How Do You Calculate The True Cost Of Ownership When It Comes To Your Next Vehicle?

We all have heard of the term "cost of ownership"

, you may have formed your own opinions about the subject. Many of us are distracted from the big picture only to be concerned about the minor details when it comes to this magical formula. I want to inform you the biggest cost of owning your car is not fuel economy, or factory incentives. It is not savings on your insurance payment or the after warranty repairs. These things will all contribute to the cost as a whole, but the single biggest influence is called "resale value". Yes, that's right the resale value on your vehicle will affect you more than anything else in this equation. Let's look at the following example and do some basic math. Let's say you are in the market to purchase a brand new vehicle, and you are considering the popular Honda Civic, Chevy Cobalt, and Toyota Corolla like any other average person in the city. The brand new Honda Civic in 2010 may have cost you $24000 out of the door, and Chevy Cobalt cost you $21000, and the Corolla cost about $23000. Judging on the surface you would consider the GM Cobalt to be the natural winner of this competition. But the conclusion can not be further from the truth allow me to explain.

The Honda Civic may has been the most expensive vehicle to purchase now, but four years down the road it will sell for as high as $16000 on the market place. If you take 24000 subtract 16000 and divided by 4, you will get the annual ownership cost of $2000 per year. The Toyota Corolla on the other hand may cost a little less in the beginning, but the used car market will have slightly less demand for that vehicle when it is used. That car may sell for as high as $14000, and if we repeat the math again, you will get the annual ownership cost of $2250. The last competitor the GM Cobalt maybe the cheapest vehicle to buy, but it is also the cheapest to sell due to GM's ever mounting problems, and factory incentives. The vehicle's resale value is usually in the toilet, a four year old Cobalt maybe only worth $9000 to some one, making the cost of ownership per year to be a much higher amount of $3000. The point I am trying to make here is not to be over concerned with the vehicle's fuel economy, insurance savings, or the repair bills. The single biggest factor in the equation is how much do you have to pay for the vehicle when it is new versus how much is the vehicle worth used.

The idea behind this exercise is to consider the popularity of the vehicle, buy something that everyone else would want. Buy a car that is hot, popular, and desirable to some body. The little savings you get upfront on purchase maybe a bad investment if you are going to lose your shirt selling it later on. So the next time you are ready to walk into a dealership to purchase a new car, read their reviews, research the selling price on a used one. And above all make an intelligent choice, but don't be fooled by the factory incentives, or deal of the century events.

by: Rick Li

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