By Dr. Taylor Christensen, Guest Writer

I grew up believing in the conventional wisdom that the cheapest way to own a car is to “buy used and drive it until the wheels fall off.” But as I started digging into this topic a lot more in preparation for replacing both our cars (they went bad at the same time), I found that this isn’t strictly true. Let me explain.

Just to be clear at the outset, my sole goal with this analysis was to find out how to minimize the annual cost of owning a car—I ignored convenience, luxury, safety features, and environmental impact. All I considered was the total cost per year. This is probably similar to how a frugal med student or resident would be approaching the task, but it’s also relevant to anyone interested in accelerating FIRE.

And for the rest of you—the people who are willing to pay more for luxury, newer safety features, environment, etc.—this analysis provides a means for quantifying exactly how much more you will be paying annually to have those extras, which I’ll demonstrate with concrete numbers at the end of this article.

All right, on to how I framed the analysis. Determining the cheapest way to own a car ultimately boils down to answering two different questions:

Tackling the first question, check out this graph that demonstrates the answer. It assumes driving about 15,000 miles per year, although significantly more or fewer miles per year will not affect the general conclusion. Also, it only lists the four major costs of owning a vehicle. Others, such as routine maintenance, are smaller costs. They stay relatively flat over time, so they were left out for the sake of simplicity.

This graph doesn’t fit every car’s lifespan perfectly, but the U-shaped curve principle seems to hold true pretty consistently. As is common knowledge, a new car is expensive to own in the first year because it depreciates about 10% in the first minute of owning it (maybe we should call this “first-minute depreciation”), and you combine that with the usual depreciation for the rest of that first year of ownership. But the real question is: why, contrary to popular belief, does the total annual cost start to rise as the car gets older?

Two main factors combine to cause this.

First, depreciation stays pretty much constant for more years and more miles than people realize. I’ll show some data on that when I talk more about depreciation below. If the graph were carried out to 15 or 20 years, you would certainly see that depreciation cost per year decrease, but the cost of repairs would still be increasing to offset that. That's my next point.

Second, the average annual cost of repairs of a vehicle increases over time. I’m not talking about the one-in-a-100 car we always hear about from our parents, that old faithful Toyota that went over 500,000 miles without needing any major repairs. I’m talking about the average of all vehicles that are that same model and approximately the same age and miles. Your old faithful Toyota may do very well for many years in a row, but chances are, in spite of all the TLC you’re giving, it will regress to the mean sooner or later. Your total cost of ownership will rise with it. Buying or keeping an old car and hoping it will have fewer maintenance costs than average is like betting on a single stock and hoping it will outperform the rest. This is not a sound investment strategy in stocks or in cars.

One more point to drive home the costs associated with owning a car later on in its lifespan: Think about the total cost of ownership for the unlucky person who owns a car at the very end of its life (not shown on the graph). Not only were they probably dealing with fairly high repair costs, but then, when their car finally required a repair that cost more than the worth of the car, they had to junk it. So, they also took a serious hit in depreciation that year (because its value instantly dropped from maybe around $2,000 to $0). This is something we extra want to avoid. The owner would have done a lot better financially by selling that old faithful car and buying a relatively new used car instead. (Ahem, like I would have done had I known that driving a 2003 Chrysler Town & Country with over 200,000 miles on it could have a transmission go out at any moment.)

How to Get Rich by Driving a $5,000 Car

I know there are opportunity costs that temper these arguments, and that is something you will have to account for in your own situation. Will the opportunity cost of having $20,000 or more tied up in a relatively new car make it more expensive to own than an older $5,000 car? It depends on whether you will actually be investing that additional $15,000 and what your expected investment returns are.

There are also psychological factors to consider. If you own that relatively new car, will you feel the need to fix every little ding and to wash it every time it rains? If so, that would definitely increase the cost of owning a newer car.

I also haven’t mentioned how insurance will be cheaper for an older car, but that is a smaller factor and it may be partially offset by worse gas mileage as the car ages.

Regardless, the conclusions from the graph point to a clear answer to the first question: The cheapest period of a car’s lifespan is probably somewhere in the 2- to 8-year-old range (maybe even later if it’s a more reliable car or has been driven fewer miles than average).

Driving an Old Car to Save Money. Drive a Beater . . . Get Rich.

Now, on to the second question: Which model of car is the cheapest during that period of ownership? Let’s look separately at each of the big cost drivers.

The first and most straightforward one is fuel. Gas or electric, it’s easy to look at fuel economy ratings from the EPA (and also check other sources, such as Consumer Reports, because sometimes the EPA’s ratings are inaccurate due to their dated lab-based testing methodology). Then, using your local gas and electricity prices, compute how much it would cost to drive your average annual miles. If we assume 15,000 miles per year, gas at $3.50 per gallon, and electricity at $0.15 per kWh . . .

20 mpg = $2,630/year 35 mpg = $1,500/year 50 mpg = $1,050/year 100 mpge = $760/year 120 mpge = $630/year 140 mpge = $540/year

Going from a typical SUV to an electric vehicle could save over $2,000 per year in fuel!

Next, insurance. A big part of your auto insurance cost is you—your age, credit score, driving record, etc. But there are many vehicle-specific factors that can impact your annual cost of insurance as well, including the value of the vehicle, how expensive it is to repair, the safety features, etc. Newer vehicles tend to be more expensive to insure due to their higher value, but that’s not always the case because availability of parts, safety features, and anti-theft features bring that cost down.

There’s a website I discovered during my research, caredge.com, which has been really helpful. It has a ton of data on all the big costs of owning a car, and that includes estimates of the relative cost of insurance for each specific model. This is a good place to get a quick estimate of the relative annual costs of insurance for the different models you’re looking at. For example, a Subaru Forester is estimated to cost $1,440 per year vs a Chevy Bolt at $1,830 per year.

And the last major cost component, which is usually the largest and definitely the most complex, is depreciation. Estimates are that depreciation accounts for an average of about 40% of the total cost of owning a vehicle. But people seem to think that once they own a car, depreciation doesn’t exist! This is probably because depreciation isn’t noticed (i.e., doesn’t affect your bank account) until the time comes to replace their vehicle and they find out how much they can sell it for. They aren’t feeling that loss in value every year like they would if one of their investments slowly decreased each time they logged into their account.

A common misunderstanding about depreciation is that you can always reduce it by buying a cheaper vehicle. The lower the purchase price, the less to depreciate, right? Sometimes this is true, but often it is not. The key is minimizing the difference between your upfront purchase price and your eventual resale price. For example, depreciation is less if you buy a $30,000 car and sell it five years later for $25,000 compared to buying a $10,000 car and selling it five years later for $4,000. The takeaway here is to focus less on the upfront purchase price and more on the predicted annual depreciation.

There are many written analyses online and many YouTube videos talking about how to predict and reduce depreciation, but they tend to oversimplify the topic by assuming depreciation is a single thing. In reality, there are several different subtypes of depreciation. I already mentioned “first-minute depreciation” above, but there are others. To illustrate, take a look at these graphs below. I’ll show the graphs first, and then I’ll discuss some conclusions I drew from them and others about the different types of depreciation.

To make each graph, I searched all used vehicles of a specific make, model, year, and trim on cars.com and then plotted every single one of them according to its miles and price. You can click on the images below to make them bigger.

Yes, these took a little while to make. But my wife and I got really fast at reading and typing numbers. We chose to analyze Subaru Foresters because that was our car that got totaled in a wreck (right when the transmission went out in our “old faithful” van), so we were initially thinking of replacing the Forester with another one.

The overall trends are intuitive: older cars and cars with more miles on them are cheaper. But that simplistic assessment is not helpful when trying to calculate how much the car will cost you in depreciation. Instead, let’s take a closer look and make some more useful inferences. I’ve since done this analysis with several other cars, and the patterns are consistent. For any of you math types out there, I only had Excel add those linear trendlines (least squares) to each graph after they passed the eyeball test for linearity. There weren’t enough data points in the 0-20,000 miles range to confidently assess linearity for the first 20,000 miles, but my experience with the data suggests that the downward slope is a little bit larger in that range.

First, look at the slope of each line—it indicates the “miles depreciation” of the car. The flatter the slope, the less the car will depreciate with each mile you drive it. Numbers I’ve seen are typically around $0.05 -$0.10 per mile, but keep in mind, that’s from looking mostly at non-luxury five-seater cars. Since the line is surprisingly linear, that means if it costs you $0.05 per mile at 20,000 miles, it will still cost you about $0.05 per mile at 150,000 miles. This surprised me—I thought miles depreciation would decrease over the life of the car, but it isn’t true, even past 150,000 miles.

Now, compare different years of the same trim at 100,000 miles. With a little interpolation (because I didn’t graph every single year), you can see that each year the car ages, it loses about $1,000. That is what I call the “age depreciation,” and even going from 2012 to 2011 (and I verified this going from 2011 to 2010 as well) gives about that same amount of age depreciation. The car is over 10 years old by now and still, age depreciation remains linear! So, if you own a 2012 Subaru Forester and it’s just sitting in your garage never being driven, it is costing you about $1,000 per year of age depreciation. Of course, eventually age depreciation will slow down, but it really surprised me that it remains linear even past 10 years.

Did you notice that there is an exception to the $1,000 per year rule? Going from 2018 to 2016, you would expect the price to decrease by $2,000, but it actually depreciates by $3,000. This is what I call “generation depreciation.” The current generation of the Forester is from 2018-present. The last year of the prior generation was 2017, and, based on the numbers on cars.com (graph not shown), it averages about $2,000 cheaper than an equivalent 2018. Apparently, car shoppers don’t want a vehicle from the previous generation (I get it—their designs and features are dated), so they will apparently only be willing to buy one if it’s discounted by the equivalent of a whole extra year. You could avoid this generation depreciation if you buy a vehicle from the previous generation. But be careful—often the newer generation is more fuel-efficient and has more safety features, which means the newer generation will probably have lower fuel and insurance costs.

Now compare the higher-end Limited trim to the middle-of-the-range Premium trim. The Limited had an MSRP of about $3,000 more than the Premium, but it’s only worth about $1,000 more now. I guess used car buyers don’t highly value those premium features, such as leather and sunroofs and power liftgates, so a car can also have a “high-end trim depreciation.” I didn’t graph enough higher-end trims to know for sure, but I suspect that high-end trim depreciation is mostly completed after the first three or four years of the vehicle being on the road. That means, if you choose to buy a 4-year-old Subaru Forester Limited, you might pay an extra $1,000 upfront, but you can also probably re-sell it in five years for $1,000 more. I guess that’s nice if you want the extra features, but it does mean you will have to look at vehicles a little later into their lifespan.

In summary, here are all the types of depreciation I discovered:

The big limitation to this data is that they are a snapshot, so I am drawing conclusions about changes to a car’s value over time based on looking at older cars of the same model. At least these general trends are consistent with what I’m seeing on caredge.com, where their aggregate depreciation calculations look similar but are based on longitudinal data. I wish they would de-aggregate their calculations into the different types of depreciation so I could compare more precisely.

The reason I think it’s important to mention the “snapshot” limitation to this data is because it means they do not take into account market trends over time, which can impact depreciation greatly. For example, I suspect that cars with poor fuel economy will start depreciating faster now that so many very-fuel-efficient cars (including electrics) have come out in the last few years. It’s something to keep in mind if you’re buying a less-fuel-efficient vehicle. And the pandemic-induced new-car shortage has raised prices for all used vehicles to the point where a new car’s first-minute depreciation is, in some cases, nonexistent, which means it’s probably worthwhile to at least get a quote on a new car to compare to the used prices you’re seeing.

Anyway, let’s put the magnitude of the different types of depreciation into perspective. The two biggest ones are age depreciation and miles depreciation. From what I’ve seen, age depreciation is probably about $1,000 per year for a typical non-luxury five-seater car. As I said before, typical miles depreciation seems to be $0.05-$0.10 per mile—which, assuming 15,000 miles per year, works out to $750-$1,500 per year. The generation depreciation will probably only hit you once during your ownership period, and if it’s $1,000, divide that one-time cost over seven years and it equals less than $150 per year. You can avoid the first-minute depreciation and high-end trim depreciation altogether by not getting a brand new car or a vehicle with high-end trim.

Whew. Depreciation is more complex, isn’t it?

Now that we’ve explored each of the major costs of ownership, let’s see how I used all that information to guide my efforts to answer the second question of discovering the lowest-cost models.

I first decided that fuel costs, age depreciation, and miles depreciation are the most important factors. If you drive more miles than average, fuel costs and miles depreciation are even more important in your analysis. I also decided to worry less about insurance costs because, even though it’s a large annual expense, it’s much less variable from model to model (within the non-luxury five-seater market, at least), so the difference will usually be no more than $300 per year.

Since depreciation figures are more difficult to come by, I started by narrowing down my options based on the EPA’s and Consumer Reports’ lists of the most fuel-efficient vehicles, and then I analyzed the depreciation of each of them after that.

I quickly found that electric vehicles tend to be more expensive from a depreciation standpoint. They are also less efficient than their stated mpge (miles per gallon equivalent) in cold weather. Those two factors, plus their limited range and spotty charging station availability where we typically drive when we go on trips, led me to take all electric vehicles off my shortlist. Maybe this will be different in 5-8 years when I do this analysis again.

This left me with a very manageable list of cars to analyze using a shortcut version of the scatterplot method above and corroborating that with the numbers on caredge.com. Then, it came down to regional availability of good deals on those cars.

There you have it. My answer to both questions.

Would you like to see the financial impact of all this effort?

Initially, because my wife loved her dearly departed Forester so much, we were planning on using the $13,000 that insurance gave us to buy another Forester that would cost around that much, thus avoiding spending any more money upfront. Then, we would plan to drive that car into the ground. We thought that was the frugal way to go about it. Here’s the first-year cost prediction of that decision using our own numbers (16,000 miles per year, $3.80 per gallon, personal insurance estimates):

Instead, we went with a 2020 Honda Insight. Again, costs are calculated using our own numbers, including an mpg adjustment for weather conditions since hybrids are less efficient in cold weather:

Let’s do a little analysis of those numbers.

First, even with the opportunity cost of having about $12,000 more tied up in a more expensive vehicle in that first year, we are still saving $1,720. Not bad!

Second, even though some of the savings is in decreased depreciation, a lot of it is in decreased fuel and repair costs, which means we will have more money in our pocket along the way. This more than cancels out any interest we would have earned by investing the extra $12,000, so the opportunity cost drag does not even really apply after the first year. Therefore, our savings will be more like $2,320 in year 2 (but probably more because the cost of repairs for the 2011 Subaru will increase much faster than the 2020 Honda).

Third, consider what those savings mean over time. If you’re a two-car family saving $4,000 per year by buying lower-cost-per-year vehicles, you could invest that $4,000 per year at 6% from age 25 until you retire at age 65 and have an extra $620,000. That’s a lot of cruises. All while driving newer, safer, lower-stress vehicles. (I certainly am excited about the prospect of no longer driving a van with a broken sliding door that is too heavy for my kids to open themselves and that doesn’t produce enough heat for me to stay warm in the winter without a blanket on my legs.)

For anyone who is less worried about saving money, this analysis empowers you to calculate how much more per year that luxury vehicle you’ve had your eye on would cost.

For example, maybe your dream car is a 2021 Tesla Model S Plaid. A very rough estimate of the total cost of ownership per year would be around $15,000 (primarily because depreciation would likely be a little more than $10,000 per year). Is the marginal benefit of a Tesla over a Honda Insight worth an extra $10,000 per year? Are there other uses for that $10,000 that you would enjoy more? These are the questions you have to answer for yourself, and now you can gather the data needed to formulate an informed answer.

Let’s do away with our parents’ wisdom of buying a used vehicle and driving it into the ground. Let’s also do away with the assumption that driving an old beater is the path to financial success. Instead, I recommend buying a relatively new vehicle that has low fuel costs and low depreciation and owning it for less than 10 years.

Do you think it's a good idea to buy an older car and drive it into the ground? Or should you get a newer car with more safety features that might depreciate faster? Should you finally purchase that Tesla? Comment below!

[Editor's Note: Taylor J. Christensen, MD, is an internal medicine physician and health policy researcher who has a passion for Excel spreadsheets and usually blogs at clearthinkingonhealthcare.com. This article was submitted and approved according to our Guest Post Policy. We have no financial relationship.]

Wow, that was a truly detailed analysis. Thanks for the insight.Great work!

I bought a brand new work level Toyota tundra in 2010. Up front I purchased a 8 year 100,000 mile warranty, bumper to bumper for about $2,000, which saved me about 6,000 in repairs during the first 8 years. Then in 2017 I purchased a platinum 5-year 60,000 mile warranty for 3,200, and it saved me $6,000 the second year. That warranty expires next march so I’m considering going brand new but haven’t decided. My point being I’m wondering how purchasing these extended warranty plans might affect the annual cost?

I think those extended warranties are not a good deal on average. I suspect you just got lucky in coming out way ahead on them.

With the current supply shortages, there isn’t any 1st year depreciation and depending on what you bought there may be enough appreciation to negate any mileage driven. I have been trading cars every year and will continue to do that until things normalize. This makes the cost really dependent on your states purchase tax rate.

A physician needs to own a new or lightly used car as you suggested. The cost of one day missed work due to car trouble is too high. If you trade cars every 3 years also the maintenance cost and the maintenance risk is $0 due to the warranty and not needing to replace the tires before 50k miles.

Additionally, not to be rude, but you would have made more money than you saved spending your time working and then buying a new interesting car off the lot rather than doing this analysis. But that negates the enjoyment factor of making this analysis, but not too dissimilar to how there was no value given to the enjoyment factor of a new/interesting car.

Yes, times are certainly strange. In boats too these days.

I disagree that “a physician needs to own a new or lightly used car.” That’s silly. Many docs don’t even NEED a reliable car.

Why would you miss work due to car trouble? If it breaks down, have it towed into the mechanic and catch an Uber to work and then to the car rental place after work.

That said, I would hope that any doc who takes care of business can just buy new cars by mid career.

If my car broke down on the highway to work, I would miss a full day of clinic and be stranded on the side of the road with cars zipping past 80mph. Tow trucks always take over an hour to come. Uber isn’t going to pick me up on the side of a toll road. Also, there are no cars available at the car rental place.

Why would you wait for the tow truck? I think you need more experience calling tow trucks. You don’t have to wait with the car. In fact, you can call the Uber first and then call the tow truck while headed in to work.

Why wouldn’t Uber pick you up? You can always talk to them and they can see exactly where you are. Trust me, they want the fare even if it means stopping on the side of a toll road.

Why are there no cars for rent in your town when my town is full of them? Get a Turo then and have them deliver it to clinic at the end of the day.

Look, I’m not saying you have to drive a beater, but this idea that you can’t possibly show up to work 45 minutes late once in 5 years is ridiculous. If that were the case you don’t need a new car, you need a multi-car caravan transporting you each morning.

I live in a mid sized city. One late night after a sporting event, our 15 year old car broke down. Oh, let’s just call an uber. Nope, only 2 cars available in the entire city (same with Lyft). Both available cars refused to take our ride. So we sat and waited for AAA… took about 3 hours. 3 hours in the cold and dark while cars are blowing past you going 70 MPH. Never again. Never. This was all to save a few hundred bucks a year while I make 600k. Never again. I gladly pay for a nice mid-tier car and will likely never experience that garbage again. No, buying a decent Toyota doesn’t make you a broke witch doctor… I spend less per year on my car than Jim spends on his heliskiing. Have fun saving a few hundred bucks while getting stranded, it’s just not for me.

I guess I can’t imagine being in a situation where I couldn’t get an Uber, call a taxi, call a friend, or call a family member and my only option was to sit somewhere for 3 hours in the cold and dark. I guess if that’s the way it is where you live, you should buy two cars and a driver to follow you around in the second one at all times, just in case.

As I’ve said before many times, if you can afford a nicer car and want a nicer car (and I certainly hope you can on $600K), then get it. But there are an awful lot of people using reliability and safety as excuses to buy more than they need while they are struggling financially.

Jim has made it clear that he has less regard for personal safety than do many others. That being the case, his lack of interest in the safety of his car is logical.

For those of us for whom driving IS by far the most dangerous thing we do, the calculus is different. A safe car becomes a high priority.

On the other hand, a safe car need not be expensive or new. Many of the safety enhancements recently have yet to be proven in millions of miles of real world driving. Some of them may not work. Others such as automatic braking and moving cars “back” into their lanes, have the potential to be dangerous.

A car that will do well in a crash driven carefully and cautiously, never above the speed limit only on short trips can be quite safe.

If you add in NEVER driving after so much as a drop of alcohol and staying off the roads at times when drunks are about in numbers can greatly decrease your risk of injury or death. Nothing is perfect, but reducing exposure goes a long way.

I also challenge the equation of “reliable” with “new”. If you get a car at the top of the list for reliability and scrupulously maintain it, you may have something considerably more reliable than a car that is low on the list for reliability, even when it is new. More reliable cars are also cheaper to own.

I’ve gotten an UBER pick up on the freeway in Los Angeles due to a vehicle issue… It was a bit odd… but I just talked to the driver and verified it was a legit pickup.

You’re right that I could have made more money in the short term working an extra shift, but it was certainly more interesting doing this analysis. And this analysis will provide me with savings in vehicle ownership for my entire life, which will probably save me a lot more money long term. Plus, it gives me a great financial justification for having newer, nicer cars!

Are you sure you did your analysis without subconsciously trying to arrive at the conclusion you wanted to reach?

For example, you determined depreciation was linear with your analysis:

First, look at the slope of each line—it indicates the “miles depreciation” of the car. The flatter the slope, the less the car will depreciate with each mile you drive it. Numbers I’ve seen are typically around $0.05 -$0.10 per mile, but keep in mind, that’s from looking mostly at non-luxury five-seater cars. Since the line is surprisingly linear, that means if it costs you $0.05 per mile at 20,000 miles, it will still cost you about $0.05 per mile at 150,000 miles. This surprised me—I thought miles depreciation would decrease over the life of the car, but it isn’t true, even past 150,000 miles.

I would submit that perhaps it was not so linear until the last few years. Prior to COVID, my recollection is depreciation was much more frontloaded, but now that cars are appreciating (or at least minimally depreciating) things are a little different. The question then becomes, is this a new normal, or is this a short term anomaly that no one should use to make a life long decision about the cheapest way to buy a car?

The other factor that I think is pretty important but you seemed to ignore is the cost of financing. Not only do you pay more interest to finance a newer, more expensive car, but you are simply more likely to finance it.

Maybe I’m just skeptical of an analysis that goes against pretty conventional wisdom (and my own personal experience) that shows that the factors that affect the annual cost of transportation are:

# 1 How long you keep the car # 2 How much you pay for the car

It takes A LOT of repairs to make up for depreciation, interest, and opportunity cost.

At any rate, I’m not sure it matters all that much to this audience. I would hope all of my readers would have the financial ability to buy any car they like for cash by mid-career. And even if they go crazy and finance a Tesla Plaid S in residency, it probably still isn’t going to sink their financial ship which will eventually get bailed out by their high income. I don’t have any plans to ever buy another used car other than to teach my kids that they aren’t what they drive. But I certainly found it very economical to do so. For example, my current daily driver is a 2005 Sequoia bought in early 2009 with 40K miles on it for just under $19K. It now has 270K miles on it and blue books for $7K. It’s had a few repairs and even “stranded” me once for 20 minutes. But < $1,000 in depreciation a year (5 cents a mile) on a car that right now goes for $75K new seems awfully economical. And it isn't even close to the best deal I've had on a car.

I’m honestly curious, why do you still drive a 2005 car with 270k? Buying a brand new Sequoia is essentially a rounding error for you at this point. I’m really not trying to be antagonist just wondering your thought process.

My thought process is that it runs fine, I still like it (we like them so much we also have a 2016), and I can’t get a new one. Seriously. I ordered a truck six months ago and it doesn’t even have a build date yet.

WCI, these are important questions.

I don’t think this analysis was a subconscious attempt to justify getting nicer cars, but I certainly don’t claim to have insight into all of my biases! I’d like to think I am more interested in knowing truth than being right.

I will have to repeat the analysis after the pandemic is resolved and the markets find their new steady state, but I suspect the prices of all vehicles have more or less risen together during this time, so the depreciation trends I’ve found will stay constant. But it’s certainly possible that more people are looking for older cheaper cars lately (due to their personal financial losses from the pandemic), which would mean the price of older cheaper cars has risen a little more relative to the rest of the car market and thereby made depreciation stay linear for longer. If I repeat this analysis in a year or two and my conclusions change as a result of market differences, I’ll have to submit a correction conceding that conventional wisdom was right all along!

Careful weighing too strongly your personal experience (anecdotes) over data. Anecdotes may be where this conventional wisdom came from in the first place; every family has a story of the car that lasted forever with few repairs. But I do believe regression to the mean applies to cars just as much as it does to golfers, so assuming that an old car that has gone without any major repairs for several years is going to continue generating fewer repair expenses than its siblings is a fallacy. It’s like assuming you can continue picking market-beating individual stocks after you’ve done it a few times in a row. It’s the same principle you applied when opining against buying extended warranties to the commenter above: You’ll win occasionally, but keep playing the game and the house will always come out ahead. Or, in this case, keep the old low-repairs Sequoia enough years and you’ll eventually have major repairs that bring its average annual total cost of ownership above that of a newer SUV.

I think there’s sometimes also a pride factor that goes into this for people. It says, “I don’t care what people think about me or my vehicle. I value thrift over looking cool. So I’ll drive whatever is the cheapest for me to own.” Looking back, I realize I had a little of that pride when I’d park my 2003 minivan in between a whole bunch of new trucks and SUVs in the physician parking lot.

I purposefully didn’t mention financing because I did not want to endorse going into debt for a car. But the annual interest cost of financing a car at 3% is probably, on average, smaller than the extra repairs expenses of buying an older car with cash. I address this issue in the 5th-last paragraph that starts, “Second, even though. . . .”

Great analysis, and I agree. For me it was simple, I bought a new vehicle I thought was reliable that I could hold onto. It was a 1998 Toyota 4runner, and today it has over 300,000 miles and my nephew drives it now. It was quite simply the greatest automobile purchase I’ve ever made and ever will make. I held onto it forever and it is still running. Just get a reliable model from the start and take care of it. Even if it costs a bit more than you budgeted.

awesome analysis dude! I wish I had read this before I bought my 2 used cars!!! My analysis of reading other material on buying the most financially optimized used car would be to buy a 3 year old used car (because depreciation is exponentially worse in the first 3 years of car ownership) with the least amount of miles (to minimize mileage depreciation), and drive it into the ground. The brand should be Toyota or Honda because those brands tend to maximize fuel efficiency, minimize repair costs, and tend to last forever. How do you think my conclusions jive with your analysis?

The worse depreciation seems to be in the first minute of ownership of a brand new car and then in the first 20,000 or so miles after that. So as long as it isn’t brand new and has 15,000-20,000 miles on it, you’ve avoided the biggest depreciation periods. If that’s a 1-year-old car, great. You don’t have to narrow your search to vehicles at least 3 years old. At least that’s what this analysis suggests.

As for brand, I’m no expert on the relative repair expenses of different manufacturers. Sometimes I think people assume Honda and Toyota are the most reliable because they had a lot of years of being more reliable than everyone else, but competition forces other companies to get better as well, so I’d recommend looking for solid data on the average cost of repairs of different makes and models rather than making a blanket statement that someone should get a Honda or Toyota. Luckily, fuel economy is much easier to find and compare from car to car.

Costs of annual vehicle registration in my state: ICE and hybrid…….$150 EV……………………….$450

I think this is a pretty interesting analysis, challenging the old advice from frugal parents that we should drive a used car into the ground to get the best value. I appreciate the insight into that.

What about one of our global crises— our earth and its climate? I haven’t found a very satisfying quantitative assessment of the impacts of buying more often a new or newer vehicle compared to the option of driving a used car into the ground. There are significant carbon emissions concerns with manufacturing new cars, as well as the question of what happens to our waste when we consume more cars. On a personal level, we might save a few thousand dollars driving a car from year 2 to year 8, but as residents of our planet we also need to think about the impact of buying a new car every several years to save that money. Climate health is public health, so shouldn’t physicians be driving used cars into the ground? Thoughts?

Lonnie, I’ve considered this philosophical question as well. Keep in mind when it comes to these climate questions, our actions are part of a system. Each vehicle has a lifespan, and the global fleet has continual turnover. So as new buyers bring more fuel-efficient models to market, the previous model gets trickled down to the used market and some clunker at end of life leaves market. Bringing more fuel efficient brands online at the front end improves the health of the global fleet. Agree on a micro scale having one vehicle has less manufacture/waste impact, but the reality is a global market. Purchase towards efficiency, bike or walk when you can.

After reading the article, I went back to see what the author did for a living. I was sure he must be an engineer or CPA. I had always assumed the correct answer was buy used and keep it forever. Thanks for writing it.

Haha I enjoyed this comment. I do work full time as a hospitalist, but maybe I missed my calling in life.

Wow! Great article! I have a couple of small extra considerations:

Intra-family ‘insurance’. We are now a family of 4 drivers. With cars ranging from best to worse, we nominally own a car each, but we swap and share between ourselves. Critical commutes get the best cars, as do road trips. Local low stakes trips can be made in less stellar cars. We are also not so dependent on the tow truck or Uber. Mom, Dad and Sibling can all be called out as needed or just used as a driver.

There is a donation value in the beater car that suddenly dies. It does not cover the replacement cost, but they do know where to sell it for parts, so the donation certificates we have received have always been worth more than we could have made in a private sale. But after reading this article I do not intend to reach that point again. “Sorry, local non-profit”

I don’t read many posts that on their own will change some of my behavior for the rest of my life. But this one will. Thank you.

That was a very kind comment, thank you. My wife and I do the vehicle-swap thing with each other as well depending on who is driving the most that day (they get the fuel-efficient and lower-depreciation-per-mile car), it’s a great system.

That was a very kind comment, thank you! Agreed about the donation value, which helped us out with the old Chrysler van. My wife and I also do the vehicle-swap thing with each other as well (whoever is driving the most that day gets the fuel-efficient and lower-depreciation-per-mile car), it’s a great system.

‘I recommend buying a relatively new vehicle that has low fuel costs and low depreciation and owning it for less than 10 years.’

Great article! I completely agree with your analysis. This has been my philosophy for over 20 years but I never spent as much time putting together detailed graphs like this, and certainly never published it for the benefit of others. Well done!

Thank you for the impressive and thorough analysis. Could you elaborate on your calculation of “Maintenance and repairs: $1,490” because a majority of your calculated difference seems to hinge on this.

I was taking this number from caredge.com, and the numbers on there do line up well with everything else I could find on a variety of other websites and analyses. You’re right that a lot of the analysis hinges on this number, and I wish I could be more confident in these repair-cost-per-year estimates.

I would like to offer a different value equation with cars. After having kids, safety became priority one over any other variable. That expanded into treating our car purchase as a form of insurance. Since driving is typically one of the most dangerous daily risks most people face, we chose to mitigate that somewhat with a new all safety options top rated safety car. The extra cost is like a higher premium for better insurance with a grater probability of lessening the effects of a crash. The opportunity cost is more than made up by a better chance of preventing lost wages due to disability or death. We purchased a Subaru Outback.

When you have the money, you can spend it on whatever you like, whether it is a flashier car, a safer car, more vacations or whatever. But I’m amazed how many people are willing to spend money on a safer car but not on reducing their commuting mileage (by moving closer to work or working less), which seems more effective to me.

I also think I’d be very bored if the most dangerous thing I did was commute to work! I doubt that’s even in the top ten list of risky activities in my life.

Don’t be so quick to dismiss what they are saying. Driving is incredibly dangerous, even if it seems like a normal and boring part of life. 42,000 people died last year in car accidents. You can extrapolate the number of injuries and the much higher risk to children in car accidents.

I would assume, as a health professional, you are taking care to avoid the other top 10 causes of death such as heart disease, cancer, stroke, etc.

You can’t control the factors of other traffic, risky drivers, drunk drivers, etc. Half of all accidents happen within 5 miles from home.

The information on car safety is deliberately opaque. A 5 star rated car is 3x safer than a 4 star. And cost is a smaller factor in safety than you would expect. There can be a 26x difference in the fatality rate of 2 similar models.

Informed for life is an incredible and free resource put together by a vehicle safety engineer to help people make good decisions around buying cars and I highly recommend it. They take no funding so this is not a shill, I truly think it helps people make better health and safety choices.

I’m probably more likely than average to die an accidental/trauma death. But it probably won’t involve a car. In the last two months I have been heli-skiing, SCUBA diving, cliff jumping, canyoneering, and white water kayaking. Forgive me for dismissing my 6x/month, 8 mile, 40 mph commute in a steel cage with seat belts, airbags, and anti-lock brakes.

You have turned the point I was trying to make that driving tends to be the statistically most dangerous daily activity for most people into a anecdotal humblebrag of your hobbies. I understand everyone’s risk perception is different. But I was surprised since WCI has done many articles on risk management (malpractice, umbrella, asset protection, etc.) that it was not considered by the guest author, nor even part of WCI’s equation either apparently. Have you thought about the risk component for the rest of your family who presumably are not doing all of your riskier hobbies? Thanks.

Well, first of all they are all doing similar hobbies, but maybe that looks like a humblebrag too.

I’m just saying I don’t view driving around in a ten year old car as the huge risk you seem to. I mean, what were you driving around in 10 years ago? Were you lying awake at night with anxiety knowing you’d have to run the gauntlet in the morning in your deathtrap?

Do you have your kids wear their seatbelts Jim? Why? Rock climbing is so much riskier, no reason to wear a seatbelt… right?

Why not reduce the risk of driving? I can’t think of a single downside when the vast majority of your reader population can so clearly afford a decent car.

There’s a big difference between not wearing a seatbelt and upgrading from a 2020 to a 2022 for the latest and greatest safety gizmo. Slippery slope much?

Let me offer another take: the best way to reduce driving risk is to not drive.

One way to not drive as much is to retire or work less. I’d say about 75% of the miles I put on my car is due to work. And the driving I do for work is also during the times of day when everyone else is also on the roads and arguably the most dangerous times of day to be driving.

By driving a slightly older inexpensive car & driving it for a long time and doing this since I was 18, the money I’ve saved will shave approximately 3-4 years off of what will already be a relatively short working career.

That’s several years of not driving in congested traffic alongside barely awake or overly caffeinated drivers who are consistently 10 minutes late and in a rush to get to work while the sun is on the horizon shining directly into their eyes.

I’d say that’s a great trade off.

An excellent point. Saving money on cars actually helps you reduce risk by requiring you to drive less to make the money to pay for the cars.

How do you get such cheap term life? We do some occasional climbing and rates were 10x higher. We used someone from recommended page.

Wait until you haven’t been climbing for a year and don’t plan to do it in the next year. That’s what I did when I lived on the East Coast. Might have been 6 months. Ask the agent. But basically, I qualified as a non-climber. I had a policy once that had me as a climber and yea, it was 5 or 10X.

Regarding this comment: “Half of all accidents happen within 5 miles from home.”

Of course they do. Every time you leave the house you have to drive through the immediate surrounding area to go anywhere. You also have to drive through that same area every time you return home. Accidents are more likely in that region because, statistically, that’s where your car is more likely to be at any given time.

I’m most likely to have an accident on the route between my house and my office because that’s the only route that I drive 5 out of 7 days throughout most of the year.

By the same logic, I’m unlikely to have an accident in the back roads of the Rocky Mountains because I’m only there one week out of the year. It’s math.

Like the other commenters, very nice analysis, a pleasure to read. During the last couple of years I’d say that the car market has been wild. I have a friend who has made more money buying and selling Porsches and Lambos and Ferraris than practicing neurosurgery. Best car ever from a financial standpoint would have been many models of exotics where the price has been going up every month for the last 3 years despite driving them daily.

Yes, I feel like you can’t really extrapolate anything going on the last 2+ years long term. Things have definitely changed. I can’t even buy a new car. I ordered a truck in December and they haven’t even started making it yet.

I feel like this kind of wackiness is a prelude to something else… #crystalballiscloudy

Thanks for an interesting analysis. I think there’s one more thing that can affect depreciation and that’s technology shifts. When I purchased my low mileage plug-in hybrid the fast charging infrastructure for battery electric cars wasn’t in place between us and the place of our relatives. But a couple of years after the purchase not only did a chain of thinly spread out third party fast chargers arrive, Tesla have put chargers in place in the same stretch and is now opening up for other car manufacturers here in Norway. In addition to this my city is introducing tolls where full electric cars have a significant bigger rebate than other vehicles. Technical shifts are of course hard to predict, and so is the maturity of new technology. At least the one thing that I had luck with was choosing a very frugal car because no one could predict the unpredictable fuel prices we’re seeing now. Yes, we knew fuel prices would steadily climb in Norway from increasing carbon taxes but the war with Russia and Ukraine has made the oil price develop very unpredictable.

Very good points, thank you. I suspect gas cars (especially the poor-fuel-economy ones) will start to depreciate faster as (1) super-fuel-efficient cars become more prevalent and (2) gas prices increase and (3) governments find other ways to incentivize electric cars and (4) electric cars become more convenient. When I repeat this analysis in 5 years or so, I suspect the cheapest option will be electric cars, and by then the convenience factor will be less of an issue as well, so that’s probably going to be my next purchase.

How is depreciation a factor if you buy a car (paid off) and drive it until it is uneconomical to repair? There is no depreciation – my 11 year old truck has never had a car payment or any depreciation. It has at least another 4-5 years in it and best of all I have been “paying” my car payment into savings and investing the amount for all those years I’ve owned it (nine) – so it’s replacement will also be paid off.

Well, it has depreciation. And it does matter because that’s how you decide when to stop making repairs. A 5 year old car worth $30K is well worth a $6K transmission replacement. A 15 year old car worth $5K is not. What’s the difference? Depreciation.

This analysis misses a BIG factor: interest on the car loan.

Taylor Christensen is assuming everyone is paying cash for their cars. Most Americans borrow the the majority of their car’s cost.

In Christensen’s analysis a $50k car that depreciates to $40k is equivalent to a $12k car that depreciates to $2k. Very likely the more expensive car will in fact be cheaper because it’s newer and likely has better gas mileage, and fewer repairs.

But if you only have $2k to put down, then you need to compare the borrowing cost of $48k vs. $10k. At 5% interest on a 5 year loan that new car will rack up $13,263 in interest payments alone. The cheaper used car will cost you just $2,763. That’s a $10,500 savings, or more than a $1k per year if you own the car less than 10 years as Christensen suggests

(Only 41% of Americans have $1,000 saved for a simple emergency like a car repair, 2020 Bankrate poll)

I realized as I was doing this analysis that the conclusions may lead to more people choosing to go into debt to save money on a car, and I wanted to avoid that philosophical debate, but you’re right that that means it doesn’t take into account an important consideration for many people, especially when the people who are the most likely to use this analysis are those who are the most likely to need to get a loan if they purchase a more expensive vehicle.

But the cost of loan interest can be considered the same as the opportunity cost consideration that I discussed in the article–you’d just have to add the annual cost of loan interest to the opportunity cost. That tips the scale more in favor of getting a lower-priced car, but it may not necessarily mean the lower-priced car’s annual total cost of ownership ends up being less. It really all depends on how much more fuel and repairs will cost for that lower-priced car.

Usually people won’t need to spend $38K more to get a newer fuel-efficient and low-repairs car, so your estimate of how much more they’ll be paying in loan interest are overblown. My Honda Insight cost less than $30,000. And car loans these days can be had for around 3%. So maybe the extra loan-associated costs of getting a more expensive car, for those who unfortunately cannot buy with cash, would be around $600 (3% of $20,000) for the first year, and less each subsequent year. My calculation is that we are saving $1,700/year by getting the newer Honda instead of the older Subaru, so if we’d gotten a loan to pay for it, we’d still be saving money.

Your realization is also my concern. You’re minimizing it more than I think you should.

People justify stuff pretty easily. Lots of them buy more car than they should for all kinds of reasons: 1. The interest rate is 0% 2. It’s safer 3. That one blog post on WCI said I should buy new cars and depreciation wasn’t a big deal 4. I won’t have as many repairs 5. I won’t get stranded on the way to work and that would be a catastrophe

etc. You can see examples of most of those in the comments on this thread.

I can understand your concern about people wresting this analysis to justify buying expensive cars, and I now think it’s something I should have specifically addressed in the article. Thank you for tackling the other justifications in the comments. My hope is that even if people choose not to buy the cheapest total-cost-to-own vehicle, they will at least be able to quantify how much more they’re spending than is necessary, and that they’ll be honest with themselves about why they’re spending that extra money.

I would add that the one time sales tax and annual car excise tax is a factor in my state and some others. Getting a used car reduces the sales tax and the annual excise tax. I don’t think it’s a big enough factor to change the math though. Do you know of any good 10 year cost to own analyses ? It seems most of the projections on sites like CarEdge use a 5 year timeframe, but 10 year one would be more informative for long-term ownership.

I couldn’t find any good 10-year cost to own analyses, which is why I had to calculate things on my own (thus the article!) but still use some numbers, especially the average repair expenses, from other websites.

But, yes, that’s a good point about considering the sales and excise tax differences. If they’re significant, it could change the conclusion.

Another aspect to this is the ability to fix your car. The amount of money saved by performing your own maintenance is huge. Add to that being able to replace brakes, belts, alternators and such. Yes I get it, you make more money working and paying someone else to do it. However, oil change in my garage is 15 minutes. Takes me longer just to drive back and forth to the Jiffy Lube. Brake job….1hr at home. The labor money saved actually pays more than clinical pay and it’s tax free 😉. And it is a great skill to teach your kids.

So true. I made the assumption that you would not be fixing the car yourself. But if you do (for whatever reason), it probably changes the conclusions of the analysis.

Love it! Glad to know kids are still learning these skills these days! Some of the best quality time I ever spent with my dad was working on cars.

Simple, buy a Tacoma used and run it til the wheels fall off.

My 1998 Tacoma (240k miles) has never not started since the day it was made. It even somehow fixes itself. A few years ago the speedometer stopped working. I just went with the flow of traffic for a few days and scheduled a repair. The morning of the appointment, it started working again. Sometimes I’ll hear a funny sound or a new rattle and I think “finally I can trade this old thing in!” But sure enough, it just goes away. In 20 years I haven’t even had so much as a leaking tire. At 230k miles I took it to a mechanic to try to find something wrong with it. All they could think of to do was replace the air filter. At this point I’m just so amused by its reliability that I’m going to keep it as long as possible.

I think this analysis misses an important point. If you buy an older vehicle, with readily available inexpensive replacement parts, including engine and transmission, you will NEVER have as much overall depreciation as you get with a new car. You can buy the newest versions of a Toyota Corolla, which still has ABS, traction control, and backup camera, with a 4 speed automatic. The replacement costs for a brand new engine and transmission will Always be more cost effective than ANY new car, and competitive in every other metric. Same for a late model full sized American SUV or full sized pickup. And once you replace the engine and transmission, it is essentially a new car, at a third the price.

My choice, although definitely not for everyone is to buy an old beater with lots of miles for dirt cheap. Then I do 100% of the service myself. Driven gently and performing all regular fluid changes goes a very long way to reducing costs.

Example- 1971 Ford pickup former Arizona farm truck bought for $200. Parts cost for the entire 3 years I had it. $176. Sold for scrap after crash for $300.

Insurance wasn’t terrible but I was a young man back then. $300 per year.

So yeah, an old beater, skills, a pull-a-part recycling yard, and taste for frugality can go a long ways!

Of course the humble bicycle rules all…

Now I think the safety argument can be readily made. Big difference between a bike or motorcycle and ANY car in terms of safety. Of all the “dangerous” activities I do, I’m convinced road biking is the most dangerous.

Couldn’t resist sharing my situation because I love cars. This is anecdotal, but I drive a 22 year old Camry with >250K miles. I estimate my total cost of ownership per year besides gas to be <$500. It's pretty good on gas, it gets around 28mpg with mixed driving. Registration/tags/inspection is <$100. Insurance is only liability, and costs me another $20 per year to add on my insurance with my other car (an S2000, which is mostly a garage queen, and since it's a collector car, it is going UP in value). I have virtually no depreciation on my Camry since it's so old and has so many miles, so maintenance is the only real cost, and I reserve a few hundred bucks per year for parts/tires/oil/filters. The difference for me is that I do most of of the work myself on my cars since it is a hobby of mine. Parts are incredibly cheap, a job that would cost over $1000 for a shop to do, I can do in my driveway with some fairly basic harbor freight tools for $100 on a Saturday afternoon. It's really not hard, a repair manual and youtube videos can show you how to do just about anything. If you like to work with your hands and have the time, I'd encourage some people consider doing things like this, it's also a great paying hobby, although admittedly not to the level of DIY investing. I also agree with Dr. Dahle regarding "needing reliable transportation." My camry has broken down only twice in 16 years of ownership. Neither time was when I was going to work or out of town. If it breaks down on the way to work, I'm at most 45 mins behind. Besides, flat tires, car wrecks, etc can happen to anyone no matter how new your car is. That said, if you want a newer car and have the money, get one, it's not going to screw up your financial plans if you're a high income earner. I will remain on team beater because it makes sense for my situation.

Good article and math. I discovered something similar in 2013 when electric cars came out. I made a similar estimate based on driving and then purchasing a used Nissan Leaf.

Eventually I also learned that investing in tools and skills to repair my own cars made owning and maintaining my cars much more affordable. Granted not everyone can work on or has the resources for at home auto repair. But it’s gotten to the point where an old car is cheap and reliable so long as you have the time and space to invest. Most people wouldn’t find it worthwhile but everyone needs to find what works for them. The cost / effort scale.

Sometimes it’s worth it if you really like your car.

I’m not sure an analysis in these years of COVID, hyper inflation, chip shortages, shipping problems and market transition could be considered relevant in making a long-term auto expense strategy. Since depreciation is one main argument and it is the exact factor the seems these days to be abnormal given supply restraints, we come to the question “is this GIGO? (Garbage In, Garbage Out)” Years ago,1998, I did the same type of back of napkin analysis, I bought a Volvo that was 10 years old, drove it 4 years, sold it for what I paid for it, that 760 wagon got 32mpg, and I out 70kmiles on it. The key was buying a status car, after the status was gone. Same with Cadillac (though repairs go up if your mechanic thinks you don’t know GM parts fit Cadillac too). The point is even if current situations haven’t made your analysis unreliable as a momentary glimpse, the narrow conditional subset of your examination (Subaru) isn’t necessarily indicative of where multiple brands and classes of vehicles might get you. (A political poll of inner-city 5th graders in Detroit may not tell you who the next president is likely to be)

Since realizing the foolhardiness of my twenties when I bought two new cars I have since lived by the mantra of buying an old but decent car and driving it until it dies. If the car costs me more than $1000 a year (not including insurance and fuel) I lose; if less I win. My 1997 Infiniti I30, 2001 Volvo S60 and my 2008 Pontiac Vibe are a testament to this philosophy. I only paid $4000 for each car and each has served me well. I only buy liability insurance and keep my driving record spotless. I drive frugally and deliberately, accelerating slowly and braking sparingly. I often leave for work early so I can drive slower than the speed limit. My biggest maintenance or repair cost is usually buying tires. Perhaps if you did your analysis on a 12-year-old Toyota Corolla with 150k miles and drove it for 8 years (which would be what I would advise) and adopt my sedate driving style… Alas, too many people still have their identity wrapped in their choice of vehicle and take out their frustations while driving.

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