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Understatement of Auto Operation Costs by AAA
July 15th, 2002
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.
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|
- AAA total operation costs are from http://aaa-calif.com/
- Resale values are from Kelly Blue Book, http://kbb.com.
- I used my zip code, 93105 for the location of sale. This is in Santa Barbara, California.
- Honda Accord EX Sedan 4D was chosen at random because it seemed like a fairly typical car and was available both model years the AAA considered, 1996 & 2001 mileage ranges were based on AAA's range of miles driven from 10,000 to 20,000 annually.
- Condition deteriorates partly from the simple passage of time, partly from use. It is reasonable to assume that the condition of a car which is driven twice as much will deteriorate more rapidly, maybe 1.5x as rapidly. The actual drop in condition (thus resale value) from extra driving could be debated as there is no guidance on this from KBB.
- I'm estimating that the actual 2001 error is 250%, and the actual 1996 error is 140%. Hopefully the AAA will look into this in some more detail and adjust their numbers.
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|
- Those who know us know that the condition of Lynn's Honda could not credibly be described as "good" due significant body damage. I fudged the condition up in order to not fall off the bottom of the KBB scale; it refuses to estimate a value for a car in "poor" condition.
- My 1978 Toyota truck fails to register on two counts; KBB only goes back to 1982, and the condition is "poor," also due body damage.
- While depreciation per mile plummets with age, I think that maintenance
costs per mile skyrocket, so that the understatement of operation costs probably
remains somewhat constant for vehicles older than the five years contemplated
by the AAA.
AAA car costs
Southern California Average Costs
Details of Car Costs*
COST PER MILE
Gasoline and Oil
cents 14.4 cents
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
Drive: Front Wheel Drive
Mileage: 20,000 Equipment
Power Door Locks
Dual Front Air Bags
Consumer Rated Condition:
Excellent Private Party Value
With 10,000 miles it's worth $21,175
Same car with 25,000 miles and good (instead of excellent) condition is
10,000 miles, excellent condition: 11,185