Author Topic: New/Used or low-priced car-what about true cost of ownership?  (Read 3062 times)

rosecolored

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New/Used or low-priced car-what about true cost of ownership?
« on: August 09, 2012, 02:54:58 PM »
I just read the post touting the benefits of a cheaper/used car.

[http://www.mrmoneymustache.com/2011/11/28/new-cars-and-auto-financing-stupid-or-sensible]

My question is about those true cost to own calculators and the potential misleading cost of the purchase price.

For instance, the purchase price of a new Prius is around 23k, but over 5 years the cost of ownership is only 32k.

A new Honda Fit is much cheaper up front at 16k, but over 5 years the cost of ownership is 29.5k

Are those calculators reliable? Shouldn't the long-term costs be a factor as well?

I suppose the kicker may be we couldn't pay cash for the Prius and would have to finance about 8-10k.

JohnGalt

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Re: New/Used or low-priced car-what about true cost of ownership?
« Reply #1 on: August 09, 2012, 04:09:43 PM »
I won't claim to know what those calculators are using to estimate the true cost to know if they're accurate but I could certainly come up with a scenario in which those numbers are reasonable...

Assuming
Price/gallon: $3.62
Miles Drive/year: 15,000

Car A:  $23k
MPG: 45
Resale Price 5 years: $14k (60% residual after 5 years)
Total cost (excluding maint.):  $23k-$14k + 15000/45*3.62*5 = $15k

Car B: $16k
MPG: 29
Resale Price 5 years: $6.5k (40% residual after 5 years)
Total cost (excluding maint.):  $16k-$6.5k + 15000/29*3.62*5 = $19k

This is ignoring maintenance and financing charges... but it shows how resale value and fuel economy can combine to make a lower initial priced car turn out more expensive after 5 years than a higher initial price car.

Obviously if you plan to drive the car till it dies - the residual difference is a wash but maintenance and expected life-span come into play. 
Same thing if you would finance one and not the other.
5 years on a prius probably won't account for replacing the battery. 

But yes, the sticker price on a car is certainly not the whole picture.  But that's the same for just about everything.  Would you rather have a $100 appliance that will last you only 3 years and use 25% more electricity than the $300 appliance that will last you 10 years? 

« Last Edit: August 09, 2012, 04:18:29 PM by JohnGalt »

Jamesqf

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Re: New/Used or low-priced car-what about true cost of ownership?
« Reply #2 on: August 09, 2012, 04:41:26 PM »
Would you rather have a $100 appliance that will last you only 3 years and use 25% more electricity than the $300 appliance that will last you 10 years?

Actually, I'd rather have the $300 appliance that I bought for $30 on Craigslist, 3 years into its useful life, 'cause the original purchaser was tired of it and wanted to remodel :-)

reverend

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Re: New/Used or low-priced car-what about true cost of ownership?
« Reply #3 on: August 10, 2012, 11:43:25 PM »
Would you rather have a $100 appliance that will last you only 3 years and use 25% more electricity than the $300 appliance that will last you 10 years?

Actually, I'd rather have the $300 appliance that I bought for $30 on Craigslist, 3 years into its useful life, 'cause the original purchaser was tired of it and wanted to remodel :-)

You can buy your car that way too. :)

On a somewhat related note, I posted my fuel chart on my webpage (in my sig). It details my fuel usage since 2008.  There is a blip or two (38mpg - when a buddy borrowed my car and didn't log a fill-up) but otherwise it's a good chart. I also have all the maintenance and stuff in some other charts I haven't posted.

My 1996 Volvo 965 costs me 13 cents/mile, total.