(BPT) - In these inflationary times, the cost of owning a car seems to increase on a daily basis. The price of buying a car is growing, and so is the cost of operating one. We all want personal transportation and the joy of car ownership, but the statistics are challenging.
Simply purchasing a car is more costly than ever. The prices of new and used vehicles skyrocketed in the aftermath of the COVID-19 pandemic. According to J.D. Power, new-vehicle transaction prices shot up 13% in 2021 and then surged up another 13% in 2022. The increases moderated a bit last year, but prices haven't fallen.
The prices of used vehicles have escalated even more rapidly over the last several years as consumers who couldn't find an affordable new car have turned to the used car market. Again, the prices have moderated in 2023, but used vehicle prices are up at least 20% versus their level in 2021.
At the same time, the cost of maintenance and replacement parts has also zoomed up. So has the hourly rate of auto repair labor. Though fuel prices have dropped from their all-time high of a couple of years ago, they are still inflated versus their level when the decade began.
The economic news regarding transportation costs is challenging. Still, the auto experts at Mercury Insurance have a suggestion that could change the way you look at these costs. The suggestion is to treat your vehicle as an investment, not an expense.
'Many personal finance experts define automobiles as expense items,' said Justin Yoshizawa, director, Product Management State. 'While that is generally true, viewing your vehicle as a long-term asset just might change the way you purchase and maintain your cars. And it will probably save you money.'
Viewing your vehicle as a long-term asset implies that you will purchase it differently, finance it differently and maintain it differently. Rather than seeing your vehicle as a piece of equipment that needs to be replaced frequently, like a cellphone, for example, it may be smarter to treat your car as a long-term asset that you can feel comfortable owning and driving for years, which could save you thousands of dollars.
Mercury offers these suggestions for viewing your car as an investment:
- Buy the right car. Choose a vehicle appropriate for your long-term needs with the expectation that you will drive it for the next 10 years. With that in mind, the car you purchase should offer a low cost to own based on good dependability and reliability, low maintenance and repair costs, good fuel economy, and low cost to insure. (Mercury Insurance offers advice on the least expensive sedans, trucks and SUVs, and electric vehicles to insure)
- Consider a used vehicle. Smart shoppers will find that two- to three-year-old used cars, trucks, SUVs and vans are much less expensive to purchase than the equivalent new vehicles. The savings could easily reach $10,000 or more for a premium-brand SUV. Buyers who might be afraid of "getting a lemon" when they buy a used car should consider certified pre-owned (CPO) vehicles. These vehicles are hand-picked and meticulously inspected prior to being sold, and they are backed with a warranty very similar to a new-car warranty.
- Finance responsibly. The absolute best financing is buying the vehicle with cash. When you do that, you immediately acquire complete ownership of the asset (the car), and you never face financing expenses or monthly car payments. In this era of high interest rates, that is a giant advantage. If you can't purchase an appropriate car with cash and you need a car immediately, then borrow as little money as possible for as short a term as possible. This will save you hundreds of dollars in interest payments versus the typical car loan that is now stretching toward six years in length.
- Keep the vehicle. The key to gaining financial advantage from viewing your car as an asset is owning it for a long period of time. While the average car on the road today is over 11 years old, typically, cars that age have had several owners. Instead, your goal should be to maintain your vehicle so it is useful to you for at least a decade. This implies preventative maintenance and, yes, some repairs over time. But while repairing a vehicle is more expensive than it used to be, it is still far cheaper than replacing the vehicle with a new car, truck or SUV.
"The days when new vehicles would rust out and wear out in just a few years are over," Yoshizawa said. "Today's new and late-model used vehicles have long, useful lives ahead of them. Buying the right vehicle and continuing to maintain and repair it as needed is the best way to assure yourself the lowest personal transportation costs."
