Much has been made of the phrase – “the cost of ownership” – when considering a new or used vehicle purchase. But really, have you ever stopped to consider what that means in terms of your purchase, financial means and family budget? I thought I would list some of the things that are usually included in any definition of “the cost of ownership”.
Insurance – This is often overlooked when considering what type of vehicle to buy. While certainly age and driving record are factors that will influence the cost of auto insurance, the type of vehicle and level of safety equipment on the vehicle will also affect the price. There are often discounts and more favorable rates for vehicles with more standard safety equipment, those that cost less to repair after an accident, and models that are not popular with auto thieves. By the same token, performance vehicles, convertibles and other types of specialty vehicles will generally cost more to insure.
Auto Loan – Again, shopping around can lower your cost of the money borrowed to make the purchase. While the F&I (Finance and Insurance) department at the local dealer works with a number of lenders (including the automaker’s captive finance company), you might still be able to do better on your own – especially if you belong to a credit union. Don’t be afraid to shop around – the higher your credit score, the lower your cost and the better deal on the loan. If you have “less than stellar” credit, not to fret. You can too shop around for a better deal, although you will probably have to put more cash down as a down payment as opposed to a person with better credit.
Maintenance & Repairs – This is often the elephant in the room. The cost and frequency of repairs can differ between automotive makes – European makes tend to have a higher cost of maintenance and repair – Asian makes tend to have a lower cost of maintenance and repair. Research is often the best preparation to avoid being stuck with a “money pit”. Also beware of higher mileage used vehicles and those that are over 10 years old. Regardless of its reputation when new, older higher mileage vehicles tend to cost more to run as age and wear catch up with it.
Fuel Economy – This is an obvious cost that should be considered. Certainly this is balanced however by the need for a specific size/type of vehicle. While the EPA Fuel Economy numbers should not be taken at face value for actual real world driving, the numbers can serve as a guide and comparison for those who may do a lot of driving. Depending on your budget for fuel, this can also help to decide whether other engine/fuel alternatives such as flexfuel, diesel, hybrid or pure electric models should be considered.
Optional Equipment – This is not often obvious – less so on a used vehicle. Example, you may have the choice of a model that has front wheel drive or all-wheel drive. While the advantages of either may be obvious, what might not be is that choosing all-wheel drive will add $1800 to $2000 to the purchase price, not to mention the extra cost of different tires and rims, the cost of higher maintenance and complexity of the all-wheel drive running gear as opposed to the less complicated and less expensive front wheel drive model. With traction control and electronic stability control often as standard equipment on most of the vehicles offered in the marketplace today, all-wheel drive is not nearly as necessary as in times past. Bear in mind that is but ONE example…
Trade-In – You might not think that trading in your old vehicle can affect your cost of ownership of your next vehicle purchase – but it does. The effect is on the actual purchase price – consider it leverage against the asking price. I have one simple rule in considering whether to trade in a vehicle or to sell it myself outright – the higher the mileage and the older the vehicle, the more likely I am to trade it in. The lower the mileage and the newer the vehicle, the more likely I would be to sell it outright. Please realize that this is the POLAR OPPOSITE of what your local dealer would prefer, but its in your financial best interest. Why? If the old rust bucket you are trading in runs, its worth a certain amount of money toward the next vehicle. Since you usually own it outright, it gives you more negotiating power when dealing with the salesperson. The more you can get for the vehicle at trade-in time, the less you have to pay for the next vehicle. The lower the purchase price, the less you have to borrow and/or provide for a downpayment.
Purchase Price – The starting point and the largest outlay involved. Budget, need and availability should drive what you decide to pay for the vehicle you want. Be sure to do your homework – there are plenty of deals available for almost every price point and vehicle type. I prefer to do most of my homework online at home before I go to the dealership. If you have been out of the market for awhile, its best to “walk the lot” when the dealerships are closed so that you can become familiar with what is currently available in the marketplace. ALWAYS develop a short list of two or three possibilities when shopping. CONSIDER – Getting pre-approved for your auto loan BEFORE you negotiate with the dealer. Knowing what you are willing/able to spend will help keep the purchase price from creeping UPWARDS during your search.
What I did not mention – Notice I did not discuss “depreciation” during this conversation. Honestly, as an investment, the family car is NOT a good one. This is because regardless of what you buy, typically you are going to derive use and benefit from it for years – mile after mile. You will not be storing it in a garage and hope it appreciates in value over time. It’s a subject used by some sales people that has NO PLACE in your consideration.
In Summary – Get the highest quality vehicle that meets your needs for the lowest cost you can. Do your homework. Leave your emotions at home. Get pre-qualified for that loan. Look up the value of the vehicle you plan to trade in. Take your time… BREATHE…