There are only a few absolute certainties in the universe. Gravity keeps your feet on the ground. The sun rises in the East. And having access to a personal vehicle carries an inescapable, ongoing expense — regardless of whether you buy, lease, or rent a car. In fact, the only sure-fire way to know if you’re making a smart economic decision when it comes to your ride is to combine all the costs for purchasing, maintaining, insuring, and financing an automobile into a single monthly figure. So, we have to ask, how does that all add up? What is the true cost of car ownership? How do financing, leasing and subscriptions compare?
According to the American Automobile Association, the magic number for your car’s total cost of ownership is probably between $600 and $800 per month. Quibble about the exact number if you like. But depending on the make and model — and how many miles you drive per year — the monthly expense of keeping a personal vehicle in your driveway will be within that ballpark.
Let’s use a Ford Fusion SE — a mid-size right in the middle of the car market — as the basis for this discussion.
What does it cost to finance a car?
Depending on the engine size and the level of fit and finish, you can find a new Ford Fusion SE with a sticker price of about $24,000. But the minute you drive the car off the dealership lot, it loses thousands of dollars of its worth. After a year, that new Fusion will have lost as much as 25–30% percent of its value — in other words, how much money the same car could fetch if you sold it after just one year.
According to Edmunds, a leading car-buying website, by the time you pay off your five-year loan, the value of the car will have been cut by 45 percent or more. In the case of the Ford Fusion SE, if you do a good job of selling the car at a fair price, the depreciation of the car will be around $12,000. Without even thinking about it, you were spending nearly $200 a month over 60 months on car depreciation alone, the number one cost of owning an automobile.
Well, $200 a month is not bad, right? Unfortunately, that’s only the beginning of your expenses. If it was provided at the going interest rate (between about four and five percent), then the financing of that loan likely costs around an average of $47 per month. What about licenses, taxes, and fees for the Fusion? That averages to another $47 a month.
Now add insurance — generally estimated at 20-percent of a car’s total cost of ownership. Depending on your policy and your driving history, insurance could easily set you back $120 per month. Add up depreciation, financing, licenses, taxes, fees, and insurance — we haven’t yet calculated maintenance (e.g., oil changes, inspections, tune-ups, and tire rotations), as well as replacing the tires every few years, and those cost start to add up.
As you can see, the window sticker or television commercial might dangle an attractive purchase price or a monthly lease payment, but those “big savings,” as measured by real monthly cost, bring us back to reality.
Well, what about a lease?
Common wisdom dictates that you buy an appreciating asset, but lease things that lose value over time. That’s why many motorists acquire a lease on a new car every three years. Not only does that provide the perk of driving a new (or near-new) whip on an ongoing basis, but the vehicle stays within a three-year warranty period the entire time — so you avoid major repairs.
In general, a lease is a form of ownership with a different name. That’s because the value of your lease is based on its pre-calculated depreciation cost — the difference between the sales price and the set residual value at the end of the lease period. Truth be told, when you combine the amount of the lease down payment and the monthly lease checks, it often carries a cost that’s higher than the depreciation. Aside from the chunk of change you need for a downpayment, there’s also the matter of additional costs that come with owning a car. When you look at the lease sticker price, it might look really reasonable (see the table below), but that doesn’t include insurance costs, any maintenance fees, roadside assistance, etc. You get the point.
It’s also more challenging to figure out if you’re getting a good deal on your car when signing a lease. The car dealer knows a lot more about a how a lease works than you do. Haggle as much as you like over the base purchase price of the vehicle, but there are multiple aspects of a deal, including the down payment amount, residual value, return fees (based on mileage limits), and interest rates that can be complicated. If you can get a bargain on a lease — maybe because the dealership is trying to clear excess inventory of undesirable vehicles — then take it! Otherwise, it’s worth considering an entirely new way to put a car in your driveway.
But, you’ll be sacrificing a bit of flexibility for cheaper monthly payments. Exiting a lease isn’t easy, and you could be left paying the remaining payments on your lease plus early termination penalties if you can’t find a person to take it over on a site for lease swapping. If you change your mind about needing a car during your lease period, get ready for a big headache.
It doesn’t have to be this way.
Imagine a world in which you never need to haggle with a salesperson or have to decipher a car purchase/lease agreement, entirely avoiding a trip to the car dealership — and instead have your next car delivered to your home or office. And imagine a way to get a car that didn’t require such a large upfront commitment.
The Fusion SE is available from Canvas for as low as $439 per month (12 mo. subscription + 500 miles). That all-in cost includes your subscription, your vehicle fee, comprehensive insurance, all routine maintenance, a bumper-to-bumper warranty, tire wear and replacement, and roadside assistance. Let’s compare that $439 per month to how much you would spend by plunking down a deposit for a new Fusion SE, taking a car loan, and making monthly payments for the next 60 months, or paying a large down payment and signing up for a 36 month, limited mileage lease.
If that sounds good, then consider these other perks to a car subscription:
- Avoiding a big down payment and instead utilize that money to invest in an asset that increases in value over time.
- Having the flexibility to swap cars so that they meet your needs, rather than getting locked into the same vehicle for three to 10 years. (How cool would it be to get a sporty Mustang for the summer and a larger 4x4 when winter arrives?)
- Never getting hit with a unexpected repair bill, suffering the hassle of shopping for and installing new tires, or ever seeing a bill for insurance or registration.
- Never having to worry about selling a car when you’re ready for a new one.
- Going entirely car-free in months when you’re traveling or easily able to use ride-hailing or public transportation.
This scenario is now possible with a car subscription. The most frugal car buyer can still fire up a spreadsheet to calculate how to beat the odds regarding the total monthly cost of owning a car. But that task is not likely to overturn the laws of the car-buying universe.
If you’re not looking for something convenient like Canvas, then that’s cool too. We get it. If you’re the type of person that drives their car into the ground or if you want to commit to brand new car every three years through leasing, we understand. If you are looking for a subscription like Canvas, you get something new, something unique, and something that can fit your lifestyle a lot better than any traditional form of car ownership can.
For the majority of drivers a subscription model — like how you pay for mobile phone service or cable television — will save money compared to the traditional car purchase or lease. And when considering intangible factors, such as convenience, flexibility, and peace of mind, subscribing to a car — rather than buying or leasing — can very easily be the way of the future for many people.
Besides, all the hassle and heartache of cross-shopping, managing payments, insurance, repairs, and licensing are not what driving should be about. It should be fun and freedom, which is what a car subscription offers. Best of all, you can try it for a month to see how it affects your pocketbook and your sense of adventure. Then you can decide if you want to go back to the old way of paying for your car, auto insurance, and repairs — or if you’re ready for new and better alternative to car ownership.
