Buying a car for mileage alone a huge mistake

Would you buy a house because one-fourth of it suited you needs? Then why buy a car solely for its gas efficiency? According to Consumer Reports (subscription required), fuel only accounts for 26% of your overall vehicle cost. Depreciation claims a huge 46%, interest on your loan 12%, insurance 10%, maintenance/repair 4%, and taxes 3%.

Obviously, then, a driver interested in traveling cheaply will focus first on depreciation. The first rule of thumb to reduce your out-of-pocket for depreciation; stay away from the new car lots. Depreciation can easily suck away half of your car's value in the first two years.

If you absolutely must buy new, look for models that hold their value. For 2008, bankrate.com lists these vehicles as the best at holding value: the Volkswagen R32, Jeep Wrangler, Mini-Cooper, Scion XB, and the Honda CR-V. The worst five value holders are the Hyundai Entourage, Chevrolet Malibu Classic, Kia Optima, Suzuki Forenza, and Hyundai Accent.

If you're going to buy used, you might want to avoid those cars at the top of the "holding value" list. Let someone else pay for their depreciation.

Since insurance represents 10% of your driving cost, choosing a vehicle that costs less to insure can further pad your wallet. In 2008, bankrate.com's least expensive to insure list was topped by the Jeep Patriot, Pontiac Vibe, Mazda 5, Chrysler PT Cruiser and Scion xB, The most expensive? The Jeep Compass, Chevrolet Uplander, Pontiac Torrent, Jeep Wrangler and Mazda Tribute.

The most surprising bit of data here for me was the miniscule percentage of overall vehicle cost eaten up by maintenance. As a criteria for purchase, this seems relatively unimportant.

To cut your costs to the bone, look for a car that has already depreciated through the steep part of its curve, that isn't expensive to insure, and gets at least average mileage. Steer clear of those care that get great mileage but kill you in depreciation. Paying $4 at the pump beats tossing $10,000 out of the window.


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