AAA’s Your Driving Costs (YDC) has been a reliable data source for expenses associated with owning and operating a brand-new vehicle for more than seven decades. Based on the latest figures, the average cost of owning and operating a new car in 2023 has increased significantly, with an annual expense of $12,182 or a monthly cost of $1,015. This is a sharp rise from 2022 when the average yearly cost was only $10,728, or $894 monthly.
“It’s important for car buyers to clearly understand the costs associated with owning a new vehicle,” said Mary Maguire, Vice President of Public and Government Affairs for AAA Northeast. “Due to global supply chain issues and constrained inventory of new vehicles, car prices rose dramatically in 2022. And while the supply situation continues to improve, the spillover effects are keeping prices high.”
The overall average manufacturer’s suggested retail price (MSRP) of the new vehicles in the 2023 YDC study is $34,876. This is $1,575 (4.7%) higher than last year. It is important to note that MSRP does not always correspond to a consumer’s actual purchase price and may vary depending on demand. Furthermore, a higher sticker price directly impacts finance costs, with this year’s vehicles carrying an average annual finance charge of $1,253, a 90% increase from the previous year.
The change in the annual cost of owning a new vehicle is also likely driven by:
· Depreciation, which is the difference between the car’s value upon purchase and the value of the car when sold. According to this year’s YDC projections, new vehicles are expected to depreciate by an average of $4,538 per year over five years of ownership, up 24% over 2022.
· The jump in new vehicle prices (up almost $1,600) compared to used vehicle values that have experienced a decline in the past year.
· Automakers across the board have focused on producing more oversized, luxurious, and expensive vehicles, loaded with extra features that bump up prices even more.
Compared to last year, one of the higher annual cost categories was fuel, but this year’s average cost per mile has decreased by roughly 2 cents per mile. It’s worth noting that the cost of charging EVs has actually increased, by almost 2 cents per kWh over last year, from 13.9 cents per kWh to 15.8 cents per kWh. The increase is likely accounted for by higher-than-expected inflation, according to the U.S. Energy Information Administration (EIA).
Given their size, fuel economy, and prices, it should come as no surprise that ½-ton pickups have the highest average driving cost among all vehicle categories covered in the YDC study. Interestingly, the pickup truck market has slowed over the last 12 months as gas prices trend high and financial costs climb. Pickup trucks excel at hauling and towing, although many buyers do not use them for these purposes. Potential buyers should remember that the unique capabilities of pickups come at a high cost of over $1 per mile.
“The once popular pickup truck is now seeing a slight decline in demand as these vehicles have become increasingly expensive, rivaling the price of many luxury cars,” said Ms. Maguire. “As interest rates continue to climb, this adds a layer of expense per month that consumers should consider when shopping for their next vehicle.”
AAA CAR BUYING ADVICE
With the purchase price being so high and impacting other cost categories, it’s important to remember these car-buying tips:
· Know all the expenses associated with ownership to negotiate the best deal.
· Start early! Due to limited inventory, consumers may have fewer choices regarding a specific vehicle model. They may have to wait for delivery or even pre-order the vehicle of their choice.
· Before discussing finance rates with the car dealer, obtain pre-approval from their financial institution (e.g., Bank, Credit Union, AAA, etc.). By getting pre-approval, they will have a threshold of the best lending rate they’ll pay. Buyers can use their pre-approval to negotiate if the dealer offers a higher rate.
· Create a budget and factor in the different elements of ownership before purchase – not just monthly payments. Other factors to consider when making the budget include insurance, gas, routine maintenance, etc.
· Typically, three negotiations occur when purchasing a vehicle – the cost of the car, the finance rate, and the trade-in value. Keep each transaction/negotiation separate from the other.
o The Purchase Cost: Check multiple websites, including the manufacturer, to understand what the vehicle sells for in your area. You could save hundreds of dollars by driving outside of your immediate location and expanding your search area.
o The Finance Rate: The biggest factor in obtaining a favorable interest rate is one’s credit score. Higher credit scores will result in lower interest rates. Obtain pre-approval for an auto loan, determine the highest interest rate you might be charged, and then ask the dealer if they can offer a lower interest rate. If they can, you save money.
o The Trade-In Value: While evaluating your trade-in, you must determine the vehicle’s condition. Most used vehicles fall into the “good” or “fair” category, which is the most common. To determine the value, check various websites to learn the average trade-in value.
o Remember, selling a vehicle independently on your own may increase the value amount you may receive for the vehicle. However, there are safety aspects to consider, proper paperwork, bill of sale, etc. Trading the vehicle can often be easier and hassle free.
The Your Driving Costs online calculator provides an interactive and personalized breakdown for car shoppers that uses the same methodology as AAA’s annual analysis of new car ownership. Consumers can view comprehensive cost analyses of a specific vehicle by category to determine if ownership costs best align with their budget. Data is available for new and used vehicles (five model years back), and consumers may customize the results based on location and other personal driving tendencies.
ADDITIONAL AAA RESOURCES
· AAA Car Guide: Annual guide of the latest automotive technology. Use it to research vehicles that best suit consumer’s needs.
· AAA’s Car Buying Program: Resource for consumers to use while car shopping and buying.
· Used EV Buyers Guide: Resource and educational guide for consumers to use while electric vehicle shopping and buying.