I go through a lot of cars… I buy them cheap. Drive them till they die, or I flip them for a profit (flip as in sell, not flip as in roll over).
For cars I don’t flip I like to think of the expense as cost per mile. Here are 4 examples.
The Beater – I bought a ’96 Geo Prizm about 4 years ago from a friend. It cost $300. It was over-heating, and I dropped about $1500 in parts to essentially refurbish the engine (all new belts and hoses, water pump, head gasket, head job, radiator, etc… Everything but the bottom end.). So far, I’ve gotten about 60k miles out of it. That means I’ve spent $1800 on it, and gotten 60k miles. That makes for a cost of about $0.03 / mi. Then you add gas, which due to high gas prices, and bad gas mileage comes out to about $0.13 / mi. For a total of $0.16 / mi. That doesn’t include some regular maintenance (tires, and a few minor repairs) since the purchase of the car.
The New Car – Lets say you buy a new car, and drive it for 100k miles and then trade it in. A 2016 Honda Accord starts at $22k, but you’re probably going to get some options (like power locks, etc…) and drop closer to $30k after taxes, title, fees, etc… You get 100k miles from it, and when you trade it in, you get $5k for it (I don’t think anyone gets $5k on trade-in for a car with 100k miles, but we’ll be generous). That makes the cost (without gas) $0.25 / mi. Add in gas, at 35mpg ($0.08 / mi @ $3/g) and you are at: $0.33 / mi.
The Middle Ground – I have a friend who just bought a 2009 Toyota Yaris. Total cost was about $8k. The car has 70k miles. The Toyota Yaris is a true economy car. They last FOREVER. He should get 200k additional miles out of it if he does regular oil-changes, etc… And the only expensive repair he should have, is a clutch somewhere in there. So, he gets 200k miles for $9k (assuming it will need a clutch). That means he will end up paying about $0.045 / mi without gas. The Yaris easily gets 35mpg, and most of his driving is highway where he could get as high as 40mpg. So, we’ll do $0.08 / mi just like the Accord. Which comes out to $0.125 / mi. Not too shabby. Especially since 100k mi plus will be deductible for work. Which at $0.55/mi comes out to $55k in tax deductions.
Fun Cars – I really like fun cars. I’ve had 2 pure sports cars, an MR2, and an RX7. Both were AWESOME, and it’s been a long time since I’ve had a fun car. I recently found out about a really awesome, economical car. The Hyundai Genesis… Hyundai’s have come A LONG way in quality in the last decade. You should be able to get 180k+ from a well maintained Hyundai. The Slightly older Genesis Coupe comes with a 3.8l V6 that makes 300HP!!! You can get one for about $10k with less then 100k miles if you shop around. That means about $0.10 / mi. Less then half the cost of the Accord per mile. And twice the cost per mile of the Yaris before gas. But 10x more FUN per mile :)
So, the next time you want to buy a car, do some quick math and figure out if it makes sense.
Disclaimer: No, I didn’t take into account regular maintenance, tires, brakes, fluids, etc… But these costs are fairly regular. In general, they get more expensive the bigger the car. So, if you want to include these in your calculation, I would just add 20% to 40% to the gas cost per mile (bigger cars get worse mileage, just the way it is).