What Your Car Really Costs: How to Keep a Financially Safe Driving Record
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What Your Car Really Costs: How to Keep a Financially Safe Driving Record ECONOMIC EDUCATION BULLETIN Published by AMERICAN INSTITUTE for ECONOMIC RESEARCH Great Barrington, Massachusetts About AIER American Institute for Economic Research (AIER) conducts independent, scientific, economic research to educate individuals, thereby advancing their personal interests and those of the Nation. The Institute, founded in 1933, represents no fund, concentration of wealth, or other special interests. Advertising is not accepted in its pub- lications. Financial support for the Institute is provided primarily by the small annual fees from several thousand sustaining members, by receipts from sales of its publications, by tax-deductible contributions, and by the earnings of its wholly owned investment advisory organization, American Investment Services, Inc. Experience suggests that information and advice on economic subjects are most useful when they come from a source that is independent of special interests, either commercial or political. The provisions of the charter and bylaws ensure that neither the Institute itself nor members of its staff may derive profit from organizations or busi- nesses that happen to benefit from the results of Institute research. Institute financial accounts are available for public inspection during normal working hours of the Institute. Web: www.aier.org Email: [email protected] ECONOMIC EDUCATION BULLETIN Vol. XLVIII No. 9 September 2008 Copyright © 2008 American Institute for Economic Research ISBN 978-0-913610-64-0 Economic Education Bulletin (ISSN 0424–2769) (USPS 167–360) is published once a month at Great Barrington, Massachusetts, by American Institute for Economic Research, a scientific and educational organization with no stockholders, chartered under Chapter 180 of the General Laws of Massachusetts. Periodical postage paid at Great Barrington, Massachusetts. Printed in the United States of America. POSTMASTER: Send address changes to Economic Education Bulletin, American Institute for Economic Research, Great Barrington, Massachusetts 01230. FOREWORD E first published What Your Car Really Costs in 1985 as a 40- page booklet. We have updated it almost every year since then Wand expanded it to include more information on automobile insurance, financing, leasing, lemon laws, and more. The list of vehicles has expanded beyond cars to include SUVs, minvans, and light trucks. All of these editions represented the collective effort of a number of individuals, including Dr. Robert Gilmour, former president of AIER; Dr. Charles Murray, AIER’s current president and former director of research; Morgan Davis, senior economist; and Jonathan Sylbert, production designer. This edition was prepared by Shafayat Chowdury, research intern, with the supervision of the director of research and education. The basic message of the book remains the same: Americans spend a great deal of their income on cars over the course of a lifetime, often more than they realize. The long-term costs of car ownership are usually much higher than suggested by the monthly payment. The goals of this book are to make these costs clearer, to provide information that will help you choose a car that provides good value, and, as the title says, to help you “keep a financially safe driving record.” As with all of our publications, we welcome your comments and any suggestions you may have for improvements in future editions. —Kerry A. Lynch Director of Research and Education i ii Contents Foreword .................................................................................. i I. CAR COSTS IN FINANCIAL PERSPECTIVE .................. 1 Cost Differences Can Be Great .................................................. 4 Using Consumer Reports ........................................................... 6 II. RANKING CARS, SPORT UTILITY VEHICLES, SMALL VANS, AND LIGHT PICKUPS BY RESALE VALUE .... 9 Using the Tables ......................................................................... 9 Which Models Are Listed .......................................................... 10 What the Rankings Indicate ....................................................... 11 Cars: Rankings for 2003 Models .................................................... 15 Rankings for 2004 Models .................................................... 18 Rankings for 2005 Models .................................................... 22 Rankings for 2006 Models .................................................... 26 Rankings for 2007 Models .................................................... 30 Sport Utility Vehicles and Small Vans: Rankings for 2003 Models .................................................... 34 Rankings for 2004 Models .................................................... 36 Rankings for 2005 Models .................................................... 38 Rankings for 2006 Models .................................................... 41 Rankings for 2007 Models .................................................... 44 Light Pickups: Rankings for 2003 Models .................................................... 47 Rankings for 2004 Models .................................................... 48 Rankings for 2005 Models .................................................... 49 Rankings for 2006 Models .................................................... 50 Rankings for 2007 Models .................................................... 52 III. THE AUTOMOBILE PRICE OUTLOOK .......................... 55 Financing .................................................................................... 59 How to Figure the “Worth” of Interest-Rate Differences and Cash Rebates ..................... 60 Hybrids ....................................................................................... 61 The Extended Outlook ............................................................... 65 IV. SHOULD YOU BUY NEW OR USED? ................................ 69 Useful Information ..................................................................... 70 Used Car Best Buys ................................................................... 71 iii V. SHOULD YOU BUY OR LEASE? ........................................ 83 Understanding a Lease ............................................................... 85 Comparing Financing Methods .................................................. 90 VI. SAFETY RECALLS AND LEMON LAWS ......................... 93 Lemon Laws ............................................................................... 96 VII. HOW TO USE THE N.A.D.A. OFFICIAL USED CAR GUIDE ............... 99 Dealer Trade-In or Private Sale? ................................................ 102 VIII. INSURING YOUR VEHICLE ............................................... 105 Auto Insurance Basics ................................................................ 108 Where to Find Help .................................................................... 115 IX. YOUR COST RECORD ......................................................... 117 Keeping the Ledgers .................................................................. 117 Implications of Changes in Component Costs ........................... 118 Calculating Depreciation Costs .................................................. 119 Amortize Interest Costs .............................................................. 121 APPENDIX: USEFUL LINKS ............................................... 123 Monthly Ledger and Annual Summary ................................ 127 iv I. CAR COSTS IN FINANCIAL PERSPECTIVE MERICANS spend more of their disposable incomes on auto- mobiles than on virtually anything else except shelter. But many Apeople—especially younger persons whose first major purchase may well be an automobile—probably have only a vague notion of what the costs of owning and operating a car amount to over the course of their lifetimes. Nor are they likely to know how their spending on automobile transportation compares with average U.S. expenditures for transportation and other items. They also may be unaware of what the eventual costs of seemingly minor luxuries may be in terms of lost educational opportunities, inadequate housing, reduced retirement income—or worse, the inability to acquire needed health care and dignified living conditions during one’s later years. Even average car costs probably are far greater than most people suspect. As shown in Chart 1, Americans spend far more on transportation than they contribute to pensions and Social Security. These outlays—including Chart 1 SELECTED COMPONENTS OF AVERAGE CONSUMER EXPENDITURES 35% (2006) 33% 30% 25% 20% 18% Housing 15% and Social Security Pensions 13% 11% 10% Health Care Entertainment Apparel and Accessories Apparel and 6% Miscellaneous Food 5% Education 5% Transportation 4% 4% 2% 0% Source: Bureau of Labor Statistics. 1 vehicle purchases, motor fuel, car insurance, maintenance and repairs, license and registration fees, and more—are more than four times higher than their out-of-pocket outlays for health care or education. Currently, the estimated average costs of owning and operating a mo- tor vehicle during the course of an individual’s expected driving lifetime, shown in Table 1, amount to over $320,000, depending on the size of the car one drives. Consider that this amount represents the costs of owning and driving just one vehicle. Two- and three-car families have proportion- ally greater costs. These figures are not given to discourage car ownership—or to imply that anyone who drives anything