As vehicle prices rise, is it time to downsize?

The statistics are sobering. The average sales price of a new car has been flirting with $50,000 for the past couple of years, according to Kelley Blue Book. That’s more than a 25% increase since pre-pandemic 2019.

Moreover, maintenance and repair costs were about 30% higher in mid-2023 than before COVID, according to the Bureau of Labor Statistics, while insurance premiums jumped about 13%. AAA says the average price of gasoline nationwide was about 48% higher in 2023 than in 2019. Recent bank car-loan interest rates are the highest since 2007.

COVID brought factory shutdowns and microchip shortages that whittled down new-car inventories, which, in turn, allowed automakers and dealers to raise prices.

Some automakers ditched production of economy cars and lower-priced sedans in favor of higher-profit SUVs and pickups. Avarice wasn’t the only motivation; automakers need hefty profits to fund the costly transition from internal combustion vehicles to electric vehicles.

Additionally, Russia’s invasion of Ukraine and Saudi Arabia’s efforts to restrict oil supplies help to explain recent bumps in fuel prices. Increased labor costs and the techy gizmos that protect and coddle car occupants raise the cost of repairs.

A dinged bumper once meant a simple patch and paint. Now it also means that sensors embedded in bumpers need inspection, recalibration, or possibly replacement. As night follows day, higher repair costs mean higher insurance premiums.

Though the surge in costs is distressing, there’s some hope if you’re a value-conscious motorist. Each year AAA calculates the costs of owning and operating a personal vehicle. The latest Your Driving Costs study considers the 5-year costs of fuel, maintenance, insurance, license fees, finance charges, and depreciation for 9 categories of vehicles.

The study’s big takeaway isn’t surprising: Small is less costly. But the cost difference is startling. A small sedan costs only about half as much as a half-ton pickup to own and operate. At 15,000 miles a year over 5 years, the sedan costs 60 cents a mile versus $1.06 a mile for the half-ton pickup, or $9,000 a year versus $15,900 a year.

Subcompact and compact SUVs are relatively thrifty to operate, at 65 cents and 67 cents per mile, respectively. So, too, are some hybrid and electric vehicles, at 64 cents and 67 cents per mile. But midsize SUVs and pickups are pricey, at 80 cents and 82 cents per mile. At 74 cents a mile, midsize sedans fall between the groups.

However, there can also be sharp differences in costs among specific vehicles within a particular category. For instance, most luxury vehicles are more costly to own than standard-issue vehicles.

Mitchell, a company that compiles auto-repair data, finds that after being involved in an accident, EVs on average cost more to repair than internal combustion cars by $963. But Tesla EVs—considered luxury cars—on average cost $1,589 more to repair. AAA didn’t include luxury cars in its study.

Large SUVs and pickups are beloved by many American motorists. But if you’re in the market for a new vehicle—or a used one for that matter—it pays to be realistic about both your means and your needs. Will smaller rather than larger do?

For a deeper dive into the AAA study, read the Your Driving Costs brochure. AAA also offers an online Your Driving Costs Calculator that gives the ownership costs for specific makes and models.