s overall cost of ownership, accounting for more than a third of the average annual cost. While AAA noted that depreciation slowed this year, vehicles included in the study still ended up losing an average of $3,334 a year. That’s up $45 (roughly 1.4 percent) from last year. For 2018, deprecation rose by $117 (3.7 percent). However, the average depreciation of small and medium sized sedans actually improved in 2019.

Meanwhile, finance charges rose from $744 to $920. While federal interest rates and higher vehicle prices played important factors, AAA suggested the proliferation of 72-month loans made the most difference. Longer loan terms always translate into more money in the end, and these days, people are having a difficult time coming up with cash up front.

Other noteworthy findings from AAA:

Average fuel cost rose to 11.6 cents per mile, 5 [percent] higher than last year. The per-mile increase was driven by gasoline prices, which are up 15.6 cents per gallon over the timeframe covered by the study. Electricity prices for EV charging also rose 0.1 cent per kilowatt-hour (0.08 [percent]), but the market share of the electric vehicles in the study (0.48 [percent]) makes the effect of this increase on the overall average fuel cost negligible. Fuel costs vary widely by vehicle type, ranging from a low of 3.65 cents per mile for electric vehicles, to 15.67 cents per mile for pickup trucks.

Average maintenance and repair costs climbed marginally to 8.94 cents per mile, up 8.9 [percent] over last year. The increase was fueled by the growing complexity of vehicle systems and an updated methodology for calculating repair costs.

Electric vehicles had the lowest maintenance and repair costs — 6.6 cents per mile — while medium-sized SUVs had the highest at 9.6 cents per mile.

The cost of licenses, registration fees and taxes rose $14 to $753 per year, an increase of 1.9 [percent].

AAA suggested numerous ways of mitigating ownership costs, including all the old standbys: trying to get the shortest-term loan your finances allow, figuring out insurance premiums in advance, buying at the end of the month, buying gently used, buying a late-model vehicle that the dealership is desperate to offload, and attempting to procure dealer discounts. But that doesn’t address the core issue here.

Consumers will only be able to stretch their budgets so far before the industry starts seeing people bow out. In fact, with individuals keeping their vehicles longer than ever before, we may already be witnessing the start of that. Sales are also cooling off, encouraging manufactures to lean into large, high-margin vehicles in the United States.

Unfortunately, those models are the ones that cost the most to run. While the average midsize sedan costs roughly $8,643 to operate annually, according to AAA’s data, a middleweight SUV/CUV costs $10,265. Small sedans ($7,114) were similarly inexpensive compared to small SUV/CUVs ($8,394). Hybrids ($7,736) managed to undercut pure electrics ($8,320) thanks to their having lower MSRPs on average. However, it should be said that the difference would have been greater without EV subsidies in place. At $10,839 per year, pickups were shown to have the highest cost of ownership.

[Image: F8 Studio/Shutterstock]

Join the conversation
5 of 19 comments
  • Crazyforwheels Crazyforwheels on Sep 25, 2019

    I keep track of all expenses and can say that the figures quoted in this article are accurate. My daughter graduated from university and obtained a job in a distant city 5 years ago. Because she had no money, I advised her to not buy a car and I helped her find an apartment on a bus route to her new job. The bonus is a car rental agency just 3 blocks away, if she needs a car. During the last 5 years, she's been able to get everywhere she needs to go and accumulate a nice savings amount. We calculated that her savings would be much less if she owned a car. A car that would sit 8 to 10 hours overnight and sit 8 hours or more while she's working.

    • See 2 previous
    • Olivebranch2006 Olivebranch2006 on Sep 25, 2019

      @Cactuar I'm better than I deserve :)

  • JD-Shifty JD-Shifty on Sep 27, 2019

    I drive a truck with 495,000 miles on it. In the meantime fools have spent hundreds of thousands of dollars each borrowing money to pay for vehicles.

  • SCE to AUX Probably couldn't afford it - happens all the time.
  • MaintenanceCosts An ugly-a$s Challenger with poor equipment choices and an ugly Dealership Default color combination, not even a manual to redeem it, still no sale.
  • Cha65689852 To drive a car, you need human intelligence, not artificial intelligence.Unfortunately, these days even human brains are turning into mush thanks to addiction to smartphones and social media.
  • Mike1041 A nasty uncomfortable little car. Test drove in 2019 in a search for a single car that would appease two drivers. The compromise was not much better but at least it had decent rear vision and cargo capacity. The 2019 Honda HRV simply was too unforgiving and we ditched after 4 years. Enter the 23 HRV and we have a comfy size.
  • SCE to AUX I wonder who really cares about this. "Slave labor" is a useful term for the agendas of both right and left."UAW Wants Auto Industry to Stop Using Slave Labor"... but what will the UAW actually do if nothing changes?With unrelenting downward pressure on costs in every industry - coupled with labor shortages - expect to see more of this.Perhaps it's my fault when I choose the $259 cell phone over the $299 model, or the cheaper parts at RockAuto, or the lower-priced jacket at the store.Do I care about an ethical supply chain? Not really, I just want the product to work - and that's how most consumers are. We'd rather not know.Perhaps the 1990s notion of conflict-free, blood-free, ethically-sourced diamonds will find its way into the auto industry. That would be a good thing.