Time Out - Buying a New Car

It pays to analyse in areas other than computers. Two and a half years ago I purchased a 2 year old car on the basis that it was better value. Now it is up for $7,000 in costs over and above normal services - and I found that I can't trade it in for nearly the figure I still owe. So, this time I attempted a total cost of ownership analysis.

First I looked at same or similar model in the same marque that has been around for 4 years. I compared it's new price against worst case private sell price for a car in good quality low mileage. From this I get a percentage drop in price. For example I used carsales.com.au to compare a BMW 118i hatch:

New price: $50,000
High 4 year: $40,000
Low 4 year: $20,000
% drop: 44%


I ran a few other cars through for comparison. Drop in value appears to be fairly consistent for a marque. In Australia BMW is around 45%, Peugeot is 55 and Citroen 65%.

My second table attempts to calculate the total cost of ownership over 4 years - for both the older cars and the new replacements. One column for each car and rows for:

1. Purchase Price - being $0 for an owned car or one on lease.
   
2. On-Road - again a new car cost.
   
3. Repayment - Monthly repayments for lease, hire purchase or whatever
   
4. Term - time lease is for.
   
5. Residual - How much you would need to pay to own the vehicle after the term
   
6. Resale @ 4 years The cost of the vehicle adjusted for the %drop in value from above.
   
7. Trade In - The difference between 5 and 6, being positive if it is worth more than you owe.
   
8. Service per year - Calculate average service over 4 years. A car that needs servicing yearly will have 3 services while one that requires 2 yearly will only need 1 in the life of the lease. If you do big mileage this will be a different calculation.
   
9. Paid Out - is the total cost of repayments over 4 years.
   
10. Sub-total/year - being yearly cost of repayments and servicing.
    
11. Economy l/100k - used to calculate fuel costs
    
12. Cost per litre - a guess on average cost of fuel over the next 4 years
    
13. Fuel @ 10k/year - Cost of fuel given an estimated distance driven per year
    
14. Rego - Registration costs from your local registry office.
    
15. Insurance - Insurance calculation. Many insurance companies have calculators for this.
    
16. TCO / year - Adding all these up gives a rough total cost of ownership
    
17. Per week - Byt reducing that to a weekly cost we see how it effects our budget.

The results are interesting. I always knew that the cost of maintenance on an older vehicle offsets the higher repayments on a new vehicle, but this calculation put numbers to it. In short a 12 year old Citroen Xantia that I own outright still costs me over $100 a week to run. Replacing it with a brand new Peugeot of similar size costs $80 a week more. My 5 year old C5 came out worse - being almost the same price as a replacement new vehicle.

Don't use my figures. Make a similar calculation based on the cars you look at. It is worth the time and effort. There are non-financial consideration - or those that are at least unmeasurable. We chose BMW because if (1) safety, (2) 2 years between services and (3) because of guaranteed by-back at end of lease.