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Car Buying: Why Total Cost of Ownership Matters

So, you are considering purchasing a new car to replace that old hatchback that has given you so many years of valuable service. But what are your criteria for buying? We assume you have a budget in mind, one that takes into account purchase price and the cost of your first registration and insurance. However, would you be surprised to know there is more to it than that? It's found in something known as a 'total cost of ownership'.

Also known as the 'total cost of motoring', total cost of ownership takes into account a long list of things that will, in the end, determine how much you will actually spend to own and drive a particular car. Total cost of ownership should be important to every driver who understands that cars never appreciate unless they are collector vehicles. That means your car will be a money-consuming object as long as you own it. You would be wise to make sure it consumes as little as possible. That is where total cost of ownership comes in.

What Is Involved: Total Cost of Ownership Explained

You can find a lot of total cost of ownership explanations in fairly simple terms online. For example, Parkers breaks down total cost of ownership into eight components as follows:


  • Repayments – Any car purchased with a loan will eventually cost more than the owner actually paid for it. It is all due to interest. In addition to repaying the amount you borrowed to purchase the car, you are also paying extra in interest.


  • Depreciation – Many people do not think of depreciation as a cost, but it is. Every year and mile you put on your car reduces its value. Reduced value means you will get less when it's time to trade in or sell the car.


  • Tax and Registration – Buying a new car requires paying the first year's tax and registration at the time of purchase. Also known as the 'showroom tax', the first year's tax will be determined partly by emissions ratings.


  • Road Tax – Every car owner pays an annual road tax to keep his or her vehicle legal.


  • Service and Repair – Cars need to be serviced and repaired throughout their lifetimes. It is just part of the driving game.


  • Insurance – Every car in the UK also needs to be insured before it can be legally operated on public roads. Next to purchase price, insurance is the biggest cost for most car owners.


  • Fuel – Obviously, your car will not run without fuel. Keep in mind that the price difference between petrol and diesel can be considerable at times.


  • Breakdown Cover – Although Parkers includes breakdown cover as part of the total cost of ownership, this is optional. Those who choose it are adding to the total amount of money they spend in the hopes that it will be less than the cost of repairs in the long run.


Service and Repair

You probably noticed that Parkers included service and repair on their list. This category deserves further explanation due to the potentially high costs of having your car maintained.

Every car manufacturer recommends a particular maintenance schedule that covers routine work such as changing the oil, topping off fluids, changing spark plugs, and rotating tyres. However, all of that work adds up. What consumers need to understand is that parts and labour can vary drastically between models.

For example, it is generally assumed that German imports are more expensive to maintain and service than more budget-friendly cars from manufacturers such as Ford and Vauxhall. It pays to spend an hour or two researching what kinds of cars cost the most to maintain and repair in your local area. Total cost of ownership tools use average numbers; the actual costs may be higher or lower at your local garages.

All About Value

As you can see from this list, there is more to purchasing a car than the price you see on the sticker. If you do not yet understand why total cost of ownership is important to you, think of it in terms of taking a holiday. Planning a holiday is all about getting maximum value based on the amount of money spent and the time you have to enjoy your travel. With every new item you add to your itinerary, the bill goes up. You can eventually reach a point where the total cost of a trip no longer makes that trip worthwhile. Total cost of ownership for cars is very similar.

Car buying ultimately comes down to value. What will you spend in relation to what you will get out of a particular car? Fortunately, you don't have to guess. There are free total costs of ownership calculators you can find online that, while not completely accurate, do provide very realistic numbers. You can quickly see how much you will spend to own the car of your dreams. Then you'll have a better idea of whether purchasing the vehicle is worth it or not.

Views: 160

Tags: car, cars, ownership


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