Abstract
Buying a Honda Accord Sedan instead of a Honda Pilot SUV saves roughly $25,000 over 10 years. But both cars are still going to cost a whole lot when all operating and ownership expenses are included (close to $100,000 per decade).
Intro
Ever wondered how much money a smaller car actually saves? Maybe not, but you’re a little curious right? An SUV seems so much safer and more luxurious, right? And if an SUV really isn’t that much more expensive than a regular-sized car, why settle for less?
The numbers
For this example, I’m comparing the estimated 10-year costs of owning (and then selling) a new Honda Accord Sedan versus a new Honda Pilot SUV. I’m assuming cash purchase of the car, although, I guess there could be a case made for financing and investing the difference, but we’ll keep it simple. My cost data comes from the Edmonds.com True Cost To Own section.
Edmonds’ True Cost To Own calculates the total cost of ownership over 5 years, including depreciation, fuel, maintenance, repair, insurance, taxes, and fees. Because I ran the numbers for Oregon, which has no sales tax, they are likely understated compared to the U.S. average. Either way, the numbers are still impressive. And also, since Edmond’s only calculates the cost to own over 5 years, I had to trend the individual costs out 5 additional years to fit the ROI model.
So let’s get to it. The face value of a new 2014 Honda Accord Sedan LX is about $20,150, while the 2014 Honda Pilot LX costs closer to $27,900. So right off the bat, it appears that the Pilot costs almost $8,000 more. When accounting for all the other costs of ownership mentioned above, plus the opportunity cost of spending that extra money on a bigger car instead of investing it, the ROI of buying an Accord instead looks like this:
- 10-Year NPV: $24,876
- 10-Year ROI: 32%
- 10-Year Payback: 0.7 years
Man, it will cost almost $25,000 more every 10 years to drive around in an SUV instead of a sedan! That is more than 3 times the face value difference between these two cars. And maybe what is even more jaw-dropping are the total costs of owning a car at all.
Even the Honda Accord costs $78,000 over 10 years, while the Pilot is closer to $96,500. This is why Mr. Money Mustache has such a bone to pick with cars: they are a huge financial drain. If a family managed to forgo 2 SUV’s for ten years, they could theoretically have a sustainable passive income stream of around $8,000 per year (4% of ~$200,000).
But if you’re anything like me, you’re not completely ready to get rid of cars. Not to worry, there are still savings to be had by just using cars less. And there is also the opportunity to be more financially sensible about your next auto purchase.
Edmonds and many other online automotive resources such as Kelly’s Blue Book and Consumer Reports have annual lists of the best-in-class cars to own based on lowest cost of ownership. Check these out next time before purchasing a new vehicle. And maybe don’t even purchase a new vehicle at all (purchase used – this is the subject of a future post).
Conclusion
As usual, it turns out that less is more… a whole lot more in this particular case. Avoid bigger cars if possible and save some substantial dinero in the process, around $25,000 per decade to be exact.