ARTICLE: The real cost of car ownership

[GTO]

Did you believe the smiling salesman when he said, “Sir, your equal monthly installment is just Rs.10 000 a month – surely, you can afford that!” I hope not.

Remember, the equal monthly installment (EMI) is just one small part of the total cost of car ownership; additional expenses can double the EMI. Because a car only depreciates in value, it should not be considered an investment at all. An asset, maybe; but never an investment.

Team-BHP explains all the costs you should budget and prepare for as a car owner.

• Depreciation: Depreciation is far and away the biggest expense of motoring. Your shiny new car will lose almost 10% of its value as soon as you drive it off the showroom floor, and 30 to 40% in the first year of ownership alone.

• Fuel Costs: If there is one thing that has always increased with time, it’s the cost of fuel in India. Petrol and diesel are more expensive than ever before and fuel alone – especially petrol – can cost as much as your EMI payment, depending on how you use your car.

• Interest: Your EMI includes not only payments towards the original loan, but also the interest due on it. You will be charged interest rates between 6 and 14%.

• Taxes: Most car loans do not cover taxes like octroi and RTO tax. In Mumbai, the octroi alone adds 5.5% to the showroom price of a car.

• Scheduled maintenance: On average, Indian cars require scheduled service twice a year. Expect to pay from Rs.2 000 per visit, but this amount will increase as your cars ages and some luxury cars like Mercedes can cost Rs.15 000 per visit. Very few cars sold in India are covered by service plans that include routine maintenance.

• Unscheduled maintenance: Though most modern cars are generally very reliable it is not uncommon for a Maruti Esteem’s air conditioner compressor – or a Honda’s fuel pump – to fail. Replacement parts can be very expensive.

• Insurance: Insurance is another unavoidable cost of car ownership. Current rates for comprehensive insurance are anywhere between 3 and 4% of a car’s book value.

• Repair costs: Consider yourself lucky if you don’t damage your car’s body or engine in the first three years of ownership. Modern cars are exceedingly efficient and reliable, but accidental damage can be exceedingly expensive to repair.

• Accessorizing: Most car buyers opt for optional extras such as upgraded music systems, anti-theft alarms, body kits, custom alloy wheels etc. Accessories also add to the overall ownership cost.

• Miscellany: Parking costs, tolls, and tickets are just some of the additional charges that you will need to be prepared to pay for as a car owner.

[prabuddhadg]

Even individual registration seems to have become quite expensive in Mumbai, at least. Any idea what the basis for calculation is?

[prabuddhadg]

Originally Posted by GTO

• Depreciation: Depreciation is far and away the biggest expense of motoring. Your shiny new car will lose almost 10% of its value as soon as you drive it off the showroom floor, and 30 to 40% in the first year of ownership alone.

This is the most important aspect and very few people pay enough attention to it. But then if you plant to keep the car for five or more years, then a new car is a better bet to keep maintenance costs down.

[ajmat]

Originally Posted by prabuddhadg

This is the most important aspect and very few people pay enough attention to it. But then if you plant to keep the car for five or more years, then a new car is a better bet to keep maintenance costs down.

We will be dealing more on this soon, watch this space

[ram_hyundai]

hey gto ,

I had posted a thread on the product life cycle cost and the peoples ignorance in this matter .It was nice that u had posted this thread.it will help people being more aware and hope to see more wise dissisions .

happy buying folks

[veyron1]

Technically, a used car will depreciate lesser in terms of initial investment, and hence is a better bargain. Only in terms of VFM.

The miscellaneous expenditure covers a lot. Recurring expenses include tyres every 30-40K kms, and batteries every 2-3 years, etc.

[sandeep108]

Originally Posted by prabuddhadg

Even individual registration seems to have become quite expensive in Mumbai, at least. Any idea what the basis for calculation is?

It is now 7% of the car value. For companies it is 21%. Added to that is octroi at 5.5% (not 4.5% as stated by GTO). And for all this look at the road and traffic conditions we have to put up with. One day recently, all of a sudden (maybe due to navratri - but it was only 5:45 pm) they decided to ban the U turn at Cadbury, Mahalaxmi. Added to that they turned off the signals and allowed very few cars from breach candy to go north. They also closed the U turn further ahead and at Gamadia Rd and Benzer. Can you imagine the chaos? I finally turned into gamadia rd took a U and made it back towards north. This entire exercise took 1 hour. After that the road was fairly clear. God help any poor soul who wanted to get emergency treatment at breach candy hospital.

Now this is what we have to deal with after paying such huge taxes.

Apparently from this 7%, the state govt. does not give anything to the municipalities for road maintenance. They are only supposed to maintain state roads / highways. And we know the pathetic conditions those are in. The Bombay High Court is going after the BMC but with all due respect I wish to ask them - what about the rest of the State?

Edit: Oh and I forgot about the absurdly high sales tax and cess on fuels that the govt. bodies collect.

[prabuddhadg]

Originally Posted by sandeep108

It is now 7% of the car value. For companies it is 21%.

Right sandeep108, it works out correctly. Thanks.

[gigy]

An another thing in cost of ownership is the cost advantage one gains in buying a diesel car to petrol car. Lot of times it is argued that diesel is cheap hence go for a diesel car. I find that except indica the price difference between a petrol model and a diesel model of the same specifications, the diesel is far more costly, so considering you have already paid almost a lakh for cars like lancer, for a person to breakeven the price difference will take 30k to 80k depending on the brands. Then is it worth for people who wish to buy it for keeping it for 2 to 4 years or others who drive less??

[Boom Shiva]

I believe resale value should also be taken into the cost of ownership equation.

Better resale value = better recovery of investment = lower cost of ownership

[GTO]

I believe resale value should also be taken into the cost of ownership equation.

Consider the first point of the article:

• Depreciation: Depreciation is far and away the biggest expense of motoring. Your shiny new car will lose almost 10% of its value as soon as you drive it off the showroom floor, and 30 to 40% in the first year of ownership alone. Depreciation is far and away the biggest expense of motoring. Your shiny new car will lose almost 10% of its value as soon as you drive it off the showroom floor, and 30 to 40% in the first year of ownership alone.

Added to that is octroi at 5.5% (not 4.5% as stated by GTO).

Thanks. Article corrected.

[Sideways]

In my opinion another very important factor that needs to be highlighted is the amount of money that is spent on after market enhancements. Most of us here will spend on atleast one if not all of the following, viz., ICE, body kits, exhausts, rims and tyres, exhausts, intakes etc. All of the above add to cost of ownership.

[GTO]

Superb Sideways. Thanks for sharing that point. It has been added to the list.

[Boom Shiva]

Hi GTO, I was referring to it from the comparative point of view.

For example, Honda charges a premium, which may be seen as higher cost of ownership. But Honda cars also fetch a higher resale value compared to GM, Skoda, Hyundai etc, which balances out this higher purchase price, and sometimes even works out in favour of the Honda owner.

Do correct me if I'm wrong.

[dr fate]

considering the depreciation factor arises at the time of sale of the vehicle,have you seen a amortization schedule given on forclosure of a loan?

point is going but the current trend and boom in the automobile sector manufacturers are changing bits and pieces regularly and release it in the market insisting that its 'ALL NEW'and sometimes(often!!!)cuting the prices,this often sends buyers typically who sell thier cars say once in 2-3 years in a tizzy,more often the new & 'improved' products come at the same price tag,so owners armed with 'if i sell now i wil get atleast an x amount if i stretch my decision i will sink' logic which is often sold(logic)by the friendly salesman or second hand dealer or 'friends'

point one-he goes for a foreclosure,summons a amortization schedule which reads your principal outstandings+forclosure charges which has gone from 3% 3 years ago to a shocking 5% now!!!ample proof of bankers analyzation to the trend apart from the raising rate of intrest to the amount,

also add 20.50ps(per lakh,may vary)per day from the recipt of the schedule which will take 4-5 day's to reach you till payment.

also what sideways said,market(second hand)has become choosy as more often the owners will be in a hurry to finalise a deal the punch line is 'your accessory expense is your funerel'BUT will look for a maximum accessorised car!!

market and company books my friends are no longer the sole ways of depreciation,banks and car manufacturers are also playing an active role.