Appreciating Depreciation
Playing around with the Kelly Blue Book--the gospel for the used car market--I found a surprising fact: the first 7,000 miles or so you drive every year has little effect on the resale value of your car.
Sure, your car loses a little bit of its value every year, whether you drive it or not. But driving just a few thousand miles per year doesn't do much to your car's value: according to Kelly a five year old car with 10,000 miles on it is worth the exact same amount as a 5 year old car with 34,999 miles on it.
Once a five year old car has logged at least 35,000 miles, though, depreciation starts to bite into your car's resale price.
Of course, drivng an extra mile can help move a car from "excellent" condition to merely "good," which does reduce your car's value. So miles do matter, even for low-mileage cars. But not a lot. Time, rather than miles, is the bigger factor.
Drive more than 7,000 miles per year, however, and Kelly says that depreciation accelerates. By the time a 5-year old Ford Explorer, for example, has reached 65,000 miles or so, each additional mile reduces the car's value by about 8.5 cents. Or -- if you factor in the likelihood that extra miles reduce a car's condition from "excellent" to "good" or "good" to "fair" -- each additional mile probably decreases the SUV's value by 9 cents.
Of course, depreciation rates vary substantially from model to model, and (curiously enough) even from mile to mile: a Ford Explorer driven about 40,000 miles over 5 years loses about 3 cents in value for each additional mile driven; at 70,000 miles, each mile reduces value by 8.5 cents; at 120,000 miles, an additional mile reduces the vehicle's value by 1.2 cents.
There are 2 important points to consider here. First, on those rare instances when we do think about depreciation, we don't connect it with how much we drive. And as a result, we underestimate the cost of driving a mile. That's a mistake. In fact, if we considered the comprehensive costs of driving -- depreciation, tire wear, maintenance, and even incremental insurance and crash risk costs -- we'd realize that, even at $3 per gallon, gasoline may still represent less than half of the per-mile cost of driving.
And second, if we did keep good track of the variable costs of driving -- that is, the costs of driving that are based on how much we drive, rather than the fixed costs of owning and financing a car -- we'd probably drive less. Trips that seem worth doing at 15 cents a mile (the cost of gas for a low-mileage vehicle) might seem too costly at 30 or 35 cents a mile. And if we drove less, we'd save money, gas, and lives, all while reducing our climate-warming emissions.
All of which makes me want a little device, up there on my dashboard, that would remind me of exactly how much I'm spending when I drive -- sort of like a smart odometer. (Then again, maybe I'd just find it distracting and depressing to see how quickly the cost adds up.)
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