Things you need to consider when buying a car

Several days ago, I saw a interesting news article at SMH.Which was Revealed: The cheapest cars to run.Some interesting points there were Volkswagen was included in several sectors like medium car, people mover and sports class. The reason why was those VW cars have impressive mileage per gas ratio.So, I looked up the source of the information and it was NRMA.In this web page, I could find cost information for every car that’s being sold in Australia.This is what I found. From NRMA data, I made a table which shows several cars and their Total Ownership Cost for 5year including opportunity cost(financial cost coming from purchase price difference) based on KIA as base cost.

Vehicle Purchase Price Fuel Cost p/w Total Cost p/w Total Costp/5Y Opportunity
Final Costp/5Y
VOLKSWAGEN GOLF  77 TSI Turbo 27,727 32 152 39,559 –      1,941 37,618
KIA SPORTAGE SLi DT4cyl 2L  AWD 35,490 36 181 47,156 47,156
VOLKSWAGEN TIGUAN 103 TDI   4×4 43,002 32 200 52,023 1,878 53,901
NISSAN DUALIS Ti (4×4) 4Cyl 2L 38,005 41 201 52,343 629 52,972
VOLKSWAGEN GOLF GTi 46,782 39 211 54,969 2,823 57,792
HONDA CRV (4×4) SPORT 2.4L 42,899 49 216 56,272 1,852 58,124
LAND ROVER FREELANDER 2 TD4 (4×4) 53,660 33 241 62,722 4,543 67,265
BMW X3 xDRIVE 20d DT4cyl 2L 69,180 27 270 70,244 8,423 78,667

Some interesting things here are;

1) Depreciation is the largest part of total ownership cost(TOC).  So, it’s good to buy cheaper car, which is obvious. In this sense, it’s good to go for a second hand car as I already did it.

2) Gas consumption ratio per kilometer is really matter. Based on the table above, TOC per week for Volkswagen Tiguan is same with that of Nissan Dualis, which is the car I’m running now. Tiguan is $5k more expensive than Dualis, but real cost per week is same. Why did I buy Dualis? I didn’t know the fact that I found today.

3) Honda CR-V has great reputation. So, it was my possible next car. But, I changed my mind due to high TOC, which is $5,152 expensive than Dualis  in terms of Final Cost / 5year.

4) X3 is kind of dream car to me and its energy efficiency is amazing. It’s fuel cost per week is only $27. But, due to the amazingly high purchase price, its weekly TOC is $270. The price of the car wins over energy efficiency, so the amazing energy efficiency is just perfect excuse for the rich who says “I bought it because its fuel consumption is only $27 per week”.

5) Consider the opportunity cost, which is the cost we lose when we spent more money for expensive car expecting better gas efficiency, cause the money we spent more at purchasing could have made interest if it had stayed in a bank account. For example, if I buy X3 rather than Dualis, I might think that the difference of purchasing price is $31,175, but TOC in 5year is $17,901, which good much better than $31,175. However, when considering opportunity cost, the difference of TOC in 5year increase to $25,695, meaning there is no reason to spend more money pursuing better gas efficiency if the purchasing price is too high.Summing up,It’s good to know the concept of TOC and opportunity cost so as to consume wisely and choose a car economically. Check real cost of your car at NRMA.