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The Number Cruncher

How Much Does It Cost to Run Your Car?

Dan Knight - Jan. 2006

Every year, Uncle Sam releases an official mileage reimbursement rate, which was 40.5¢ per mile last I heard. If you drive your car for work and get reimbursed, this is probably the rate your employer is paying you.

The question is, how much does it actually cost to operate your car?

The first figure you'll need your average annual mileage. If you drive 8,000 miles per year or 20,000, it's going to make a difference.

Purchase Price

Let's start with the purchase price (after any trade-in). Take the amount you paid for your car or truck, divide it by the number of years you expect to own it, and then divide that by the number of miles you drive in an average year.

In my case, I bought a used 2002 Taurus this past May for $6,300 after trading in my 1999 Pontiac Montana. I expect to drive the car for 3 years, so my average annual cost is $2,100.

I don't know how much driving I'll be doing, but in recent years my average has been around 17,000 miles. Dividing $2,100 by 17,000 puts me at 12.35¢ per mile.

If you lease, you can perform the same kind of calculation.

Other Fixed Costs

There are other expenses before we get to gasoline. You probably have car insurance. Mine costs about $1,200 a year.

I hope you get your oil changed regularly, although the traditional 3 months or 3,000 miles is overkill. Six months or 6,000 miles isn't unreasonable with modern lubricants and engines, and we're now seeing 15,000 mile lubricants on the market. In my case, it's 3 oil changes per year at $30 each - $90 a year plus an air filter for another $20 or so.

If you trade or sell your vehicle before the tires need to be replaced, great. If you need a new set, that could cost you $200 or more. Over three years of ownership, that might add $67 per year. Or your tires might outlast your period of ownership.

Do you go through a car wash ever week? Have you invested in a really nice stereo? Be sure to factor in that cost as well.

In my case, I'm looking at about $1,310 a year in fixed costs. That comes out to 7.6¢ per mile.

Not even including the cost of gas, we're at $3,410/year to own the car - 19.95¢ per mile.

Don't forget to budget for repairs, auto club membership, and other expenses.

Gasoline

Gas prices have been a moving target this year, and I'm going to use $2.25 per gallon because that's roughly where it was when I started working on these numbers. My Taurus averages about 22 miles per gallon around town - 11.25¢ a mile.

For highway driving, I've gone as high as 30 mpg, which works out to 7.33¢ per mile at $2.20 per gallon.

Based on these numbers, if I drive 17,000 miles this year, the average cost per mile to operate my car is in the 27¢ to 30¢ per mile range - higher when gas prices go up. And higher if I drive less than 17,000 miles.

Car Economics

The less you pay for your car, the lower your cost per year and per mile. The longer you own your car, the lower your cost per year and per mile. The better your gas mileage, the lower your cost per year and per mile, so keep the tires at their rated pressure and keep those fuel injectors clean.

On the flip side, the more you pay for your car, the higher your cost per year and per mile. The shorter your period of ownership, the higher your cost. The lower your gas mileage, the higher your cost.

Finally, the less you drive, although it reduces your overall annual costs, it raised your cost per mile.

If you buy a vehicle for $30,000 after your trade and drive it for two years, that's $15,000 a year just own the car. Insurance will cost more for a more valuable car, maybe adding $5,000 per year to your ownership costs. If you drive 10,000 miles a year, it costs you $2 per mile before we add gasoline and oil changes.

Assume you have one of those really energy efficient hybrids an manage 50 MPG over the course of a year. At $2.25 per gallon, that's another 4.5¢ per mile. With oil changes, we're looking at $2.05 a mile to own that new vehicle.

Drive that car for three years, though, and you drop that to $1.55 per mile. Average 20,000 miles over two years of ownership, and your cost works out to $1.05 per mile.

Buy a $15,000 car that averages 25 MPG, drive it for 3 years at 15,000 miles per year, and your average cost is about 60¢ per mile.

If you thought Uncle Sam was being generous at 40¢ per mile, think again. Those of us driving older cars can break even and maybe turn a small profit, but anyone who buys a new car every 2-3 years is losing money at the current federal reimbursement rate.

Do the Math

Use your favorite spreadsheet and plug in your own numbers.

		Cost/year	Cost/mile
Initial cost	$15,000	$15,000/3 = $5,000	$15,000/(15,000 x 3) = $1.00
Years of use	3
Insurance per year	$2,500	$2,500	2,500/15,000 = 16.7¢
Oil, maint./yr.	$120	$120	$120/15,000 = 0.8¢
Miles per year	15,000
Avg. MPG	25
Gas price	$2.25	$2.25 x (15,000 / 25) = $1,350	$1,350 / 15,000 = 9.0¢
Total		$8,970/year	$1.265/mile

Every situation is unique. Crunch the numbers, and you may be surprised at how much you're paying to own and drive your car.

Run some "what if" scenarios. What if you owned the car a year or two longer? What if you could trim 10% from your insurance bill? What if you bought a more reliable car that cost a bit more but would last 50% longer?

Is saving 2¢ a gallon on gas worth driving an extra mile? That's a question we'll take a closer look at next time, but in the above scenario saving 2¢ a gallon only trims $12 off your annual budget.

It's your money, and if your a typical North American, owning and driving a car is the second biggest part of your budget (your mortgage payment or rent is probably #1).

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The Number Cruncher

How Much Does It Cost to Run Your Car?

Purchase Price

Other Fixed Costs

Gasoline

Car Economics

Do the Math

Go to the Low End Living home page.

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