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True Cost to Own (TCO) - Hidden Costs of Car Ownership
Kirstie_H
Administrator Posts: 11,148
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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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
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True Cost to Own (TCO): Revealing the Hidden Costs of Car Ownership
http://www.edmunds.com/advice/specialreports/articles/59897/article.html
kirstie_h
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Edmunds.com
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Need help navigating? kirstie_h@edmunds.com - or send a private message by clicking on my name.
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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.
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.
Also an explaination of how repair and maintenence costs would help.
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.
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.
#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!!!
In the future, the TCO tool may be even more dynamic and could include the capability to enter more individual-consumer-specific information.
The key is to view at how cars compare in terms of costs per mile.
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.
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!!
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).
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.
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
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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.
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.
Great suggestion, marcb. Sounds like a lot of data analysis, but we'll pass on the suggestion.
kirstie_h
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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.
Or some other meaningful form of TCO indexing...
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.
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.
That's the way it reads to me, including Depreciation, Finance costs, Insurance, Taxes and Fees, Fuel, Maintenance and Repairs for all 5 years.
Secondly, there is absolutely no way that fwatson got an $8,000 reduction from TMV when he bought the vehicle. Completely impossible based on known dealer margins. The average manufacturer has between a 10% and 13% margin between invoice and MSRP. TMV usually sits somewhere in the middle. $8,000 under market price is impossible unless the dealer cut the gross on the new car and completely stole the trade. This simply amounts to an accounting adjustment on the dealer's books. In essence, you only think you bought the car for $8,000 under TMV.
TCO is based on TMV. Your TCO thinking is completely off base...I don't know where to begin....so I wont. I like TCO.
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Now you are the one driving people crazy. Try reading the posts and comprehending them before flying off the handle.
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Quote fwatson: "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."
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I, fwatson, DID NOT SAY that I got $8000 off TMV. I said I got $8000 off the "Purchase Price" given by Edmunds, and that is an absolute fact. The MSRP of my car was in excess of $29600, and the Purchase Price they give is in excess of $29000. I paid $21680 for it, and I paid cash with No trade. So the price I paid is exactly what I said.
Before calling people liars, get yor own act straight.
There seems to be a call on most of the boards for a feature whereby users can plug in variables rather than use all of Edmunds numbers.
Technically, I don't know how feasible that is, whether it creates a numbers-crunching demand that is not feasible.
Of course, he could have been a bit more diplomatic, I will grant you that.
I'd like to enter my zip code, a few basic insurance-related parameters (age, years driving, # of accidents over the last x years), have a checkbox on whether to include depreciation in the TCO calculations or not, specify a TCO dollar range for ownership over y years, and be given a list of every possible car I can afford - sports cars, sedans, convertibles, trucks, etc. Essentially, I want to know the Opportunity Cost of my purchase and ownership of a certain car. What else could I have gotten with the money that will be spent on the car that I got? I think that would be slick; nobody else has it.
I don't mean to be brash; I only wish to state the facts accurately. I can't help myself, I'm a lawyer.
One other note, why would someone pay cash for a car, a depreciating asset, in the first place? Makes no sense. There is an old saying that wealthy people understand, "use your cash to buy assets (something that generates cash flow); finance liabilities." The idea is to use the cash flow generated from your assets to make the payments on your liabilities. Just a thought.
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Oh yes, I can certainly see how paying 2.9% to 6.9% interest is a much better deal than paying cash when I could invest it in the market, which is where it came from and lose money in today's market, or make a whopping 1.0% on it in in a money market or savings account. You probably think I am also stupid for paying cash for my last two houses. I have not had a mortgage for 22 years and by your theory have lost money. By my figures I have saved a couple of hundred thousand.
No thanks, I'll do it my way. And one of my rules in never give it to a lawyer. I have saved a fortune with that one. I also managed to retire debt free an 59 using my poor knowledge on money.
Is my madness getting any clearer?
I am an Edmunds employee and currently work on TMV. I check our Town Hall on occasion, noticed your remarks, and found them interesting. We go to great lengths to make TMV as accurate as possible down to getting direct data feeds from thousands of dealers throughout the country (directly from their computer systems so that there is no chance for any funny business). As of this month, our TMV values are more refined down to the state levels (more precise from the 5 national regions we have used to date). I am curious as to what vehicle you got for $2,500 below TMV. Also interested to know if the $2,500 difference can be explained by a cash back offer. We love this kind of feedback to continually make the product better.
Just a note...we don't include consumer cash back offers as a reduction in the TMV price (unlike factory to dealer incentives) as our research shows that cash back doesn't materially change the purchase price. The consumer generally uses the cash back as a down payment against the purchase price or in fewer cases, puts the cash back in their pocket.
For our benefit, I would appreciate hearing more about your recent purchase.
I feel the same way about the TCO. I also pay cash for my vehicles - but it was fairly easy to deduct the financing costs from the ACTUAL costs of the different vehicles I had negotiated pricing on for comparison purposes. It was fairly easy to prorate depreciation costs based upon adjusted data. I do a lot of my own routine maintenance but I still find the info useful in comparing costs. If you drive 30,000 instead of 15,000 miles you double the cost of the gasoline. Come on people - it is not a cookie cutter. Whatever - it can work if you take the time to compare apples and apples.
Can't resist the paying cash vs. financing comments. WOW. Very few people can afford a home without a mortgage and there are certainly tax advantages to mortgage interest as well, but paying interest on anything else is IMHO an extravagance that rarely benefits anyone. Anyone that says they CAN'T AFFORD a vehicle without paying interest - I say they are only purchasing a vehicle beyond their means. However, many people can afford and choose to finance vehicles. They may be able to afford the interest but it likely is not helping them financially and almost certainly is not helping them to save money or accumulate wealth for retirement or other long range goal.
As a side note to RSHABLOTNICKS : By definition all assets are depreciable whether they generate cash flow or not.
Although I also hold little regard for lawyers I realize that just as many feel the same way about by profession - CPA. No offense intended to anyone but this was the most entertaining message board I had read to date.
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It has been quite entertaining.
And to clarify one point you made, Standard deduction has always been larger than any benefit I could have gotten by deducting mortgage interest. So in my case, mortgage interest would have been money down the toilet.
While I realize the TCO figures can be modified, and I have done just that to get the information I have posted, I can do that just as easily without even bothering with the TCO app. And that is my point.
My complaint with TCO is not in whether you pay cash or finance. Those figures would be the same on all cars with the same OTD price. It is that TMV, while it may be a fair average figure is not a good starting point, because virtually nobody pays that price. Almost every individual's purchase price will be different, which throws the TCO off as a comparitive figure. That is of course unless you are one of the few who actually pay TMV.
tntitan wrote, "By definition all assets are depreciable whether they generate cash flow or not."
This is absolutely correct using the "accounting" definition of assets. I had this same discussion with my CPA early on. However, what I am referring to is a mind set. I will argue that the house I live in is a huge liability whereas the 21 rental properties that I own are assets. I separate them in my mind based on their ability to either "eat" my cash or "feed me" cash. When I run my personal balance sheet, I always place cars, boats, RVs, etc. into the liability column. Yes, by accounting standards (and those used by banks to evaluate one's credit worthiness), these are classically considered assets.
Tell the auto manufacturers that their idle plants are assets and watch them squirm. Someone has to feed them whether they produce anything or not.
tmv 10g to purchase. tco is 20g. does that mean 30g's over those five years or does the 20g cover everything?
Back to the topic. TCO may be a crude attempt for true ownership comparative costs but it at least is making an attempt to educate the masses as to all of the hidden costs of vehicle ownership that many never consider prior to driving off the lot. I am sure that Edmunds will tweak the process make it better as time passes.