High Cost Cars Cost Even More Than We Think

With high cost cars, expect to pay twice!

By Kevin M

Most of us dream of cars. Like the home we own and the clothes we wear, cars aren’t just something we drive—they seem to define us. If you are what you drive, then driving something better somehow makes us better. The nicer the car, the better. But nicer comes at a price, and usually a much bigger one than we imagine based on surface factors. High priced cars are even more expensive than we generally think.

When people shop for cars, the single most important affordability factor is usually the monthly payment. ”How much payment can I fit into my budget? is the question that dominates the numbers. For most us, if the monthly payment is a good fit, we just may have bought ourselves a car, what ever the total price may be.

But the cost of a car is more than a monthly payment. It’s even more than the total price.

Beyond price and payment are carrying costs—the ongoing expenses of keeping the car. The higher the price of the car up front, the higher the carrying costs. And it never gets better.

Before buying that high priced dream car, consider the costs that you’ll carry, over and above the higher price, down payment and monthly debt service…

Insurance. The value of your car has a pronounced affect on the amount you pay for car insurance. While your driving record may be the single biggest factor in determining your premiums, a close second is the cost of collision coverage, and that’s where the value of your car figures prominently.

And speaking of collision, if you’re looking to save money, it may be advisable to drop the coverage on a vehicle once it reaches a certain age. With a late model, high end car, that isn’t an option.

Repairs. The more expensive your car, the more it will cost to repair it. Some of it may be the greater complexity of high priced cars—maybe—but equally likely is the fact that you’ll pay more because the automobile repair world fully expect that people who can afford high priced cars can just as easily afford higher repair bills. I call that the “soak the Yuppie premium”. Expect to pay it for a high priced car.

Replacement costs. The first cousin of repair costs is replacement parts. Just as with a house or any other major asset, sooner or later, you’ll need start replacing components, and the more expensive the car, the more you can expect to pay for parts. Tires, damaged body parts, mechanical components—all will cost disproportionately more in a 2010 Mercedes than in a 2000 Toyota Camry.

Ad valorem taxes. This isn’t a universal cost, but here in Georgia, we have ad valorem taxes on our cars, and we’re not the only state. The tax is like an annual sales tax on the depreciated value of your vehicle. Since the value of your car drops every year, the tax declines each year. However, the cumulative affect of the tax is to add thousands of dollars to the cost of owning your car over its life. Obviously, the more expensive your vehicle at purchase, the more you’ll pay for the tax.

Not all of the higher costs of high end cars are financial. In fact, some of the heaviest burdens may have little to do with money.

Theft. Higher priced cars are generally greater targets for theft—and not just theft of the car itself either. A person getting out of a luxury car is a more prominent target as well. Even if your car is never stolen, or you’re never robbed getting out of it, you’ll carry a bigger burden just on the potential of what can happen. Is that something you want to worry about?

Dings and dents. High end cars don’t seem to wear dings and dents quite as well as less pricey models. If you’re driving a ten year old beater, one more ding probably won’t bother you much. But if your car is a $50,000 late model special, any scratch is likely to be deeply traumatic.

Parking. You have to worry where you park a high end car. You probably have to garage it at home, denying the true purpose of the 21st Century garage–extra storage space. (You may even be forced to pay real money to rent remote storage space, but I digress!)

Away from home, you may find yourself being more particular about where you park it. People with less costly vehicles can park anywhere they choose, but with a high cost car, you might find yourself parking far away from entrances (to avoid the aforementioned potential for dings and dents), double parking to avoid contact with other vehicles, or avoiding street parking or other unprotected spaces. Translation: loss of freedom.

Worry. While most of us like to celebrate our success by rewarding ourselves with bigger, nicer toys, it’s a point of fact that the more we have, the more we have to worry about. What’s the cost of worry? It’ll be different for each of us, but it’s a real cost in more ways than one.

Replacement. Without going into the monetary costs involved in replacement of a high end vehicle, few people can trade down on their cars. In fact, as with houses, most of us fully expect to trade up to something even better. Once you buy on the high end, you’re emotionally—if not financially—locked into that realm, and all the costs associated with it.

So with all this in mind, is a lower priced car—or even a used car—looking like the way to go?

( Photo by uggboy )

9 Responses to High Cost Cars Cost Even More Than We Think

  1. Hi Kevin, you are preaching to the choir with me. I drive a 2001 Mazda Protege which I bought used for cash. (Attempting to pay cash at a car dealer is a story in itself). All the costs you mention are cheap, and mechanics don’t assume I’m made of money. I worry a lot less if I have to park in a questionable part of town. However, I did have my window smashed and my car stereo stolen near my house despite the fact that it probably got them $20 at the pawn shop!

  2. Jennifer – Your car situation is kind of what I was envisioning in writing this post. I have an older car myself, and find many advantatges to it. It will need to be replaced soon, and I’m agonizing over it! Replacement will most definately be a used car, one with a good track record on maintenance.

    There are a lot of other things that I prefer to focus on, apart from a car.

  3. Buying my Porsche was the single best purchase I have ever made. It fulfilled a dream I had since was 13 years old. I paid cash for it and, of all the cars in our family, it is actually the CHEAPEST to insure. (This is because I drive it <3000 miles/year and my primary vehicle is a company car.) I searched for over a year for the perfect, most pristine, model I could find and, despite it being almost 15 years old, it has had ZERO maintenance issues.

    There is nothing like the feeling of getting in a Porsche and just driving it. It is the best stress reliever ever. If you have the opportunity to own one and you make the decision not to, then I truly feel sorry for you.

  4. High end, high quality, but 15 years old. The high priced cars I’m targeting in the post are the late model variety, as with people who flip cars every 3-5 years. Nothing wrong with high quality at a good price though.

  5. My cousin is an oral surgeon and he bought a very expensive Porshe. I believe it was a 962 and it had to be special ordered from Germany. It cost over $100K and it was awesome. He took me for a ride and it was one of the most impressive cars I have ever been in.

    Two years later, he was trying to sell it. The insurance alone cost around $8K per year and most of the time it sat in the garage. He was afraid to take it anywhere for fear it would be stolen or vandalized. So, he would drive it around town and then park it back in the garage. It was a pretty expensive toy.

  6. Bret – That’s a classic high end car story! The car is so expensive, so precious that the owner is affraid even to drive it. Cars like that are more impacted by damage than more ordinary vehicles and a lot more expensive to repair. I couldn’t possibly own a car that has the potential to own me, and that’s the situation it sounds like your cousin is in.

    It reminds me of the saying about boat owners…”the two happiest days in a boat owners life are the day he buys the boat…and the day he sells it”!!!

  7. Depreciation should be included in the cost of the vehicle. Sports car depreciate in value dramatically and to add insult to injury, the buyer market is very limited. I once sold a Porsche and it took forever to unload it. It was so unrealiable, I actually called it a Push instead of a Porsche. The 911s are much more reliable these days but the buyers are few and they depreciate like rocks.

    Depreciation can be used as an advantage, I drive as my second car a SC430. They are extremely reliable so you can pick up an original model year for about 1/6 of the original MSRP. I have also been bidding on Z8’s trying to buy one right. I know it will be a hassle to sell, but it should hold it’s value over a few years of modest driving due to the scarcity of the production.

  8. Don – how much of the depreciation is related to the economy? I’m just guessing here, but I’d speculate that more high end sports cars are owned by people who can barely afford one, than by those who truly can. It’s the wannabe factor and people who aren’t necessarily “haves”, but desperate to look like they are. That part of any market tends to fall out quickly when the economy goes sour.

  9. Great article! These are exactly the reasons why I don’t go the way of luxury vehicles. One day I walked in to see my mechanic and a guy was storming out. It turns out he was upset because of the quote he was given to fix something on his recent model Audi. My mechanic showed me that the problem was out of his control, the part that needed replacing was extremely expensive! The guy thought because he wasn’t going to the dealership he was going to get an extreme break in price. That day was the last day I wanted an Audi.

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