Drivers should keep resale value top of mind when buying a new vehicle

News Release, AAA-Mid-Atlantic

TOWSON, MD – AAA’s Your Driving Costs study reveals the largest expense associated with purchasing a new car is something many drivers fail to consider – depreciation. In fact, it accounts for almost 40 percent of the cost of owning a new vehicle – more than $3,000 per year – and is influenced by a number of factors, including shifting consumer preferences.

AAA urges car buyers to think about both market trends and length of ownership when shopping for their next vehicle purchase.

“New vehicles offer the latest designs, cutting-edge technologies and warranties that offer peace of mind,” said Ragina Cooper Averella, Public and Government Affairs Manager at AAA Mid-Atlantic. “But, car owners that like to change vehicles frequently should be thinking about the resale value – not just the purchase price – when choosing their next ride.”

AAA’s annual analysis found demand for sedans has slipped as American appetite shifts to SUVs and pickup trucks. As a result, depreciation costs of these once-popular vehicles increased up to 13 percent as compared to last year.

Electric and hybrid vehicles, however, have seen a gain in popularitywith 20 percent of Americanssaying they will likely go electric for their next vehicle purchase, up from 15 percent the previous year. This year, these vehicles also saw a dip in depreciation and offer many cost benefits such as lower repair and maintenance bills, making going green a more affordable choice than in years past.

Buyers often only give priority to purchase price and monthly payment when choosing a new car, sometimes selecting a vehicle based on the best deal available. The length of car ownership, however, is of equal importance.

Consumers who plan to keep a vehicle for only a few years should be cautious of deep discounts and incentives offered by automakers and dealers. These are often designed to sell less popular models and directly influence depreciation. Low down payments and extended finance terms can also have a similar effect. Stretching a car loan over five, six or even seven years may be an effective way to lower payments, but owners may quickly find themselves owing more than the vehicle is worth.

Leasing is similarly affected since payments are based in part on the projected residual value of the car at the end of the lease, serving as a good indicator of which models experience higher or lower depreciation. Since resale value is not a factor at the end of the lease period, buyers who prefer less popular models or only want a vehicle for a short time, may consider leasing a more viable option.

“The secret to minimizing depreciation costs?” continued Averella. “Keep your car for a long time and keep it well-maintained or even consider buying a quality, pre-owned vehicle.”

AAA’sYour Driving Costsfound the average cost to own and operate a new vehicle in 2018 is $8,849 per year, a slight increase of 4.5 percent or $380, over last year.The figure is calculated based on the cost of fuel, maintenance, repairs, insurance, license/registration/taxes, depreciation and loan interest. The study examined 45 top-selling 2018 model-year vehicles across the following nine categories.

Vehicle TypeAnnual Cost*Vehicle TypeAnnual Cost*
Small Sedan$6,777Minivan$9,677
Hybrid$7,485Medium SUV$9,697
Small SUV$7,869Large Sedan$9,804
Electric Vehicle$8,384Pickup Truck$10,215
Medium Sedan$8,866Average$8,849

*Based on 15,000 miles driven annually

While the latest technology, style and options make them attractive to car buyers, a new car may not be the most economical choice for some buyers. Vehicle owners looking for alternatives to new car ownership or ways to minimize their operating costs should consider the following:

  • Buy (gently) used– By driving a pre-owned vehicle in good condition, ownership costs are significantly lower. A safe, reliable vehicle can be found at an attractive price point.
  • Fuel responsibly– Avoidwasting moneyon premium grade gasoline unless your vehicle specifically requires it and, if you’re one of the 20 percent of Americans considering an electric car, these vehicles offerlower fuel and maintenance costs.
  • Show your car some love –It sounds counterintuitive, but spending money on routine maintenance can actuallysave you moneyin the end. To keep engines running cleaner and longer, consider switching tosynthetic oiland upgrading to a higher quality fuelTOP TIER™ gasoline.
  • Slow down –When gas prices are high,small changesin the way you drive can make a big difference.

David M. Higgins II, Publisher/Editor

David M. Higgins was born in Baltimore and grew up in Southern Maryland. He has had a passion for journalism since high school. After spending many years in the Hospitality Industry he began working in...