The Real Cost Of New Car Ownership In 2024

Summary

• The enduring bond between Americans and their cars is exemplified by the 3.5 percent surge in vehicle registrations from 2018 to 2022.
• The average annual cost of owning a new vehicle in 2023 increased significantly, sparking theories on attributing the rise.
• Rising costs of repair are linked to vehicle complexity, heavier components, the changing dynamics of collisions, and materials used.

In American culture, few symbols hold as much significance and pride as car ownership. It’s ingrained in the fabric of society, reflecting not just personal freedom and mobility, but also status and identity. The most recent data on car ownership in the United States reaffirms this enduring affection for automobiles.

Between the years 2018 and 2022, there was a notable surge in both personal and commercial vehicle registrations, indicative of a robust trend in car ownership across the country. This increase, amounting to 3.5 percent over the course of four years, transcends mere statistical analysis; it stands as a tangible manifestation of the enduring bond between Americans and their wheels.

According to a report from the American Automobile Association, the average annual cost of owning and operating a new vehicle in 2023 saw a significant increase compared to previous years. Various theories have been proposed to explain this rise, ranging from attributing it to the nation’s economic woes to placing blame on automakers who are producing increasingly complex and unnecessarily expensive vehicles. With that, let’s explore the intricacies of the cost of car ownership in 2024 and explore how each variable influences the final value.

In order to give you the most up-to-date and accurate information possible, the data used to compile this article was sourced from various manufacturer websites and other authoritative sources, including the American Automobile Association.

Beyond Car Payments, Additional Expenses Push The Annual Costs Of Car Ownership To A Little Over $12,000

When purchasing a new car,the initial consideration often revolves around the price tag (understandably so, as it serves as the primary determinant of feasibility for many prospective buyers). The price of the car stands as the most substantial cost you might encounter in the process of buying a car, setting the stage for subsequent monthly payments that must be managed diligently.

However, beyond merely being a figure on a sticker, the complete price of a vehicle encompasses a multitude of factors and considerations. This ranges from the base cost of the vehicle itself to other additional expenses such as taxes, registration fees, and insurance premiums. In the end, the total financial commitment can be much more significant.

Furthermore, optional add-ons and upgrades may further influence the final price, offering customization but also potentially increasing the overall expenditure.

Annual Report From The American Automobile Association Reveals Current Ownership Costs

Month after month, the prices of new vehicles seem to be getting higher and higher. This trend is quite evident in the findings of the American Automobile Association’s “Your Driving Costs” annual study, highlighting a substantial surge in the average cost of owning a new vehicle.

According to the 2023 YDC report, the annual expense of owning and operating a new vehicle has increased to an average yearly cost of $12,182, equating to a monthly expenditure of $1,015. This represents a significant increase from the previous year, where the average yearly cost stood at $10,728, or $894 per month.

Inside AAA’s Cost Calculation Method: Exploring the Methodology

The American Automobile Association (AAA) utilizes a proprietary methodology to assess the ownership and operational costs of new vehicles in the United States. This process involves analyzing the five top-selling models within each of the nine vehicle categories to determine ownership expenses across various areas. These individual costs are then amalgamated and averaged in order to obtain the true cost of owning a new car.

To conduct this analysis, the organization gathers data from diverse sources and applies standardized criteria to project expenses associated with the use of a new vehicle over a five-year ownership period spanning 75,000 miles. While these standardized criteria ensure uniformity in comparing different vehicle types, it’s important to note that actual costs may vary based on factors such as driving patterns, location, and operating conditions.

The costs associated with each category, outlined below, represent the previously mentioned average calculated over a five-year period spanning 75,000 miles.

(Data sourced from AAA)

Although depreciation isn’t a payment that has you shelling out cash, cars usually do lose value over time. This means you are losing money over time, and it affects your total cost of ownership. In a normal market, cars lose around 15 to 20 percent of their value in their first year. Over each of the next four years, depreciation will be around 15 percent per year.

Common Costs Of Owning A Car

This significant escalation in costs can be attributed to an array of factors that have greatly influenced the automotive sector in the past few years.

In The Past Year, There Has Been A 4.7 Percent Rise In The MSRP

One of the key drivers behind this surge in expenses is the notable increase in the average manufacturer’s suggested retail price (MSRP) of new vehicles. According to the 2023 YDC study, the MSRP has risen to $34,876, marking a 4.7 percent increase compared to the previous year, which translates to a substantial uptick of $1,575.

It’s crucial to note that the MSRP doesn’t necessarily align with the actual purchase price, as it can fluctuate based on demand and market dynamics. Nevertheless, a higher MSRP directly impacts finance costs, with the average annual finance charge for this year’s vehicles standing at $1,253. This big number signifies a remarkable 90 percent surge from the previous year’s figures.

Essential Factors That Influence Auto Ownership Costs

Furthermore, we must take into account the following variables when discussing the true cost of owning a car:

• Fuel: Since fuel prices fluctuate nearly every day, fuel expenses rank among the most variable costs associated with car ownership. According to the AAA, in 2023, the average driver spent approximately 15.93 cents per mile on regular unleaded gas. For a typical 15,000-mile year, this amounts to an annual expenditure of $2,390 solely on fuel. It’s worth noting that fuel costs can vary depending on factors such as the type and size of the vehicle. Additionally, the AAA calculates electric vehicle charging costs at a rate of 15.8 cents per kilowatt-hour.
• Insurance: Nearly every state mandates some level of auto insurance coverage. According to AAA, the average annual premium for full-coverage insurance is $1,765. However, insurance costs are influenced by various factors including the type of coverage selected, the vehicle’s make and model, the driver’s age and driving history, as well as their geographical location.
• Registration, feed, and taxes: The AAA indicates that the average car owner incurs approximately $762 in licensing, registration, and tax fees to legally operate their vehicle. The calculation, frequency, and amount of these fees can vary significantly from state to state, depending on local regulations and requirements.
• Maintenance and repairs: The average cost of repairs, maintenance, and tires for a new car is estimated to be around $123 per month, as reported by AAA. Routine maintenance tasks like oil changes and tire rotations are typically recommended every 5,000 miles. It’s important to consider that certain maintenance costs may be covered by manufacturer warranties, which typically last for three years or 36,000 miles, whichever comes first.

Since 2022, The Annual Rate Of Increase In Repair Costs Also Saw An Uptick

The cost of repairs has been rising in comparison to the overall rate of inflation from November 2013 to November 2023.

Motor vehicle maintenance and repairs have experienced an annual increase of 4.1 percent, amounting to an overall change of 49.8 percent. In contrast, all items in the Consumer Price Index saw an annual increase of 2.8 percent, resulting in an overall change of 31.7 percent. This upward trend has been particularly pronounced since the end of the pandemic.

Ryan Mandel, the director of claims performance at Mitchell, a software provider catering to the automotive industry (particularly the collision repair and auto insurance sectors) explains that, before the pandemic, the annual rate of increase in repair costs ranged between 3.5 and 5 percent.

However, since mid-2021, this rate has surged. In 2022, the increase spiked to approximately 10 percent, a figure that seems to have stabilized since then. In 2023, the average repairable estimate stood at $4,721 for the full calendar year. Mandel anticipates that this number will continue to rise as the data matures over the next 3 to 4 months.

Dearth Of Skilled Labor Further Strains The Capacity Of Automotive Repair Facilities

Furthermore, the automotive industry is facing a notable shortage of skilled technicians, intensifying the complexities associated with vehicle repair. As the number of experienced professionals dwindles, repair facilities are under increasing pressure to meet the rising demand for their services.

This scarcity of skilled labor not only drives up labor costs but also extends the waiting period for repairs. Consequently, vehicle owners may experience delays in getting their vehicles serviced.

Growing Vehicle Complexity Coupled With A Change In Methods: Some Of The Factors Driving The Increase Of Indirect Costs

As previously stated, the cost of vehicle repair is on the rise, and there are several contributing factors to this trend. One significant factor is the increasing complexity of vehicles, which are now equipped with heavier and more intricate components. Additionally, advancements in materials and manufacturing methods have led to higher costs for repair parts and services.

Cars Are Getting Heavier And More Powerful

Cars have undergone significant changes over the years, becoming notably heavier and more powerful. Between 1985 and 2022, the average vehicle weight increased by approximately 33 percent, while average horsepower surged by over 100 percent. This shift has implications for collision dynamics: heavier vehicles possess more kinetic energy when involved in crashes, especially when traveling at higher speeds.

As a result, collisions involving heavier and faster vehicles tend to generate greater impact forces, leading to more severe damage. Consequently, the repair costs associated with these collisions are often higher, reflecting the increased energy involved in the crash and the extent of damage sustained by the vehicles involved.

The Rising Complexity Of Cars Must Also Be Taken Into Account

Modern cars are equipped with an abundance of features, leading to increased complexity and the potential for more issues to arise. For instance, approximately 17 percent of registered vehicles in the US are turbocharged, a modification designed to extract additional power from an engine. Automakers have increasingly utilized turbocharging in recent years to downsize engines and enhance efficiency. However, this addition introduces extra components such as the turbocharger itself, supplementary exhaust pipes, and an expanded cooling system, among others.

Furthermore, there has been a significant rise in the prevalence of all-wheel-drive vehicles. While only about 10 percent of vehicles featured this system in the 1980s, by 2022, this figure has increased to 66 percent. These advancements in drivetrain technology contribute to the overall complexity and weight of automobiles. While partly intended to offset the increased weight of vehicles, these systems also aim to optimize fuel efficiency, enhance performance, and improve maneuverability.

Shift In Materials And Construction Techniques

Many automakers are increasingly turning to lighter-weight materials, with aluminum being a prominent choice. While aluminum is lighter than steel, it tends to be more brittle. In the event of a crash, aluminum panels are more likely to crack rather than bend and deform like steel, which can help to better disperse the energy of the impact. However, repairing cracks is often more challenging than addressing dents, which in most cases (not all of them) ends up requiring the replacement of aluminum panels.

Moreover, innovative manufacturing techniques such as mega casting or giga casting have allowed automakers to significantly reduce the number of parts in a vehicle. Instead of assembling numerous smaller components, these methods enable the creation of larger, integrated pieces. While this streamlining can improve efficiency and reduce assembly time, it also means that when a component breaks, a larger section may need to be repaired or replaced.