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Motoring costs tighten home budget

The second biggest investment we make after home ownership – car buying - is getting bigger. Despite recent reductions in fuel prices, new figures reveal the cost of running a vehicle is growing steadily and the increases are hitting the family budget ever harder.

According to RAC's latest "Cost of Motoring" index, the average car now costs more than £5,500 a year to run, equivalent to £15 a day.

Following increases in congestion charging and with road pricing on the horizon, car owners are having to budget ever more carefully. The cost of car ownership has risen by as much as the cost of a package holiday - £539 - in 12 months.

As in previous indexes, depreciation is the largest cost factor in all new cars, increasing £432 or 22% in 12 months. The average person now loses £2,420 a year, equivalent to £46.50 a week. The growing depreciation of vehicles is driven by a significant reduction in the projected residual value of the cars in the index after three years, from 52% to 45% of the recommended retail price.

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According to the figures, the bill for running a car is as follows
Variable	Q3 2006	Q3 2005
Depreciation	£2,420	£1,987
Fuel	£1,112	£1,155
Cost of finance	£1,040	£948
Insurance	£412	£389
Maintenance	£300	£271
Tax	£129	£124
RAC membership	£126	£126
Total cost (per year)	£5,539	£5,000
Total cost (per week)	£106.51	£96.15
Total cost (per mile)	£0.46	£0.42

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Commenting on the index, RAC spokesperson and index author Sean Morris, said, “too few of us understand the spread of costs associated with owning and running a car. The index results will be unwelcome news for many, but motorists must better understand the true cost of their vehicles.”

Factors identified by the index:

• Fuel prices have fluctuated as the price per litre at the pump has reduced by 3.5% for petrol and 2.3% for diesel. The average annual cost for vehicles covered by the index reduced by slightly more than the reduction in the price per litre, reflecting a trend towards more fuel efficient vehicles.
• The annual cost of finance has risen by £92 from £948 to £1,040, an increase of almost 10%. Just over half of this is accounted for by the increased cost of borrowing, reflecting a jump in the Bank of England Base rate in August 2006. The balance of the increase arises from a 4% growth in the average target price for the vehicles in the index over the year.
• The average annual cost of insurance for vehicles in the index grew 6%, from £389 to £412. Most of the increase reflects premium rate movements seen in the vehicle groupings. There is also some increase as a result of the weighted average of vehicles in the index moving towards cars with higher insurance groups.