By on September 24, 2019

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]

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19 Comments on “The Cost of Ownership: Financing a Car Hasn’t Gotten Any Cheaper, Says AAA...”


  • avatar
    jkross22

    “While AAA noted that depreciation slowed this year”

    This doesn’t pass the common sense test. Depreciation should be accelerating with the number of off lease vehicles pushing down values, especially in the sedan segment. Even moreso when you factor in increases to MSRP for vehicles.

    • 0 avatar

      Used car prices are still pretty high. Lot’s of people thought lease turn in’s would lower prices. But it seems there are lot’s of people out there that need to buy used. In other word’s demand is still outstripping supply.

      You also have an effect where the fleet average is getting distorted by vehicles with high resale, Pickups, Wranglers, are selling better and making up for the loses on the sedan side.

      • 0 avatar
        Hummer

        Used car prices are insane, I attribute it to the fact very few interesting vehicles are made anymore. I saw an 09 H2 for sale at a dealer over the weekend ~64k miles, price? $39,900. That was a $65,000 truck in 2009. It lost $25,000 of value over 10 years and 64k mile.

        Used car prices aren’t coming down as long as the new car market offers crap like the Malibu and HRZ and refuses to build interesting vehicles that consumers desire.

  • avatar
    Fred

    I need one of those negative interest rate loans to buy another new car.

  • avatar
    thegamper

    Just so happens that I got two new vehicles in the past 2 months. I bought one at 1.9% on 5 year note, leased the other with corresponding lease money factor at less than 1%.

    I looked at used cars and there are some pretty great CPO programs out there even on the financing end and particularly on sedans. But used car prices are so high in many cases that new cars seem like a no-brainer especially with the financing terms you can get from captive financing arms.

  • avatar
    Rnaboz

    Just like student loans. The government increases the amount you may borrow, tuition costs increase the next semester. Coincidence, I think not.

  • avatar
    sgeffe

    I got caught up in the higher rates, unfortunately. Then, of course, two weeks after I took delivery, Honda Financial rolled-out Accord 60-month APRs below the bank rates again. :-(

  • avatar
    Jerome10

    It’s sad but Americans are tapped out.

    It feels like the only way most folks can “afford” anything anymore is to buy it on credit with ever expanding loan lengths and ever decreasing minimum down payments.

    Feels like nearly everything of substance in life has been completely financialized. The cost of everything keeps going up but real wages are basically stagnant for decades now.

    Frankly with how much housing costs, medical costs, education costs, property tax costs, I’m shocked anyone has any money for a new car. I suspect they actually don’t minus taking on more and more debt.

    All this isn’t going to end well. Including for automakers.

  • avatar
    PeriSoft

    What I want to know is something really important: Why, in the year of our Lord 2019, do “person at a car dealership” stock photos still show people holding car keys from 1998? Is this the same phenomenon that caused “office work” clip art and cartoons to show 1970s computers until well into the late 2000s?

  • avatar
    olivebranch2006

    A $32,000 car when financed can cost $38,000 in interest charges once you pay it off. People need to wise up and stop buying new cars if they cannot afford it. Buy 3-5 years used and use cash. Saving up cash and only buying what is in your budget is real common sense more Americans need these days. We used to finance but after buying way too much car the last time around, we only deal with saving cash now. Want to know how to buy a $32,000 car for only $26,000? Save a car payment-sized amount of cash into a mutual fund every month for 5 years. Compound interest will help pay for part of your next car.
    My ending point is people need to get smart and stop buying more car than they can afford and stop financing. You get less car in the end for what you paid for it. The frugality of the Great Depression and real common sense needs to come back to our culture. The middle class is buying champaine on a beer budget.

  • avatar
    crazyforwheels

    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.

  • avatar
    JD-Shifty

    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.


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