Cost of Ownership "Sweet Spot"

Is this a blue book test? How many words do you need and how much time do I have?

I won't try to discuss everything you brought up, but one thing that I noticed about depreciation. If you keep a vehicle until it's worth maybe 20% of the original cost or so, what often happens is that repair costs eat the dollars that were formerly going to depreciation. Yeah, I understand that good maintenance early can reduce repair costs later on, and a good used car is almost always cheaper to operate than continually flipping new cars every

3 years or so. But my point is that once you eliminate depreciation as a major expense when the car is very old (for a car), you often have repair costs that you don't have while it's depreciating! A vicious cycle! The good news on this board is that Lexus, and certainly the lesser priced but "as good" quality Toyotas, are probably the cheapest to own and keep from showroom to junkyard.

You will likely overtax ng contributors with such complex questions. My only reference point is my purchase this year of a 1995 BMW 750iA with recent model looks in near perfect condition which I bought for about 7 percent of what that ultimate value destruction machine now costs in the showroom.

While time (and coming maintenance bills) will tell more, it seems that in the top model line there enough price/value niches that can be found by judicious shopping to stay ahead in the curve.

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Depreciation is generally the largest expense, and the only one worth considering, since it's all a gamble anyway. I've heard someone recommend buying a 3 year old car every 3 years.

Read somewhere that collectables often depreciate for 12 years, then recover their original price at 25 years. You could buy 12 year old cars you think will become collectable and hope for the best.

At what> point is a vehicle too expensive to repair relative to its value?

Compare its market value with and without the repair.

At> what point does a model, assuming it is kept in good operating

It's an expense, forever. Costs are minimized the longer you keep it, as depreciation slows and maintenance costs level off, but who wants to drive an old car?

Bottom line is, although there may be some historical advantages within makes/models, they is small compared to the overall trend. In any case they are known to the market as a whole, and so are factored into the purchase price.

Don't try to outsmart the market. Assume everything is fairly priced, and recognize that things that are good--latest styles and technologies, reliability, prestige brands--will cost more.

E30 M3?

Actually, a couple of my friends did really well in the early 80s with late 60s Ferraris -- one a 330(?)GT 2+2, another a Dino. Of course, Ferraris are a unique case.

OTOH, another friend has been waiting 15 years for his Citroen SM to become more valuable. The likely selling price has remained the same, so adjusted for inflation, it's still depreciating.

Frankly, I think cars are not even close to being investments. When they do appreciate, it's just luck, and it's unlikely you'll have a valuable example anyway. That's because the only cars that are ever worth anything are either pristine low mileage examples, or pro-quality ground-up restorations. The first case means not ever driving it, and the second means restoration costs that will never be recovered. Furthermore, restoration costs have skyrocketed in the last

20 years, and are still soaring. And there are far better investments available to those who can afford to buy and warehouse old cars -- CA real estate, for example.

However, there are some cars that depreciate so little that they're relatively cheap to own -- 15 year old 911s, for example. I suspect an E30 M3 could be in that category too, if you got a good deal on a lower mileage example.

Matt O.

I do not think it is necessarily true that BMW and Lexus owners keep their cars for a long time, particularly people that get new cars. In fact, I think that most of these cars are leased and that they routinely get turned in when the lease is over, and the owner moves on to another car - whether of the same brand or a different brand. Now, on the second-hand car market, this may not hold true and your inclination that the owners of these cars keeps them a long time may be more accurate. I am a second-hand car buyer, and I keep my cars for a very long time, typically longer than 10 years.

Cost of Ownership is the amount that you paid for the car, plus the expense of maintenance, minus the amount that you can sell the car for. If you buy a car for 25k, keep it for 5 years and spend 5k on it, and sell it for 20k, then your cost of ownership is 10k. Over the ownership term, 5 years in this example, the cost of ownership per year is 2k, or 166 per month.

A partial Cost of Ownership can be calculated from only the maintenance costs. I bought my car 3 years ago, and saved several thousand dollars because I bought it private party. Despite the huge savings (as compared to buying the same car from a dealer), I suffered an unexpected maintenance problem very early in my ownership experience. After paying the cost of unexpected repairs, my investment is only slightly below the dealer cost for the car, but I haven't had to spend another dime on the car (apart from normal wear items, like oil, plugs, brakes, and tires.)

By far, tires have been my largest expense. My car takes an odd size that only a few BMWs and a couple of Mercedes use. My tires were originally made by Goodyear, and several other companies made the same size - essentially the same tire. Today, only Michelin makes the size that my car takes. I could switch to a different tire size and save some money, but the cheaper tires have overhead in lost performance and quality.

Is it right to include insurance costs in the cost of ownership calculations? I think not. It is also not correct to include the fuel costs. Fuel costs will vary by other factors than mere ownership. I drive alot, so my fuel costs would be cinsiderably higher tham my wife's. I drive several hundred (over one thousand) of miles a month, my wife gets barely 500 miles on her car. I gert better mileage because I drive on the freeway, she drives in town mostly.

Along these lines...for what it's worth...I pretty much figured out the "half life" (financial) of vehicles. While some depreciate quicker and some slower, depending on make, model, etc, in general most vehicles will be worth about half of the original purchase price in 3 years. And in 3 more years it will be worth half of that value. And if you buy a used vehicle, it, too, will be worth about half of whatever you paid (assuming you paid fair market value) in 3 years, regardless of how old the vehicle was to begin with. Again, this is just a very rough rule of thumb, but good for quick guesses of future values.

Once, while examining a car I had purchased, a man wiser than myself advised me thusly:

Drive it 'til your foot goes through the floor.

Good advice. I too believe in owning "The Forever Car" and I refuse to buy brand new. Let the first owner suffer the big depreciation hit. I like to buy a luxury car 2-3 yrs old with ultra-low mileage, but not from a dealer. Dealers only sell retail and the cream-puffs are non-existent. I'm more interested in going into the dealership with a friend whose car I know, when they're ready to trade. Find out then and there what the used car manager's wholesale buy-bid is for their car and write the dealer a check for that amount. I then take care of all the registration/documentary work myself, armed only with the bill of sale and a signed/notarized title and mileage affidavit.

In that way my friend still gets the sales tax credit for the full "trade-in value" and I drive out with his car for a damn site less than I could otherwise buy it for off the lot.

Most dealers actually welcome prearranged 3-way deals like this because it's a faster/cleaner deal and they don't have to take the trade-in into inventory.

With minimal initial investment I can now drive the car literally 'till it drops. With proper maintenance, that's a long way off.

That's absolutely correct, and has been shown time and time again, yet people here still don't believe it. For private use of a new car, the least expensive route to ownership on average is to buy the car (probably for cash up front, unless you know how to get a higher rate of return than the finance rate you'd get) and drive it til the wheels fall off- at least for the first 10 years. I suppose there does come a time when major components wear out and fail, and then the cost of repair is greater than or at least equal to the cost of buying again, but that takes a good while. There are a couple of caveats:

1) this is for private use. In business use where you can write off depreciation, payments and maintenance the equation may (or may not) be different. 2) it's for a new car. It may well be true that in the long run the option of buying a good-condition 2-3 year old used car is cheaper. But even then, driving until the wheels fall off is still the cheapest way to go on average.

A good way to measure cost of ownership of a car is to calculate the average total cost per mile, including depreciation, repairs, fuel and other consumables, as well as taxes, registration, and insurance (i.e., basically everything). As a reference, the IRS current allows deduction of something like 34 cents per mile. A few years ago while I was stuck in traffic on I-10 in Houston I started doing the math for the Toyota Corolla I was driving, We had bought the car new in 1983 (only new car we've ever purchased) and had over 175,000 miles after 14 years of near trouble free service. Anyway, the average cost worked out to something like 13 cents per mile. The 95 Volvo 850 my wife current drives works out to something like

38 cents per mile, while my 1991 Miata which I bought used about 4 years ago with over 100,000 miles is current at 22 cents per mile. I'll have to wait a year or so before running the numbers on the 1999 Lexus RX300 I just bought from my brother in law with only 39,000 miles.

Gus

Yeah, that's all true in theory. But if you are a busy businessperson or professional, the "hassle factor" of driving a much older car can be not worth the aggravation. I agree, though that even a busy professional could buy new and keep a car 7 years without too much hassle...or buy used, saving even more, and keep it 3-4 more years. I'd say that after the 7th year (assuming normal 12-15K/yr miles) it's not worth the hassle for the busy person. And after 10 years, it's only worth it if the vehicle is exceptional and is proving itself to be a cream puff.

12-15k annually? My 2003 Corolla has 33k on it in 15½ months. But things have changed recently so I expect less windshield time in the future.

• Philip

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Bullfeathers!! and more Bullfeathers!!! I AM a busy professional, and in 12 years and 130,000 miles of ownership NOT ONCE did my 1990 Integra need maintenance that could not be electively scheduled in advance to correspond to free time on my schedule. Not only that, but virtually everything that wore out was discovered and replaced at the time of routine servicing. My 1982 Celica, which I owned until 1989, was almost that good too.

You do have to figure the hassle factor in there, however. In 1982 I unloaded a 1979 Rabbit because I was spending more time schlepping it in and out of the dealer (half the time at the end of a towtruck) than I was spending on anything else. But on average, modern cars, particularly Japanese cars, are orders of magnitude more reliable than that.

The experience with the Rabbit was so bad that even to this day I flat refuse to buy a VW/Audi/Porsche, and the bad feel> Yeah, that's all true in theory. But if you are a busy businessperson or

I have this exact feeling! I had a 1984 GTI that was silver with the blue seats. This is the coolest/funnest car I have ever owned. I can't place my finger on what it was, but it was a cool car to drive. However, I did travel with my "GTI Repair kit" which consisted of pliers, adjustable wrenches, clamps and duct tape. I eventually got rid of the car and miss it to this day. Eventually, I was lured back to the VW mark by my wife. She got a 2000 Jetta and when we looked at it at the dealer, I thought wow, they've come so far, surely this can't be as bad? Well, we traded the car with only 14,000 miles on it after it was in the shop over 15 times for unscheduled repairs!!! I absolutely know I could have sued for lemon law, etc, but one of the problems I was experiencing was flooding. Sometimes in a hard rain, sometimes a drizzle, or sometimes not at all water would enter the car from some unknown location (not sunroof!) and the car was starting to mildew, etc so we ended up giving up on it. So, whatever you do, don't be lured to the VW/Audi/Porsche mark. They do make HIGHLY DESIREABLE cars, just not RELIABLE cars. Big difference! Drive the Camry/Lexus/Accord and pass them right by as they sit in the dealership. You won't be sorry!!!!!!!

Mike.

You can't beat them. Just buy the best car you can afford, Toyota of course, maintain it well and drive it as long as possible. I tried recently with a

1991 LS 400 with only 69,000 miles. Paid $7300. Car looked almost new, inspected by Toyota dealer who said it only needed minor maintenance. Since July I have spent: Tires: $600 A/C :$700 Trans. Flush :$150 Timing Belt & P/S switch: $1020 Misc: $150 I now think I would have been better off with a later model LS400 or a Toyota Camry of same value, a 12 year old car is too high a risk, even with low miles. But it does drive great.

Most of what you list there is routine/required except for the PS switch and A/C work. But hey, nothing lasts forever.

Tire replacement is a periodic ritual. From the sound of things likely it needed tires when you bought it in July and you overlooked that shortcoming else compensated for it in the price.

Tranny flush and T-belt replacement is also part of routine/periodic mtce, although the dealer prolly got to you on the T-belt job. In the first place the mfr doesn't call for T-belt replacement until 90k... and if they "recommend" it at 90k you can count on it lasting past 100k. I've heard of them going as much as 140k tho I sure wouldn't recommend it.

Arguably yes, you would have been better off with a later model. The '91 has been reported to have a couple known trouble spots that were addressed in later years. I have a '96 LS400 in practically showroom condx. with currently 52k miles on it and which I fully intend on driving until it collapses out from under me or I accidentally wreck it.

That's what I'm looking for. I might go as high as a'98--isn't that when they got 5-spd. autos and slightly more fuel efficient engines?

The problem is that the expensive time for a LS400 is between the 75K and

150K. As long as you are talking about a highly reliable (i.e. LS400), well maintained auto, you are better off buying one with 150K. The subsystems that are prone to failure have most likely ALREADY been replaced by the previous owner. The purchase price may not be all that much lower than the $7300 you paid, but you will easily come way out ahead on the maintenance. Assuming the timing belt for a non-interference engine will easily last 120K is also a good bet.