Cost is More Important Than Price when Buying a New Car

Let a former car professional who has retailed thousands of cars and managed some of the largest car dealerships in the United States help you understand the difference between initial price of a vehicle and the cost of ownership. You will be surprised at the difference.  Sometimes, cheaper vehicles cost more over the life of ownership.

 

Cost of ownership is more important than initial price

Cost is most definitely more important than price and should be used when choosing a vehicle. Buying a vehicle we are focused on getting the best deal but we should also be looking at what the best cost is. Cost is the entire monies associated with ownership over the life of the vehicle ownership. It is normally never even considered when choosing a model and that can lead to thousands of wasted dollars.

What is cost of ownership and how is it determined

Here is a typical cost on a 2014 Honda Civic Sedan Ex Automatic

Cost per year: 1^st 2^nd 3^rd 4^th 5^th Total

• Depreciation $3,401 $1,751 $1,541 $1,365 $1,226 $9,284
• Taxes & Fees $1,597 $340 $303 $266 $231 $2,737
• Financing $744 $591 $433 $267 $96 $2,131
• Fuel $1,597 $1,645 $1,694 $1,745 $1,797 $8,478
• Insurance $2,904 $3,006 $3,111 $3,220 $3,332 $15,573
• Maintenance $172 $684 $373 $1,261 $1,220 $3,710
• Repairs $0 $0 $107 $259 $378 $744

Certain things to take into consideration in the above example:

• an estimate of insurance that is based on the median premium in Nevada for single over 25
  
• uses a national gas price figured at 50/50 highway and local driving at 15,000 miles per year.
  
• Taxes and fees assumes a 8% tax rate and DMV fees for registration in Nevada
  
• financing is with 10% down using a national finance rate of a person with above average credit at a term of 60 months

Figures don’t lie

• So, what does this all mean. Well the price of this civic is $22,000 and the cost to drive it over 5 years is $33,373 for a total of $55,373 plus the $2,000 down payment for a whopping total of $57,373.
• Now the vehicle has depreciated $9,284 so the car has a value of $22,000 minus $9,284 totals $12,716, which is a median price you should realize if you sell it based on normal wear and tear and good condition with no more than 75,000 miles on it.
• Subtracting the $12,716 from the total cost of 5 year ownership of $57,373 leaves us a net cost of $44,657 divided by 60 months of usage, that civic cost you $744.28 per month or $24.08 per day. Lots of money for basic transportation.

Summary

Now we will all have different numbers plus or minus a few bucks based on our driving habits, fuel expenses, finance rates, and insurance costs. But you starting to get the picture. Choosing the wrong car can cost you a fortune. Next article I will show you the wrong car to purchase even though the price looks attractive.