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Understatement of Auto Operation Costs by AAA

To: webmaster©aaa-calif.com

July 15th, 2002

Dear AAA:
Thanks for posting valuable information on car costs at http://aaa-calif.com/members/corpinfo/costbrch.asp

I have a suggestion/ correction.

Depreciation has both a use and ownership component. Including all depreciation under ownership understates the usage cost and overstates ownership cost.

This could lead consumers of your information to drive more than they would if the cost of marginal miles driven were not understated, costing them more money, increasing congestion, etc.

For a 2001 Honda Accord, the difference in resale value between a car with 10,000 miles and 20,000 miles is 18 cents per mile (according to Kelly Blue Book--see info at end of message for specs used and calcs). This is greater than the sum of all other operating costs and certainly warrants mention.

If the condition also drops (which is a pretty much inevitable consequence of greater use, the only question is how much) the per mile depreciation is more. In the case of the 2001 Honda, if the condition drops one Kelly Blue Book increment, from excellent to good, the depreciation per mile is 29 cents per mile; twice the total of all other per mile costs.

Thus, the true cost of operating this vehicle is about two and a half times what an owner would conclude from the AAA table, and the cost of letting it just sit is less by an equal amount.

In the case of 1996 cars the understatement is less severe, but still significant; I estimate that it is about 40%.

Your information is very widely disseminated and respected. If distributing accurate information about operating costs resulted in one-one hundredth percent reduction in driving nationwide, that's nearly a hundred million miles less per year driven and many millions of dollars saved by your membership and others who encounter your information reprinted by third parties.

Thank you again for helping educate the public about driving costs.

Yours,

Art Ludwig


Sample calculation of depreciation per mile:

Deprecia-tion per mile AAA "total operation costs" Corrected total operation costs Error Private party resale value Year, Make, Model of car Features mileage condition
        $21,175 2001 Honda Accord EX Sedan 4D kbb defaults 10,000 excellent
$0.183 $0.144 $0.327 227% $19,350 2001 Honda Accord EX Sedan 4D kbb defaults 20,000 excellent
$0.295 $0.144 $0.439 305% $18,230 2001 Honda Accord EX Sedan 4D kbb defaults 20,000 good
        $10,985 1996 Honda Accord EX Sedan 4D kbb defaults 50,000 excellent
$0.043 $0.146 $0.189 129% $8,860 1996 Honda Accord EX Sedan 4D kbb defaults 100,000 excellent
$0.056 $0.146 $0.202 139% $8,165 1996 Honda Accord EX Sedan 4D kbb defaults 100,000 good
$0.074 $0.146 $0.220 151% $7,270 1996 Honda Accord EX Sedan 4D kbb defaults 100,000 fair

Notes:

For the old junkers we drive, the difference is much less:

Depreciation per mile AAA "total operation costs" Corrected total operation costs Error Private party resale value Year, Make, Model of car Features mileage condition
        $3,095 1990 • Honda • Civic Hatchback 2D kbb defaults 150,000 good
$0.028 $0.146 $0.174 119% $1,700 1990 • Honda • Civic Hatchback 2D kbb defaults 200,000 fair

Notes:


AAA car costs

From <http://aaa-calif.com/members/corpinfo/costbrch.asp>
Southern California Average Costs
Details of Car Costs*
OPERATING COSTS
COST PER MILE
1996
2001
Gasoline and Oil
7.7
cents
7.9 cents
Maintenance
5.1
cents
4.7 cents
Tires
1.8
cents
1.8 cents
14.6
cents 14.4 cents
**************
From <http://www.kbb.com>
I picked the Honda Accord EX Sedan 4d because it seemed like a pretty
middle of the road car and was available in 1996 and 2001.
I used the defaults for everything but mileage and condition.
Engine: 4-Cyl. 2.3L VTEC
Trans: Automatic
Drive: Front Wheel Drive
Mileage: 20,000 Equipment
Air Conditioning
Power Steering
Power Windows
Power Door Locks
Tilt Wheel
Cruise Control
AM/FM Stereo
Cassette
Compact Disc
CD Changer/Stacker
Dual Front Air Bags
Moon Roof
Alloy Wheels

Consumer Rated Condition:
Excellent Private Party Value
$19,350
With 10,000 miles it's worth $21,175
Same car with 25,000 miles and good (instead of excellent) condition is
$18,230
***********
1996 numbers
10,000 miles, excellent condition: 11,185

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