The true cost of owning a car

Have you ever wondered exactly how much your car costs you every year? I decided to break with tradition this week and present exactly how much having a second car cost.

For the average New Zealander having at least one vehicle is unavoidable without making drastic lifestyle changes. However, I have a short 4km commute to work which opens up other transportation options.

So let’s look at the numbers.

Every car in New Zealand must be licensed (called rego). I’ve included the annual option which is slightly cheaper.

cost of registration
Source: rightcar.govt.nz/rego

 

You can go to the website to see how much your car would cost. It does vary a lot depending on the vehicle.

In addition to the rego, every vehicle must undergo a regular safety check, called a Warrant of Fitness (WoF). These are 6 monthly for older cars, or annually for newer models.

Our vehicle is a 2001 model which has annual WoFs. These can vary from $30-50 so let’s assume a $40 cost.

Annual Fixed Costs

Registration per year: 127.37

Warrant of Fitness: 40.00

This comes to a total of $167.37. Not bad for having a vehicle sitting there doing nothing.

I’m paying literally 10s of dollars having this sitting here.

Annual Running Costs

But let’s look at how much it actually costs to run the vehicle. As this is a theoretical second vehicle it is used only for a short commute of 4km each way during the week, plus a couple of short trips to the supermarket.

My figures put the petrol cost at about $20-30 dollars a week for this light level of driving. Let’s assume $25 per week.

Petrol costs: 1,300.00

Now a car doesn’t run on petrol alone, and it does need preventative maintenance as well as repairs. Over the last 18 months, our vehicle has cost about $50 a month.

Repairs and maintenance: 600.00

This comes to a total of $1,900.00 per year. Now I’m pretty sure most New Zealanders would drive much more than I do, so for every $20 a week in petrol you spend add $1,040.

If you are mechanically inclined, have a newer/older vehicle, then your cost of repairs/maintenance could be much more/less.

The total cost of ownership: $2,067.37! Basically, if you could sell your vehicle and use alternative transport you would save about $2,000 a year every year. As mentioned this calculated using real-life figures.

Hidden costs

The money you spend on your car isn’t the only way it will cost you. As your car ages, it loses some of its value due to wear and tear. This loss of value is called depreciation. Let’s assume you buy your car for $6,000 and sell it for $5,000 two years later. The value of your car has depreciated by $1,000. The cost of depreciation per month is 1,000/24 or $41 per month (the calculation is slightly more complicated than that).

According to this news article, New Zealand has one of the highest rates of depreciation in the world for new vehicles. Because our car is a little older, I have assumed depreciation costs of $48 per month. I got this figure from estimating what I could sell our car for online.

Depreciation per year: 576.00

Now our cost of ownership is $2,643.37.

If you look closely you can see the car’s replacement in the reflection

Opportunity cost

By having a vehicle and not selling it you are incurring an opportunity cost. Basically, you have missed out by having your money sitting in the garage and not being productive for you.

Let’s start by making some safe assumptions.

Assume that we could sell our car for $4,000 today.

Assume that if we sold our car that we would take that $4,000 and invest it in index funds (in the stock market). Conservatively, we are likely to get a 7% annual return on our investment. Per year this comes to $280.

But, without a car, we would no longer be incurring the annual cost of $2,643.37.

Let’s assume we are disciplined and chose to invest that as well. Now we have an additional $185 per year; a total of $465.00.

Total cost of ownership

Registration : 127.37

Warrant of Fitness: 40.00

Petrol costs: 1,300.00

Repairs and maintenance: 600.00

Depreciation per year: 576.00

Opportunity cost: 465.00

Total cost of ownership per year: $3,108.37

Remember, this is based on a conservative usage, if you spend more than $25 a week in petrol the cost will significantly increase!

Edit: Insurance

I forgot to add in insurance the first time road. Currently, we pay $49.11 per month for first party cover. This comes to 589.32 per year.

This takes the cost of ownership per year to $3,697.69.