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Old 22nd April 2010, 10:32   #301
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Quote:
Originally Posted by ajay2233 View Post
Good math..
I will never let my 96 model zen vanish away..
Never calculated this way..
Actually, you can now . Since its been part of your garage for 14 years, this is probably a good time to upgrade to something newer, fresher, dynamically richer and more comfortable.
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Old 22nd April 2010, 10:47   #302
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I like GTO's suggestion in his post Jay

I face the same dilemma as you do - having bought my Scorp for 8.6 L ish OTR BLR in April 08. I also have only one vehicle - having sold off our other car some 3-4 months ago.

I was casually checking the depreciated value of the Scorp - I ve just paid up my Insurance for the 3 rd year and their declared IDV itself has come to 5.34 lacs (imagine!!) ive also bought the Mahindra extended warranty for a further 2 years so the vehicle will be under warranty until April 2012.

The depreciated value for second hand purchasers as per the used car market is anywhere between 5.75 and 6.4 lacs as I see. In 2 years it looks like they knocked off a comfortable 2 lacs!!

I do believe it makes sense for me to keep paying the loan until the vehicle reaches the age of 3 years and then foreclosing it by paying up fully and owning the vehicle outright. Hence one can also cut down liability on the interest payable for the remaining 2 years of the loan. The foreclosure cost will definitely be less than such interest payable for the last 2 years.

So far I ve clocked 28000 km in this Scorp over the 2 years I ve owned it - a mix of in city and highway/ hill / long drives.

Going by this thread, I am in sync with the thought of hanging on to the vehicle for a full 5 years or more. At the end of 5 years, I probably would have done about 70k kms, given the usage pattern above. And several distinguished TBHP Scorp owners have proven that their vehicles are capable of going for as long as 150000-180000 plus kms.

Hence, it may make better sense to keep it rather than sell it - since it is a good and reliable vehicle and suits my needs/ desires well.

Even after say 6 to 7 years, the Scorp will typically atleast fetch a pretty reasonable residual value - say 2.5 lacs. And I would of course have had the enjoyment and use of it in all this time - since I drive it myself and never give it to anyone else to drive, I pretty much know the ins and outs of the vehicle.

I think therefore, that I will benefit more by hanging on to the vehicle for the full period of 5-7 years instead of upgrading in the middle and running after one more loan liability along with such upgrade.

there is a neighbour of mine who has an immaculately maintained black Scorp Chain Drive Turbo GLX - 2004 model - he's clocked 75-80k kms in it. it is parked under a tree outside his home and he uses it as his daily drive - he has only one vehicle. He told me that he would hang on to it as long as possible and not sell. I think I will follow his example...

any further thoughts on this from others are welcome - it will help me understand it/ think it through better.







Quote:
Originally Posted by jaysmokesleaves View Post
@ GTO >> I own only one car. Safari EX 4x4. Purchased in March 08 for 10,70000/- onroad.
DO you reckon it will be wise to sell it after 3 years and but 2 vehicles instead of one(a gypsy for tripping & a small car for the city) or buy another suv in the same price bracket. Or do I end up saving a packet if I keep the Safari for a total 5years +.

Im averaging approx 20-25k kms per year.
Are there any other variables I should consider?

Last edited by shankar.balan : 22nd April 2010 at 10:55.
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Old 22nd April 2010, 13:17   #303
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Note from the Team-BHP Support : Please avoid typing with excessive dots.........like................this.

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Quote:
Originally Posted by GTO View Post
Actually, you can now . Since its been part of your garage for 14 years, this is probably a good time to upgrade to something newer, fresher, dynamically richer and more comfortable.
We have ... to a city and then to an accord..
but then the zen is the best when it comes to city traffic...

Seriously dont know why , but no body at home speaks of letting it off, nor do i want to...

its a very practical vehicle....

Last edited by GTO : 23rd April 2010 at 10:27. Reason: Note from the Team-BHP Support : Please avoid typing with excessive dots.........like................this.
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Old 22nd April 2010, 14:02   #304
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Every time someone in my office talks of upgrading from their current car (< 5-years old), I send them this thread. And guess what, the idea is promptly dropped and they decide to keep the car.
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Old 26th April 2010, 15:10   #305
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I have a 6.5 years old Maruti Alto which I keep on thinking of replacing someday. But I have developed a kind of emotional bond with it so the mere thought of selling it makes me sad. The fact that I have no money to buy a new car also helps.
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Old 11th May 2010, 00:00   #306
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Quote:
Originally Posted by GTO View Post
Option ONE : Retain your existing car

• Rs. 4,25,000 : The resale value of your 5 year old C-segment sedan (e.g. Honda City) as of today.
• Rs. 20,000 : Averaged maintenance cost per year. Thus, you would spend a total of a lac over the next 5 years on a timing belt replacement, suspension overhaul, new brake pads and other required items.
• Rs, 35,000 : Total cost of insurance premiums for the next 5 years.
• Rs. 1,50,000 : Resale cost (realistic) of your 10 year old C-segment sedan in year 2013.

Thus, if you retain your existing sedan for the next 5 years, you will incur a total ownership cost of Rs. 4,10,000 OR Rs. 82,000 p.a.

Option TWO : Upgrade to a C+ segment car

• Rs. 12,50,000 : Cost of a new Honda Civic or equivalent sedan.
• Rs. 4,25,000 : Proceeds from the sale of your existing sedan used as down-payment toward the new car.
• Rs. 20,000 : Approximate EMI per month for 8.25 lacs on a 5 year term.
• Rs. 6,000 : Averaged maintenance cost per year.
• Rs. 1,20,000 : Total cost of insurance premiums for the next 5 years.
• Rs. 6,20,000 : Realistic resale of your new C+ sedan in year 2013.

Thus, if you upgrade from a C-segment sedan to a C+ segmenter, you will spend a total of Rs. 11,55,000 over the next 5 years. OR 2,31,000 per year.

But that’s not the entire picture, is it? What we have not calculated yet is the opportunity cost of the Rs. 20,000 per month that you are blowing away toward the new car’s EMI. If you don’t upgrade, that money can instead be invested. Even if reasonably invested, the saved Rs. 20,000 per month will become a whopping 15 lakh rupees at the end of 2013!

Net net, retaining your current 5 year old sedan (over a 12.5 lakh sedan upgrade) will make you richer by 22.5 lakh rupees over the next 5 years! That’s an earning of Rs. 4,50,000 per year. OR Rs. 37,500 a month.

GTO:

Excellent article. Some corrections in the calculation.

The principal of 20,000/month (12 lacs total) is double counted in the calculation. One while computing the cost of ownership and it is again counted when calculating the investment returns. Only the interest portion, 3 lacs in this case should be added to the overall savings. Also in the case of retaining the car, the 4.25 lacs is added to the ownership cost. Since the existing car is retained, the person does NOT gain/lose this amount to start with.

It's sort of confusing, let me try a simplified example:

Assume at the start:
Total Asset for Person A and person B
* Cash in Hand = 12,50,000
* 5 year old Sedan

Let's say A and B chose different paths. Expenses are indicated in brackets since they are negative and outgoing.

Person A retains his old sedan:

Total asset with him at the end of 5 years

Initial principal = 12,50,000 (Say, invested in FD)
Interest = 3,00,000 (Based on your calculation. 5 years interest)
Money gained from selling old car = 0 (Since he does not sell at the start. He chose to keep the car at the start)
Car running expenses = (1,35,000) (Based on your math. Insurance + Maint)
Resale value = 1,50,000 (Finally when he sells)

Total asset at the end of 5 years= 15,65,500 and NO CAR

Person B sells the car in hand and buys a new car with the 12 lacs in hand:

Total asset with him at the end of 5 years

Initial principal in hand = 12,50,000
Interest = 0 [Since he cannot invest this amount. He chose to spend that towards the new car purchase]
Money gained from selling old car = 4,25,000
Initial Expense for new car = (12,50,000) [Assume full cash purchase]
Car running expenses = (1,50,000) [Maint and insurance]
Resale value = 6,20,000

Total asset at the end of 5 years= 8,95,500 and NO CAR

At the end of 5 years, Person A will have 6,70,000 more than Person B.
So the savings is 6.7 lacs instead of 22 lacs.

Some minor considerations:
I made calculation for outright purchase instead of loan to make the computation simpler. If person B took loan instead of using the cash in hand, the only additional difference will be the interest he pays towards the loan minus the interest he makes with the cash in hand. For simplicity lets assume this difference is 1 %. It will not make much difference in 5 years time.

If we assume that both A and B never had 12.5 lacs to start with, still does not matter. Person A would have gained something like 15,00,000 at the end of 5 years by saving 20,000 per month which the person B does not get to save. Its only a matter of whether A saves the 15 lacs to start with or saves the 15 lacs over a 5 year period of time. B never gets to save that either way. B either spends the money over a 5 year period or spends all the money to start with.

Another minor point is if person A has 12,50,000 to invest to start with, person B has 4.25 lacs to invest at the start. A only has 8.25 lacs of extra money to invest compared to B.

Correct me if my calculation is wrong.
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Old 11th May 2010, 11:35   #307
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I am attaching a PDF that shows the inflows and outflows from both the methods (using figures given by GTO).

The major areas of focus, in my opinion, are as follows:

Maintenance cost of a vehicle that's more than 5 years old. Vehicles from the Maruti or Hyundai stables would typically have a lower maintenance cost due to wide availability of cheap spares, while vehicles such as Honda or Toyota would have a higher cost of maintenance due to restricted availability and costly spares. Also small cars such as hatchbacks would typically have lower costs than sedans or MUVs. These are generalizations.

Investment Opportunity: I have assumed a 10% rate of return by simple interest. You can be more creative with your investments, go for SIP investment in some leading mutual fund or invest it somewhere else with a better rate of return.

With the figures originally given by GTO, the net savings at the end of five years if you decide to retain your car turn out to be Rs. 40,000/-. However if you work more on the investment part, you could easily end up saving about twice as much money after five years.

Example: The EMIs for the new car for a whole year would turn out to be Rs. 2,40,000/- Let's assume I am not paying these EMIs, so at the end of the year I end up with a saving of Rs. 240,000 in my bank. I invest this at 10% simple interest. For years 2, 3, 4 and 5, my total interest on this amount would be Rs. 96,000/- At the end of the second year, I have another Rs. 240,000 in my bank which I invest in a similar manner. On this I earn interest for years 3, 4 and 5, which comes to Rs. 72000/-. After third year, I invest another Rs. 2,40,000/-, earn interest for years 4 and 5 which is Rs. 48,000/-. After fourth year I invest another Rs. 240,000/- and earn Rs. 24,000/- for the fifth year. After fifth year I have yet another 2,40,000 in the bank, but since our analysis ends at this stage, the earnings from this pool of money would not be included. So at the end of this period, I have amassed Rs. 2,40,000 just out of earning a simple 10% interest on the moneys I invested at the end of each year.

That's a whopping one whole year's EMIs I saved. An obvious fact is after the fifth year I have put 12 L as investment. From the sixth year onwards, I am earning 120,000 just as interest on this investment. So after 10 years if I were to swap my 10 year old car for a brand new one, I would be paying half my EMIs out of the interest earned.

Now, that's the most simple way. A better approach would be to use cumulative deposits or reinvest the interest. Still better, you could find investment opportunities, such as MF or ULIPs, where you can earn upto 17-18% rate of interest.
Attached Files
File Type: pdf CostOfOwnership.pdf (31.4 KB, 345 views)

Last edited by honeybee : 11th May 2010 at 11:36.
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Old 11th May 2010, 14:22   #308
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We can play around with the interest rates on the investment based on the individuals ability, economic factors etc. Let's leave that aside and assume the interest as GTO calculated it to keep things simple.

However, what I was trying to say is that the original calculation has fundamental flaw. I can see a basic flaw in your calculation as well. You have added 8.25 lacs as income in the first year which is wrong. That money never went out or came in from the person. It is accounted as out flow in form of EMI payment. If I remove that 8.25 lacs as income, the net savings with your calculation for retaining the car comes to something around 6 lacs approx which is what is there in my calculation also.

So, bottom line the savings is around 6 lacs and not 22 lacs.

Still this is a lot of money. If someone says he will give me 6.5 lacs for driving my car for next 5 years, I guess I would sign up for it happily .
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Old 11th May 2010, 15:05   #309
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Quote:
Originally Posted by idofsuresh View Post
However, what I was trying to say is that the original calculation has fundamental flaw. I can see a basic flaw in your calculation as well. You have added 8.25 lacs as income in the first year which is wrong.
You did acquire an asset worth 12.5 L?

But yes, when considering cash flows, I should not be considering the asset that I have acquired. Here's the revised PDF with the amount removed.

Finally, it's all about savings. How nice it would be if someone actually came and paid you all that money
Attached Files
File Type: pdf CostOfOwnership.pdf (31.0 KB, 217 views)
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Old 11th May 2010, 15:39   #310
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Guess your well maintained car would have !! by the end of 5 years
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Old 11th May 2010, 19:05   #311
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When we compute cash flow like this the 20,000 EMI per month is double counted. Once as savings in the hand of person who retained the car and second as expenses in the hand of Person B. I still think the savings is only around 6.5 lacs and not 22 lacs.

Last edited by idofsuresh : 11th May 2010 at 19:15.
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Old 11th May 2010, 19:48   #312
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Quote:
Originally Posted by honeybee View Post
You did acquire an asset worth 12.5 L?

But yes, when considering cash flows, I should not be considering the asset that I have acquired. Here's the revised PDF with the amount removed.

Finally, it's all about savings. How nice it would be if someone actually came and paid you all that money

Sorry for multiple posts. It took time to figure out the mistake in the cash flow computation and by that time the 20 minutes edit expired. Your computation was showing a 22 lacs savings like GTOs calculation. Here is the mistake to be precise (the source of double count).

Case 1: You are considering an INFLOW of 20,000 per month
Case 2: You are considering OUTFLOW Of 20,000 per month

Correctly it should be:
Case 1: INFLOW of 20,000 per month (Say salary) and NO OUTFLOW
Case 2: INFLOW of 20,000 (Salary) and OUTFLOW of 20,000 (EMI payment).

In my calculation, instead of the complex EMI/INFLOW/OUTFLOW I assumed the person has a FD of 12.5 lacs and a 5 year old car to start with make the balance sheet at the end of 5th year. Try making a balance sheet, it is easier to figure this out.
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Old 2nd August 2010, 09:58   #313
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Whenever I get the impulse to shop for a new car, I go back to this thread. It's like a cold shower, brings me back to my senses!
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Old 2nd August 2010, 10:21   #314
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I am confused with all the calculations-I feel that there is no price tag for the "feeling of elation" on getting a new car after every few years-if you can afford go ahead.
I have a 5 year old Wagon R-my third car. Ambassador was with me for 7 years. Van for about 12 years and The Wagon running on 6. I have maintained my cars pretty well and they have never been let down even once, no stalling on the roads. There is a time when one has to give up a faithful.
For me the wallet plays a significant role in deciding whether to keep on not to keep?
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Old 3rd August 2010, 11:34   #315
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Quote:
Originally Posted by filcord View Post
Whenever I get the impulse to shop for a new car, I go back to this thread. It's like a cold shower, brings me back to my senses!
Another motivator : The more you save right now, the better the car you buy 3 - 4 years later!

Quote:
Originally Posted by Judemayne View Post
I am confused with all the calculations-I feel that there is no price tag for the "feeling of elation" on getting a new car after every few years-if you can afford go ahead.
Sure isn't. However, you can get a "feeling of elation" even from making your existing car better. Example : When I spruced up my Vtec (exhaust, ICE etc.), it sure as hell made me feel good everytime I took her for a spin. Of course, it helps that the Vtec, even in stock form, was a heck of a car. Even then, the upgrades cost a fraction of the $$$ for the new car, yet kept me as elated (if not more).
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