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True Cost to Own (TCO) - Hidden Costs of Car Ownership

Kirstie_HKirstie_H Posts: 10,989
Which costs more, the $12,000 car or the $15,000 car? Sounds simple, but as we all know, the purchase price isn't all that's involved in the true cost of a vehicle. Check out the article and new tool at Edmunds.com:


True Cost to Own (TCO): Revealing the Hidden Costs of Car Ownership


http://www.edmunds.com/advice/specialreports/articles/59897/article.html


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  • Mr_ShiftrightMr_Shiftright CaliforniaPosts: 52,100
    Hi Everyone,


    Edmunds has just launcheda powerful new tool to help people make a wise choice when buying a car.


    This tool, called "True Cost to Own (TCO) is available from the Home Page or the Vehicle Detail Page, and what it does is compare the actual ownerships costs for various models of car over the course of 5 years. So it takes into account not just the MSRP, but also things like maintenance, depreciation and a number of other cost factors that you might not have thought of.


    How can this tool help you?


    Well, for one thing, it could alert you to the fact that two or more cars with the same MSRP and options can, in fact, have quite different operating costs. You know, 10 cents a mile difference between Car A and Car B during the course of the warranty perior is no small change!


    So if anyone has time to check it out, play around with it and post your reaction/review here, please do so!


    Here's an explanation of how it works!


    http://www.edmunds.com/advice/specialreports/articles/59897/article.html


    thanks


    Host

    MODERATOR --Need help with anything? Click on my name!

  • Kirstie_HKirstie_H Posts: 10,989
    Which costs more, the $12,000 car or the $15,000 car? Sounds simple, but as we all know, the purchase price isn't all that's involved in the true cost of a vehicle. Check out the article and new tool at Edmunds.com:


    True Cost to Own (TCO): Revealing the Hidden Costs of Car Ownership


    http://www.edmunds.com/advice/specialreports/articles/59897/article.html


    kirstie_h

    Roving Host

    Edmunds.com

    MODERATOR

    Need help navigating? kirstie_h@edmunds.com - or send a private message by clicking on my name.

    Share your vehicle reviews

  • fwatsonfwatson Posts: 639
    I just tried the new TCO. I find one major fault with it. The problem is that it uses MSRP as a basis for it's TCO figure.

    That can not work properly, as MSRP is not the figure paid by most new car buyers. In order to come up with a proper conclusion, it would have to allow the user to enter the ACTUAL price to be paid for the car, whether that is below MSRP, or as is sometimes the case, there is a surcharge placed on the car by the dealer in excess of MSRP.

    Without the ability to reflect the actual purchase price, IMO the TCO figure is useless. :)
  • logic1logic1 Posts: 2,433
    Can you, or some other Edmunds person, explain more about the Finance function? I ran the L series and saw that its financing amount, and that of the Grand Am, as well, are higher than a similar Accord.

    I bought my L with 0.9% interest. Both the L and the Grand AM were available with 0% interest. The lowest rate that I saw for the Accord is 2.9%.

    With automakers consistently offering discounted borrowing rates, perhaps TCO would work better if the consumer could set the rate available instead of having to rely on some industry rate average.
  • mrdetailermrdetailer Posts: 1,118
    I really liked the concept, but surprizingly I found that some of the total costs of ownership changed. When I compared a Mazda, a Taurus came up and listed its cost at approx 31K. When compared with a Nissan Maxima it's cost was 34K why the difference?

    Also an explaination of how repair and maintenence costs would help.
  • bkurilkobkurilko Posts: 4
    fwatson...you are mistaken about using MSRP as a basis for TCO. Edmunds used its TMV data to drive the depreciation and thus TCO values. You are right however that using MSRP would be wrong. Why use a blunt instrument (MSRP) when you have a refined instrument (TMV) at your disposal?

    mrdetailer...TCO changes by trim. I am sure that the Taurus that you compared to the Mazda and the Taurus that you compared to the Nissan Maxima were different trims having different TMV values, possibly different engines, etc. and thus the different values.
  • fwatsonfwatson Posts: 639
    I will have to check to see what you mean by TMV. But my point is that I paid $8000 less than the purchase figure they give for the car I just bought. And they have not taken that possibility into account. In the same way, they have not allowed for those $1000 wax and stripe jobs, and "additional dealer profit" that is added to many new models that are highly popular.

    Until the person using this program is allowed to enter the purchase figures they have gotten from dealers, the TCO can not reflect the actual overall cost of buying and owning the vehicles.

    That $8000 may disappear in depreciation in the first year or so. But at the same time that $8000 in depreciation can not be a part of ownership cost because it has been completely offset by the $8000 reduction in the initial purchase price.

    I assumed they were using MSRP, because both of the cars I checked had purchase prices virtually identical to MSRP.
  • majorthomechomajorthomecho Posts: 1,331
    Unlike another site that claims to show the total cost of ownership, Edmunds took into account the longer warranty of Hyundai and Kia. This other site didn't.
  • artwisartwis Posts: 66
    Just checked the vehicle I just bought.
    #1 the price was completely wrong. The $2500 rebate was left out so the price was way too high.
    #2 financing cost. Many don't finance so that is not a operating cost. Those that do finance have a wide range of interest costs.
    #3 $494 for regular maintenance for the first year on a new vehicle. Not where I live.
    #4 Insurance cost listed is quite a bit higher than I pay for very high level complete coverage.

    These are just the first things I saw. I won't see anymore cause it's a waste of time.

    Too many guesstimates and not enough fact. Should have spent the time on the pricing site, it needs some work!!!
  • laumannlaumann Posts: 10
    Because OEM incentive (including special APR) and rebate programs are limited-time offers and frequently vary regionally, the finance rates employed in the TCO tool reflect state-by-state interest rates currently being charged by banks and direct automotive lenders to silver credit tier borrowers. A more detailed explanation of the financing method and assumptions as well as explanations of the other six cost categories methods and assumptions can be viewed by clicking on any of the words - e.g., depreciation.

    In the future, the TCO tool may be even more dynamic and could include the capability to enter more individual-consumer-specific information.
  • laumannlaumann Posts: 10
    Explanations of the methods and assumptions used in each of the cost categories can be viewed by clicking on the word - e.g., Maintenance or Repair.
  • bkurilkobkurilko Posts: 4
    fwatson...TMV stands for True Market Value and reflects the market transaction price. The number used in TCO is the TMV for the "typically equipped vehicle." Your car may (and probably does) have more or less options than the typically equipped car. There are no "mop and glow" adds in there. I know Edmunds plans to give users the ability to customize the vehicle configuration to more accurately establish the TCO for the user's SPECIFIC car in a future iteration. This goes for each of the TCO categories such as insurance, etc.

    The key is to view at how cars compare in terms of costs per mile.
  • fwatsonfwatson Posts: 639
    Upon further examination, starting with True Market Value, I find even greater discrepencies in the figures.

    Breaking down the TCO shows in my situation, that due to the greatly reduced price I paid, they show more than $800 too much in sales tax and fees. In addition, I have no financing charge (paid cash). That accounts for another $6500 over the 5 years to be subtracted. That is not even remotely offset by any interest or dividends I could get on that money in today's market. My insurance runs about one half of what they are showing, which makes a further $2500 mistake over the 5 years.

    I will drive the car only one third the mileage they use, which will not only lower maintenance costs, but cut my fuel bill accordingly, or about $1500.

    I will accept their depreciation and repair figures. All in all, instead of the close to $40000 they show as my TCO, mine will be about $29000. That is a very large difference, and I have given them the advantage by using conservative figures for the differences.

    As a very rough estimating tool to compare cars, there may be some value to TCO. As an accurate indication of ACTUAL TCO, in my case it is totally useless.
  • rubicon52rubicon52 Posts: 191
    This is how the Department of Defense has started to look at the systems it purchases - in terms of total ownership cost. The gov't has realized that acquisition cost (purchase cost) is only a small portion of the total ownership cost that includes maintenance, spares, repairs, etc. Good to see Edmunds applying this concept to car ownership
  • artwisartwis Posts: 66
    I agree with your post. By not using actual price the TCO is off immediately. Then throw in the other factors and there is a LARGE difference. If for example I compare two vehicles and one has no rebate and the other has a $3000 rebate which is ignored that is a $600 per year difference between vehicle #1 and vehicle #2 figured over a 5 year period. Add in all the other "assuptions" and you will end up being WAY off the mark as you did. To make the TCO accurate it would have to allow the user to put in their own figures but then you could do all this yourself and get a accurate tco estimate on your own without this site.
    As far as using TMV for the price. I have found that TMV is not even close in many instances. It doesn't consider ad fees or rebates etc.
    TCO site is not a bad idea but it's a long way from being very usefull. Inaccurate info is worse than no info at all!!
  • bkurilkobkurilko Posts: 4
    I agree that to make TCO precise and perfectly accurate it would have to allow the user to put in their own figures...and I expect that Edmunds will do just that in a future iteration. I don't think that it was meant to be exact for every individual's circumstance. As a mass market product, I believe that it is probably meant to serve the typical case...average credit, average insurance cost for people who buy that particular car, average fuel cost based on national average miles driven, average amount financed, etc. Clearly, you guys aren't "average" based on what you are describing.

    I see that the key use for this initial version is to allow comparisons between vehicles. In this way they can be used as a tie-breaker when deciding between vehicles for purchase. In addition, I think it is great for the layman to understand what buying a particular car will do to his/her monthly budget.

    By the way, Edmunds explains on its site that the TMV price includes the incentive amount in the number (less consumer rebates).
  • artwisartwis Posts: 66
    you mean the manufacturers ad fee it is not included in the TMV but is explained below the TMV section (at least it was in the last version of TMV). There is lots who don't understand this is a legitimate addition to TMV.
    My main point is if 2 vehicles have say a $20,000 TMV but one has a rebate of $2000-$3000 dollars then one costs $20,000 and the other actually costs $17,000-$18,000. If this is not figured into the TCO then it is not a "fair" comparison!
    It seems that a program that would let the user put in their numbers and then calculate the TCO for them would give a fair comparison. Until that happens it has the potential to not give a fair comparison at all!! You have to compare apples to apples and that starts with the true purchase price.
    I hope some find it useful but am afraid some will take the information as gospel when it really is not accurate in a lot of cases.
  • im_brentwoodim_brentwood Posts: 4,883
    That a lot of this is based on depreciation.

    I post mainly in Smart Shopper, and I have posted before that people often fail to look closely enough at the resale value of certain cars.

    I.E. A Hyundai Sonata depreciates as much (Or more) in actual dollars over 5 years as a Mercedes CLK!

    Bill
  • fwatsonfwatson Posts: 639
    Quote: "I Think That a lot of this is based on depreciation."

    ----------------------------

    I would say it is primarily based on depreciation, with maintenance, repair etc thrown in. Since the cost of service is far lower on most cars than a Merc or BMW, there would be a huge offset for those. And you can almost buy the Hyundai for the cost of required services on a BMW. Not that I would. :)

    My initial point is that the $8000 reduction I got on my new car offsets the entire first years depreciation, which negates that part of the TCO, rendering it useless.
  • marcbmarcb Posts: 152
    how about..

    edmunds making a list of the top ten cheapest cars to own much like the top ten fuel mizers we have? that way, lazy cheapo's like me can take a quick peek in my preferred segment and know where to start.
  • Mr_ShiftrightMr_Shiftright CaliforniaPosts: 52,100
    Anybody done a trial run? Whaddya' think?

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  • Mr_ShiftrightMr_Shiftright CaliforniaPosts: 52,100
    But it is still a useful comparison tool, I mean, even before you start your negotiations. In other words, if you found out through TCO that Car A depreciates a lot faster than car B, you also have found out that you can bargain on Car A a lot easier, right?

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  • Kirstie_HKirstie_H Posts: 10,989
    logic1, try the finance, warranty, and insurance forum.

    Great suggestion, marcb. Sounds like a lot of data analysis, but we'll pass on the suggestion.

    kirstie_h
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  • logic1logic1 Posts: 2,433
    I did. I like it except for the finance portion.

    With the major auto manufacturers all offering discounted finance rates, some as low as 0%, having a static finance function is not helpful for qualified would be buyers.

    Apparently there is some thought to installing an adjustable finance function as the software improves.

    Otherwise it is a good tool. It helps would be buyers think clearly about all the expenses that having a car brings.
  • tiredofmanualtiredofmanual Posts: 338
    I looked at the Audi A4 1.8T Quattro manual. It says the purchase price is about $30000 (sounds about right) and the TCO is about $36000. The resale is listed at about $12500. How do these numbers fit together? Financing this car for 5 years will cost more than $6000. So is this saying that if you sell the car for $12500 at the end of 5 years, your total cost of ownership is $36000? Meaning that you spent $48500 for an asset that is worth $12500 at the end? This makes sense, but I must have missed the section where it explained this.
  • alfoxalfox Posts: 716
    Each year the Gov (I think) publishes the average price of cars purchased in the U.S. How about calculating the national average TCO? When a user goes to Edmunds "New Cars" and selects a type of car, and gets the screen with a list of all of the vehicles of that type, you could show a TCO index for each car that indicates the cost of ownership of that car against the national average?

    Or some other meaningful form of TCO indexing...
  • alfoxalfox Posts: 716
    TCO is based on the cost of 7 variables, based on your zip code: Depreciation, Finance costs, Insurance, Taxes and Fees, Fuel, Maintenance and Repairs. Those costs are calculated for each of 5 years, and added together. The numbers are shown in a table on the TCO page for each car. Links next to each item gives a (very) short explanation of how they arrive at the costs.

    Actually this is kind of slick - I like it. Of course, there is no way for me to check the numbers, so I just have to assume that even if they are off the wall, they are equally as off the wall for every make, and therefore comparable.
  • fwatsonfwatson Posts: 639
    I believe if a person fits all the catagories, ie finances the car, does not bargain the car down etc, they might be able to come up with some basis for comparison. But in my case, there are so many errors in the assumptions made, as to render the results useless.

    As to giving a person an idea of which car you might be able to bargain down, you may have a point. But that did not appear to me to be the intention of the program. I guess time will tell if it is useful to some people as a rough starting point.
  • tiredofmanualtiredofmanual Posts: 338
    I caught that and it seems reasonable, but the number that Edmunds throws out is throwing me off. It is claiming that the "true cost" of owning an A4 is $36000, yet when you drive away from the dealer you've already dropped $30000. $6000 wont pay for 5 years of gas, insurance, maintenance, repairs, etc. This is what I'm trying to figure out. My assumption is that if you sell the car after 5 years for the price listed then Edmunds is saying that the net cost to you was $36000. I just want some confirmation.
  • alfoxalfox Posts: 716
    "My assumption is that if you sell the car after 5 years for the price listed then Edmunds is saying that the net cost to you was $36000."

    That's the way it reads to me, including Depreciation, Finance costs, Insurance, Taxes and Fees, Fuel, Maintenance and Repairs for all 5 years.
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