|Type of paper:||Essay|
|Categories:||United States Automotive industry Money|
It is the dream of most children that one day when they grow up, they will own a car. On the same note, adults plan on how to acquire and maintain their own cars before they retire in old age. However, these wishes and plans are made in complete disregard to the costs that are involved in the acquisition and maintenance of cars. According to AAA NewsRoom (2013), the costs of owning a new car in the United States has increased exponentially over the years. The increased costs have been caused by a variety of factors. In this regard, the citizens and prospective car owners in the US have found it very difficult to own a car. The exorbitant chunks of money involved in driving a car have led to decreased appetite for the potential buyers. Moreover, the lack of parking space due to increased congestion further raises the cost of driving a new car.
AAA NewsRoom (2013) argues that the cost of driving a car is high because of Fuel costs, depreciation, insurance costs, high-interest rate and high costs of maintenance and repair. Apart from the monetary constraints, the environment is also at risk from the gases that are emitted by the cars. As such, the government is using all strategies to ensure that no car emits the poisonous gases. Additionally, the mileage is always checked so as to retire those cars that have surpassed their lifespan. Furthermore, the costs involved when one is arrested because of air pollution are very high. As a result, it has been very costly for one actually to put a car on the road. This research will analyze why the driving costs are so high. In this regard, it will look at each factor in detail.
Increased Fuel Costs
Any economy requires a considerable amount of gasoline to operate. All the machinery and motor vehicles move via the consumption of gasoline. The United States mostly imports oil from the producing countries in the Middle East. Beresteanu & Li (2011), states that the costs of gasoline between 2002 and 2008 went up to very high levels because of inflation. Additionally, the United States has no control over the fluctuating prices of oils in the international market. In this regard, the cost of gasoline has increased at an average rate of 1.93% per year. According to Beresteanu & Li (2011), although the prices seem to be stable, they are increasing at a seemingly small rate. Regular grade fuel, which is used by a majority of vehicles trades at an average price of 3.486 per gallon up from $3.357 last year, which is an increase of 3.84%. This increment has been necessitated by the increasing costs of petroleum in the international oil market.
Due to the increases, most car owners have resolved to leave their cars at home so to save on the fuel costs. They have alternatively resorted to using the other public means of transport because they are much cheaper (Beresteanu & Li, 2011). Others have sold their cars as they have realized that they cannot cope with the exorbitant fuel prices that are currently retailing in the market. As a result, the number of cars on the roads has decreased. Although new cars are increasingly being bought, they are still being sold at an equal rate. This is because the new owners find a situation that they did not anticipate when they were purchasing the cars. Additionally, their goal of reducing costs means that they have to get rid of the current cars that they own.
High Rate of Depreciation
Beresteanu & Li (2011) defines depreciation as the graduation loss of a car's value over a certain timeframe. Everything that is subject to wear and tear is also susceptible to depreciation. In this case, the value of cars diminishes with every mileage that they cover. On average, depreciation accounts for 48% of the total number of costs that car owners experience in just five years (Beresteanu & Li, 2011). To calculate depreciation, a current used car is assessed, and its market value noted. Afterwards, a new car of a similar model is assessed and valued at the same time. The retail discounts are also considered in calculating the total price of the new car. After that, the prices of the two cars are compared. The difference in prices is the depreciation. An average model depreciates at a rate 65 percent in a span of five years.
Beresteanu & Li (2011), contents that some cars depreciate at faster rates than others. As such, the value of the cars after a specific time frame might differ. However, depreciation is an imperative process of any movable motor vehicle. The indifference in depreciation might be caused by oversupply, limited appeal, or even some tax and sale rebates on the incoming models. Regarding oversupply, when companies release a lot of vehicles of a similar model in the market, their influx lowers the costs. As a result, many will want to buy triggering the production company to release more to the market. The limited is the general attitude that people have towards a particular model. If they are pleased, they are likely to buy more of that model over a certain period of time. However, when the make is not appealing, it is highly likely that the model will lose the market.
Hidden Purchase Costs
Williams (2014), states that the cost of buying a car in the United States is relatively higher compared with last year. Although the advertised costs might seem favorable, the hidden costs are surprising. There are a couple more dollars that are not included in the initial purchase price but which are mandatory for the acquisition of the car. According to truecar.com, which is a car buying site, a prospective buyer who takes a loan of $31,000 should be prepared to spend a couple of more dollars in interest charges (Williams, 2014). Therefore, the interests are one of those hidden costs that a car buyer will not include although, they happen to be part of the transaction.
It is in Williams (2014) view that the transaction fees are also other forms of hidden fees that the buyer does not get prepared for when intending to buy a new car. These fees vary with the state than individual wishes to buy the car from. Additionally, the nature of the car; new or second hand, is an important factor in determining the transaction fees. Surprisingly, the used car deals are charged more than the new ones. Other forms of payment that are hidden include; vehicle license fee, registration fee, documentation fee title fee, compliance fee, advertising fee, floor plan fee as well as dealer preparation fee (Williams, 2014). Although the tax is not a hidden fee, it still factors into the final amount. Additionally, the add-ons are extra fees that the prospective customers will not release in the first instance. In this regard, some vehicles will have an extended warranty. Others have an insurance that is attached as a condition for the offer of a car at a particular price.
Increasing Insurance Costs
Demographics from a variety of departments in the United States reveal that the cost of car insurance premiums has in all major states across the US. According to Lemaire (2013), those insuring their cars from accidents and other third party risks have paid more this year than in 2015. The only exceptional states are Arkansas, Georgia, North Carolina, and Virginia. In these exceptions the insurance premiums dropped by 1% and 5% from last year (Lemaire, 2013). According to the research conducted by Quadrant Information Services, insurance for cars in a single year stood at an average premium of $907.38 in 2014. Notably, this cover may not be comprehensive but only on a limited number of risks.
Lemaire (2013), further states the costs of insurance mostly vary with age and gender. In this regard, young drivers are required to pay higher premiums than their more experienced counterparts. This is because they are the most notorious and dangerous behind the wheel. Lemaire (2013) adds that Drivers over 65 years of age pay much more than those at mid 40 are due to the reason of poor or decreased visibility and cognitive abilities. On gender, 19-year-old female drivers pay an average of 12% more every single year than their older counterparts (Lemaire, 2013). While gender should not be used as a discrimination excuse for the insurance companies, men have a tendency of driving more often than women hence increasing their chances of being involved in accidents.
High Cost of Maintenance
Williams (2014), opines that the biggest challenge is not to buy a car but to maintain it. This is because of the costs involves in the wear and tear. For instance, the cost of replacing tyres that are worn out requires a good number of dollars. Additionally, the change of oils and other vehicular fluids has the effect of increasing the costs of maintenance. According to Williams (2014), an individual can have a vehicle but fail to drive it because of the high costs of maintenance that are involved. In this regard, a car owner is always not in the business of calculating how much it will cost to maintain a car for a whole year. Notably, the costs of maintaining a used car are much higher than that of maintaining a new one. Additionally, most of the components of a car are very expensive depending on the model that an individual owns.
Strict Regulatory Framework
This is the last factor that puts the cost of driving a car in the United States high. First, every car owner is under a legal obligation to take an insurance policy for his/her car for a whole year. That cover should be renewed when it is due. Failure to renew the insurance cover constitutes a criminal offence. According to Lemaire (2013), the owner is required to have the necessary documents relating to the safety of the vehicle. All these documents require a lot of money to assemble. As a result, the expenses rise to very high levels.
In conclusion, this research has presented the supporting evidence on why the costs of driving a car in the United States are so high. In this regard, the increasing cost of fuel is the first reason why driving a car is expensive. Secondly, the cars depreciate after a very short period. Thus, a car owner cannot recoup a huge amount of money on resale. Thirdly, the hidden costs are much more than what the purchase price is. The insurance costs are also major contributors to the high cost of acquiring and maintaining a car. Additionally, costs of maintenance are high although the car owner might not realize it when buying the car. Lastly, the regulatory framework that governs the motor vehicle industry adds to the already high costs incurred.
AAA NewsRoom,. (2013). Cost of Owning and Operating Vehicle in U.S. Increases Nearly Two Percent According to AAAs 2013 Your Driving Costs Study | AAA NewsRoom. Retrieved 4 November 2015, from http://newsroom.aaa.com/2013/04/cost-of-owning-and-operating-vehicle-in-u-s-increases-nearly-two-percent-according-to-aaas-2013-your-driving-costs-study/
Beresteanu, A., & Li, S. (2011). GASOLINE PRICES, GOVERNMENT SUPPORT, AND THE DEMAND FOR HYBRID VEHICLES IN THE UNITED STATES*. International Economic Review, 52(1), 161-182.
Consumerreports.org,. (2015). Cost of Vehicle Ownership - Consumer Reports. Retrieved 4 November 2015, from http://www.consumerreports.org/cro/2012/12/what-that-car-really-costs-to-own/index.htm
Jawi, Z. M., Lamin, F., Manap, A. R. A., Abbas, F., Kassim, A., Anwar, K., & Wong, S. V. (2012, May). Automotive Ecosystem in MalaysiaA Conceptual Model to Explain Vehicle Ownership and Car Maintenance Issues. In Applied Mechanics and Materials (Vol. 165, pp. 224-231).
Lemaire, J. (2013). Automobile insurance: actuarial models (Vol. 4). Springer Science & Business Media.
Williams, G. (2014). The Hidden Costs of Buying a Car. US News & World Report. Retrieved 4 November 2015, from http://money.usnews.c...
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