Playing around with the Kelly Blue Book–the gospel for the used car market—I found a surprising fact: the first 7,000 miles or so you drive every year has little effect on the resale value of your car.
Sure, your car loses a little bit of its value every year, whether you drive it or not. But driving just a few thousand miles per year doesn’t do much to your car’s value: according to Kelly a five year old car with 10,000 miles on it is worth the exact same amount as a 5 year old car with 34,999 miles on it.
Once a five year old car has logged at least 35,000 miles, though, depreciation starts to bite into your car’s resale price.
Of course, drivng an extra mile can help move a car from “excellent” condition to merely “good,” which does reduce your car’s value. So miles do matter, even for low-mileage cars. But not a lot. Time, rather than miles, is the bigger factor.
Drive more than 7,000 miles per year, however, and Kelly says that depreciation accelerates. By the time a 5-year old Ford Explorer, for example, has reached 65,000 miles or so, each additional mile reduces the car’s value by about 8.5 cents. Or—if you factor in the likelihood that extra miles reduce a car’s condition from “excellent” to “good” or “good” to “fair”—each additional mile probably decreases the SUV’s value by 9 cents.
Of course, depreciation rates vary substantially from model to model, and (curiously enough) even from mile to mile: a Ford Explorer driven about 40,000 miles over 5 years loses about 3 cents in value for each additional mile driven; at 70,000 miles, each mile reduces value by 8.5 cents; at 120,000 miles, an additional mile reduces the vehicle’s value by 1.2 cents.
There are 2 important points to consider here. First, on those rare instances when we do think about depreciation, we don’t connect it with how much we drive. And as a result, we underestimate the cost of driving a mile. That’s a mistake. In fact, if we considered the comprehensive costs of driving—depreciation, tire wear, maintenance, and even incremental insurance and crash risk costs—we’d realize that, even at $3 per gallon, gasoline may still represent less than half of the per-mile cost of driving.
And second, if we did keep good track of the variable costs of driving—that is, the costs of driving that are based on how much we drive, rather than the fixed costs of owning and financing a car—we’d probably drive less. Trips that seem worth doing at 15 cents a mile (the cost of gas for a low-mileage vehicle) might seem too costly at 30 or 35 cents a mile. And if we drove less, we’d save money, gas, and lives, all while reducing our climate-warming emissions.
All of which makes me want a little device, up there on my dashboard, that would remind me of exactly how much I’m spending when I drive—sort of like a smart odometer. (Then again, maybe I’d just find it distracting and depressing to see how quickly the cost adds up.)
sf
I suspect that a lot of readers are in the habit of keeping a vehicle until it is used up. This would simplify the calculations a lot. A $20,000 vehicle with an expected useful life of 200,000 miles would have a straight line depreciation of about 10 cents a mile. Residual value wouldn’t be significant if it takes you 15 years to reach this mileage.
Chris
And you are not even taking into account many other important costs of driving. How about the hundreds of billions of dollars per year for our vast military machine throughout the world to protect the oil fields, supress nationalist uprisings and to keep the oil lanes open? Or how about the long-term costs of global warming? Or how about the health care costs for treatment of asthma, lung cancer, etc. due to air pollution? Or how about the cost to water pollution made worse by petroleum , asbestos (from brake wear) and rubber residue in the run-off from streets? Or the social costs to our communities and neighborhoods of ramming through huge expressways? I could go on and on. Free-market economists like Mssrs. Bush and Cheney should want to “internalize” the real costs of driving and gasoline consumption to prevent over-consumption of the resource. If we calculated all of those costs (and many other, I’m sure) the cost per mile would be in the tens of dollars rather than mere pennies. Then, if we just had to insert cold cash to cover the real costs into our dash board every time we wanted to turn the ignition key…