The Escalating Costs of Owning a New Car

by TTAC Staff

Published: January 5th, 2024

Photo credit: muk woothimanop / Shutterstock.com

The expenses tied to owning a brand-new vehicle have risen significantly, marking a substantial departure from the preceding year when the annual cost stood at $10,728. These figures, derived from AAA's Your Driving Costs (YDC) dataset, which has consistently delivered information on the costs linked to new vehicle ownership for over seven decades, underscore the financial implications faced by new car owners. This article dissects the key drivers of this upward cost trajectory, centering on the effects of global supply chain disruptions and shifts in vehicle pricing.

The Financial Breakdown

Manufacturer's Suggested Retail Price (MSRP)

The most recent YDC study discloses an average MSRP of $34,876 for new vehicles in 2023, marking a 4.7 percent uptick from the preceding year. It is important to note that the MSRP doesn't necessarily align with the actual purchase price, which can fluctuate depending on market demand. This increment in sticker prices has a direct bearing on finance costs, reflected in an average annual finance charge of $1,253, signifying a staggering 90 percent surge compared to the prior year.

Depreciation

Depreciation, the decrease in a vehicle's value over time, serves as another significant cost component. For 2023, new vehicles are anticipated to depreciate by an average of $4,538 per year over a five-year ownership period, constituting a 24 percent escalation compared to 2022. This increase is attributed, in part, to the burgeoning prices of new vehicles, in stark contrast to the diminishing values of used vehicles.

Vehicle Characteristics

Automakers have shifted their focus toward producing larger, more luxurious, and consequently more expensive vehicles, often equipped with additional features that contribute to the overall hike in ownership expenses.

Fuel and Electric Charging Costs

While fuel expenses per mile have experienced a modest decline, the costs associated with electric vehicle (EV) charging have risen, escalating from 13.9 cents per kilowatt-hour (kWh) to 15.8 cents per kWh. This uptick in EV charging costs is associated with higher-than-anticipated inflation, according to the U.S. Energy Information Administration (EIA). It is noteworthy that ½-ton pickups, despite their popularity, feature the highest average driving costs among all vehicle categories covered in the YDC study.

Factors Impacting Pickup Trucks

Curiously, the pickup truck market has witnessed a slowdown over the past year, attributable to increasing gas prices and heightened financial expenses. Although pickup trucks excel in hauling and towing capabilities, many buyers do not fully utilize these features. Consequently, potential buyers must factor in the substantial cost, exceeding $1 per mile, associated with owning and operating pickups.

Expert Insights

Greg Brannon, AAA's director of automotive research, emphasizes the necessity of comprehending the comprehensive expenses tied to owning a new vehicle. He advises consumers to negotiate astutely, initiate their search early, secure pre-approval for financing, formulate a comprehensive budget that encompasses all ownership elements, and maintain separate negotiations for the car's price, finance rate, and trade-in value.

AAA's Car Buying Advice

AAA offers several recommendations for prospective car buyers:

Cost Comprehension: Attain a thorough understanding of all costs linked to ownership to facilitate effective negotiation.
Early Start: Given limited inventory, consumers may encounter restricted choices for specific vehicle models, potentially necessitating waiting for delivery or pre-ordering.
Finance Preparation: Prior to discussing finance rates with the car dealer, secure pre-approval from a financial institution to establish a threshold for the most favorable lending rate.
Budgeting Prudence: Develop a comprehensive budget that incorporates elements beyond just monthly payments, including insurance, fuel, routine maintenance, and more.
Separate Negotiations: Distinguish negotiations for the car's cost, finance rate, and trade-in value to make informed decisions.

The Your Driving Costs Calculator

The Your Driving Costs online calculator furnishes an interactive and personalized breakdown for car shoppers, aligned with AAA's annual scrutiny of new car ownership. It offers comprehensive cost analyses of specific vehicles, categorized according to location and individual driving habits, thereby enabling consumers to assess whether ownership costs align with their financial plans.

In 2024, owning a new car has become substantially costlier, chiefly attributed to factors such as escalating vehicle prices, augmented depreciation, and fluctuating fuel and electric charging expenses. Acquiring a comprehensive understanding of the complete scope of ownership costs and heeding AAA's car buying advice can empower consumers to make well-informed decisions.

This article was co-written using AI and was then substantially edited and optimized by our editorial team.