Our Mobile Money Pits: The True Cost of Cars

Rowena learned about the true cost of cars the hard way. Raised by her mom, a Filipina immigrant, in a happy if carless home in northern California, Rowena marveled upon graduating from college and getting a steady job that she could afford to lease her very own car.  For a small down payment and $199 a month, she was in a beautiful new Honda.

Three years later, lease up, the dealer convinced her to buy a somewhat nicer car, one with “just $299” in monthly payments.  When the car was repossessed a year later because she couldn’t make the payments, she figured she had handed her dealer and loan company over $15,000.  Sitting down to do the math, she estimated that insurance, gas, parking, tickets, tolls, taxes, and fees had vacuumed an additional $12,000 out of her accounts.

So four years and $27,000 later, Rowena had no vehicle, no savings, and a credit rating in ruins.

The full burden of car ownership far exceeds the purchase price. Photo: ##http://www.flickr.com/photos/slambo_42/2936060891/in/photostream/##slambo_42/Flickr##

Like most Americans, Rowena had no idea of the true total and ongoing financial cost of car ownership, and, like most Americans, she found her dealer in no rush to warn her about them.  While rent or mortgage remains the largest budget item for the average household, transportation now comes in a close second, and in some zip codes it even exceeds housing.

Transportation swallows one out of every five dollars earned by the average American family, double the bite it took in 1960. This increase alone could account for much of the plummet, over that fifty-year period, in the household savings rate, which by the aughts had skidded close to zero.

We know how things got this bad. Back in 1960, developers had not yet fully sprawled out our housing stock; government had not yet spent billions on road building, letting transit atrophy; automakers had not yet piled on horsepower, luxury, and cargo space; lenders had not yet become so likely to set unsustainable and predatory car credit terms; and drivers had yet to consider short trips unwalkable and bus trips social suicide.

By 2009, the average purchase price of a new vehicle was over $27,000. But the true cost to families can easily total $45,000 for a midsize SUV like the Toyota Highlander, over just five years of ownership. The Department of Energy reports that the typical American household drove its average two cars a total of 20,000 miles last year. Assuming each vehicle is a mid-size sedan, that’s $14,600 a year, using AAA’s 2010 driving cost estimate of 73 cents per mile.  Some families with two older, smaller cars or who drive fewer miles, say, will pay less; some families, with late model cars or trucks or an extra car, will pay a lot more.  In a lifetime of car ownership, an American family will likely “invest” almost $1 million in its vehicles.

And these numbers don’t even count yet more hidden costs like the mortgage on our garages or the property taxes levied on them.  More significantly, they exclude the goodly portion of our other tax bills that go to road-building, oil and car company subsidies and bailouts, local police and rescue services for dealing with traffic and crashes, the costs of road congestion passed on in the price of goods and services, or the oil-protection services of the U.S. military in the Middle East and elsewhere.

If the costs of cars for middle-class families have become largely unsustainable, those costs are immediately and profoundly crushing for working and poor families.  That a car-dependent society makes such families poorer is well established, but this reality rubs against the conventional wisdom that owning a car creates opportunity. This mistaken belief is not without logical basis: the poor and carless can face extreme difficulty in getting and keeping employment because it is challenging simply to get to available jobs.  A variety of governmental agencies and NGOs across the country work to help get the poor into cars for just this reason and with this assistance, some have achieved needed mobility.

Sadly, this well-intentioned approach is both scattershot and short-sighted.  Cars chomp a disproportionate bite out of the smaller budgets of struggling families, who can be one fender bender or unpaid parking ticket away from losing their wheels. But this isn’t the only way those who are poor or working class lose out when they enter the car system. The car system redistributes wealth upward, playing a significant role in the creation of inequality in America.

How exactly?  Cars are an expensive and depreciating asset for which there remains pervasive discrimination in new and used vehicle pricing, financing, and insurance.  In other words, someone with low income or living in a poor or minority neighborhood will likely pay more to own and operate the same car than someone holding a higher-paying job or living in the next town over.

A used car lot in a poor Providence, RI neighborhood, for instance, advertised a 6-year-old Hyundai for $9,000 while the actual Blue Book value, more likely to be paid by middle class car buyers, was $2,880. Car insurance also comes with a higher price tag: Car owners living in some low income areas of Los Angeles can be charged as much as $3,500 per year for insurance, and a survey of three large insurers in 2005 found that drivers with clean driving records in some African American communities paid nearly $1,000 more per year than did drivers with similar records living in predominantly white zip codes.

At the same time, some of the richest Americans continue to get richer off the nation’s automobile dependence. Oil and car companies have long made up the majority of the top 10 firms in the Fortune 500, and for years, windfall oil and banking profits have been reaped from the gasoline-buying and loan-taking public. Even as they have been laying off workers and taking federal handouts, car companies have rewarded top executives and major shareholders: GM’s just-resigned Ed Whitacre made $9 million last year while Ford’s Alan Mulally pulled in just under $18 million. The CEO of one dealer chain, Auto Nation, took home almost $7 million in 2009.

While a fortunate handful make a fine living off of the current system, Americans residing on the bottom half of the national income distribution graph can’t live with the car and they can’t live without it.  We’ll return to what car dependence looks like day-to-day from the working and poor neighborhoods of America in a future post.  The bottom line here, though, is that we all need to understand the true cost of car ownership if the public and our elected officials are to be convinced to support initiatives that provide equitable mobility and freedom from the ever-weightier shackles of car dependence.

Anne Lutz Fernandez, a former marketer and banker, and Catherine Lutz, an anthropologist at the Watson Institute at Brown University, are the authors of Carjacked: The Culture of the Automobile and its Effect on our Lives (Palgrave Macmillan).

73 thoughts on Our Mobile Money Pits: The True Cost of Cars

  1. For people like Santa Clarita valley JuliaK, such soapbox propositions are incomprehensible.

    I’m glad you live in a ’safe’ neighborhood and your children can swim in a swimming pool. But your actions are inherently selfish and ignorant American like.

    I will own that…perhaps I am selfish. Of course the most enviornmentally conscious person will forgoe having children, will not eat meat, and would basically live as the Amish do. People behave in their self-interest and try to balance those interests against the long term reality of their choices. I believe that technology needs to reduce my carbon footprint and not my quality of life. Furthermore, once you realize that most Americans (immoral as you think they may be) probably feel the same way, the sooner you will start exploring viable solutions rather then get on your soapbox and preach against the car culture and “the way things ought to be according to la rider.”

  2. #41 la rider, You are incorrect about the moral judgment.

    My apologies for not earlier chiming in on the side of #51 JuliaK; as people have to make their lives as best they can and as individuals, in general, can only do so much. Perhaps being as smart as we can be and contributing to very effective political process and governance is probably what is most important.

    She is right to believe that technology can both reduce her carbon footprint at the same time improve her quality of life because it quite simply can.

    And, profound corruption from special interests has put the future of civilization in great peril. The level of incompetence of many of those in positions of power is truly mind-boggling.

  3. A twitter by Joe Stiglitz:

    joestiglitz “The true cost of the Iraq war: $3 trillion and beyond” by Joseph Stiglitz http://is.gd/eWmDz

    Joe Stiglitz explains why the $3 trillion is too low an estimate.

    Can’t explain it, but it seems that the Iraq war also has something to do with transportation systems based on cars.

  4. Reminding potential car-buyers to all of the hidden costs of ownership is good advice, but mentioning property taxes on the garage relegates this story to being a waste of all our time spent reading it.

    Everyone should watch PBS’s documentary about the NYC subway. I had no idea that the MTA was among the biggest debtors in the country, and that the $2.25 fare is only 30% of the true cost of the ride.

  5. I had no idea that the MTA was among the biggest debtors in the country, and that the $2.25 fare is only 30% of the true cost of the ride.

    Yeah, that’s probably because the average subway fare, which is about $1.25, is two thirds of the cost of the ride (see page 13 here). The bus fares cover a little more than a third the true operating cost; in total it’s 54%, which is actually a little bit higher than the percentage of road operating costs that are covered by gas taxes and tolls.

  6. Yeah, that’s probably because the average subway fare, which is about $1.25, is two thirds of the cost of the ride (see page 13 here). The bus fares cover a little more than a third the true operating cost; in total it’s 54%, which is actually a little bit higher than the percentage of road operating costs that are covered by gas taxes and tolls.

    You’re confusing operating costs with total costs, which include both capital costs and operating costs. The “true cost of the ride” is the total cost, not just the operating cost.

    I have no idea what “road operating costs” are supposed to be. Academic and government studies have found that subsidies to motor vehicle users for the construction and maintenence of roads amount to less than 1 cent per passenger-mile, which is a small fraction of the subsidies provided to mass transit users.

  7. The table you link to reports spending on “highway purposes.” This includes construction and maintenance. I still have no idea what “road operating costs” is supposed to mean. And it’s irrelevant to the point that you have confused transit operating costs with total transit costs.

  8. Operating costs are maintenance. Construction of new roads would go toward depreciation, but since the US is currently undermaintaining its roads and expanding them slowly, depreciation is much higher than the pace of construction. That’s why the Keep Texas Moving study, which did consider depreciation, found a much lower recovery ratio for roads.

  9. Operating costs are maintenance.

    Then your claim about percentages is simply false, because maintenance is only a part of the total spending on highways reported in the table you cited. That spending includes construction as well as maintenance. And as I said before, this is irrelevant anyway to the issue you were responding to about the “true cost of the [mass transit] ride.” The “true” cost of a mass transit ride includes both capital and operating costs, not operating costs alone.

  10. The true cost of transit includes depreciation instead of construction. That’s the standard way of accounting. Using that accounting, New York City Transit has a farebox recovery ratio of about 40%. For roads, there’s no number that includes depreciation except the TxDOT one, which gives a range of 16%-50% for Texas roads.

  11. It’s good advice to remember all related costs with car ownership and not only the payment.

    The rest of the article is ridiculous, transportation costs are somewhat included already in establishing what the poverty level is. Having access to a car would be among the most desired goals of those with that extra $7,000.

    That woman could have sold her car or sold it to a dealership even at a loss rather than it being repossessed.

    She could be driving a $5,000 old honda civic to jobs that pay well and enjoy very low transportation costs.

    The shady car salesman is why we need government oversight to protect society’s most vulnerable. A sleazy NYC debt collector froze my SSD Disability Income in my checking account 3 times. It stopped when Cuomo got the EIPA 2009 passed. I paid $4,000 to that collector and then asked for my balance the next year. The balance was higher that the original amount. They’d been adding vague fees equal to the $4,000 I paid.

  12. After three years living in San Francisco without a car, my husband and I leased a Honda Fit last month for no money down and $210 a month. We were spending more than that a month on City CarShare.

    Even considering the extra costs of insurance, parking, maintenance and gas, we see a considerable improvement in our family’s quality of life. A trip to my hair stylist no longer takes 45 minutes to an hour one way on Muni. A string of errands that would have taken an entire afternoon now take an hour at most. I no longer have to deal with City CarShare’s annoying new reservation system and worry constantly about time limits. City CarShare is a great program, but it only goes so far. Until we invest real money into our public transportation infrastructure, a car will continue to be the most practical way to live our lives.

    Since getting our car my husband and I are spending weekends driving our son to interesting places outside the city and visiting friends. It’s exhilarating to have a car again, and while I understand the climate implications, I’m hoping that getting a small fuel-efficient vehicle will reduce the damage that we do.

  13. From my previous posts you can guess that I am in Thebe’s camp. We talk a lot about costs but we often do not factor in the value of TIME. What value do you put on spending more time with your family, or free time? Even if having a car ends up costing more than living car-free there is the intangible yet so important time factor. I really think the answer is fuel-efficient, low-emissions vehicles that will allow you to minimize your carbon footprint while maximize your quality of life.

  14. #63 Thebe & #64 JuliaK,

    It now looks that many companies are looking at electric bicycles.

    Public bicycle systems are being implemented.

    It is possible to retain many of the advantages of bicycles including environmental footprints less than 1% of cars in more advanced technologies that can also be much safer than cars with even greater speeds and ranges using systems; also practicality, ease of use, and comfort.

    The costs can be much lower.

    What you are looking for is possible not using automobiles which are very expensive, wasteful, dangerous, and expensive and are frying the environment.

  15. Automobiles cost money? Beyond the purchase price?!! Who knew. Next you’ll tell me that the $2 million house that Community Action Marin is raffling off will cost you ungodly sums of money.

    ::shakes head::

    As for predatory financing, that’s hardly limited to used car lots in poor areas of town.

    But, hey, kudos on another post from the ivory tower. What’s the weather like up there?

  16. “We talk a lot about costs but we often do not factor in the value of TIME.”

    I currently take 90 minutes to get from SF to Santa Clara for work. This includes 45 minutes of cycling and 45 minutes on the train. During the train ride I eat, read the paper, and catch up on my email.

    So from the time I leave home to the time I get to work I have accomplished several necessary tasks, refreshed my mind, and I don’t have to go to the gym (nor pay for a membership).

    Hopefully you aren’t doing those things in your car.

  17. #67 John Murphy, “During the train ride I eat, read the paper, and catch up on my email.”

    What if you could ride your bike right onto the rail without using a train and then eat, read, and catch up on your email?

    Of course, you’d need a comfortable seat and other powering, steering, and control besides your own but, would you find that a lot more practical?

  18. “a survey of three large insurers in 2005 found that drivers with clean driving records in some African American communities paid nearly $1,000 more per year than did drivers with similar records living in predominantly white zip codes.”

    The statistics are racist.

    And sexist. A young male is charged more for auto insurance than a young woman.

    We can’t let these numbers continue their reign of terror any longer.

  19. The number of car thefts reported yearly within a zipcode determine the premiums, it has nothing to do with color of skin.

  20. I drive a 20 year old honda civic I’ve owned it since high school 5 years ago. I’ve kept it in good shape since and because of that it still runs great, gets better gas mileage than most newer cars (35-40mpg). I didn’t want to fall into the trap of a new car because I don’t need all the “newest and best technologies” which is a sales gimmick if I’ve ever heard one. Cars Haven’t changed much in the last 20 years… if anything they have gone backwards in efficiency and dependability.

    I totally disagree that all older cars cost more to maintain, because there are more older cars there are more used parts and much simpler to work yourself. Also insurance is usually less. The mistake JSD #1 made was getting an American car, I’m sorry to say it but our cars here fall apart. If you don’t believe me buy one and see.

    I know what im doing isn’t good for big car companies but you think they care about you yeah right! They just want your money… bottom line. I don’t care because I’m saving my money for things I value more than something that won’t be worth %$*t in 10 years. You gotta look out for yourself because no one else will, these are hard times and the people who ruined the country are the same people profiting. We are all consumers and buying used sometimes pays off. Just a thought…

  21. Buying used is good especially if you know how to maintain a car yourself (that is if the car isn’t designed to stop you from fixing it or maintaining it yourself.) The main problem lies in mechanics that make way too much per hour (sometimes $90 an hour) and the cut-throat, runaway capitalist practices of new car dealerships with all their fees and overpriced services. They’re all going to put themselves out of business one day and all you people obsessed with “car-free” may get your wish to some degree. To me, reforming car sales and repair to make for fairer practices for drivers and converting cars to run on NH3 are solutions to the pitfalls of car-ownership. Tickets represent another political game governments play with drivers to close their budget gaps and that game would just be passed to cyclists (already a problem to some degree) and mass transit users once drivers are out of the picture. Government reform for better relations with drivers done through driver unions would be a good solution to government practices preying on those with private transportation.

  22. Our hope is for a practical alternative to gasoline so cars won’t produce Co2. Having great mass transit might be a nice option for some but I wouldn’t want to live in a world where I couldn’t have my own personal transportation such as a car. We need to fight for our rights as drivers and not listen to all these people who say everyone should be stuck to use mass transit.

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Photo: Credit Now Auto Sales

What Comes After the Auto Bubble?

Vehicle travel in the United States has experienced a resurgence in the last two-and-a-half years, following an unprecedented decade-long per-capita decline in driving. Low gas prices are likely a big reason why; recent increases in incomes and employment as well. But an additional factor has been relatively unexplored: the effect of changes in credit markets on vehicle purchasing and ownership.