Podcast #21: How Much Is My Car Costing Me, Really??

Hi, and thanks for popping in to listen to this weeks' Episode, which promises to be an interesting one for anyone who owns a car (so that represents the vast majority of us!). If you are new here please do check out this page, which will tell you a little about why this project exists and what it's aiming to do for you. Episode 21 is here:

#################################

While some would argue that the cost of running a car hardly qualifies as a Financial Planning topic, I would beg to differ. Seeing as many of us possess one for the duration of our adult lives our choice of car represents a significant life long investment. What I am hoping to uncover is exactly how much they cost and what if any differences there are in buying a 'newish' car versus an older car!

Some of you at this point will hit the red 'x' in the top right hand corner, you like your cars, you don't care what they cost you, provided you can afford to have a 'nice' car you will continue to do so irrespective of the financial costs. I respect that, hit the red 'x', but might do you no harm to see what it is actually costing!

In the interest of being up front I will state that even before we look at the figures I have always had a strong bias towards owning older cars (6-10 years old) where the largest depreciation costs have been absorbed by a previous owner, however I am always open to correction, so lets see which option is the more informed from a financial perspective!

Assumptions:

For the purpose of this exercise I based my findings on 2 family sized cars. The 'newish' car is a 2013 Volkswagen Passat 1.6 Diesel from a dealer, with 62k miles on the clock costing €20,450- listed on Carzone.ie at time of the research.

The 'old' car for the purposes of this exercise is a 2007 Ford Mondeo, 1.8 Diesel, 90k miles on the clock costing €4,700 from a dealer, again it's listed on Carzone.ie at time of research.

Our exercise will assume we hold the car for 3 years, before changing it again for another car. Mileage assumed at 13,000 miles per annum.

The Cost of Owning a 'Newish' Car for 3 years:

1. Depreciation: €12,450 - Buy it for €20,450. Based on the research when you go to sell a car of this type in 3 years, assuming average mileage and it being well maintained, you will get approximately €8,000. Irrespective of selling it privately or trading it in this is the approximate value achieved (even VW which historically hold value reasonably well).
2. Fuel Cost: €4,029 - This modern car will give approximately 55 miles per gallon on average. www.honestjohn.co.uk is a great website for honest mileage numbers. Using a diesel price of €1.25 per litre, and traveling 13,000 miles per annum, that's the cost over the 3 years!
3. Motor Tax: €570 - As a post-2008 car, with relatively low emissions of 109g/km motor tax will set ou back €190 per annum
4. Maintenance: €1,200 - This assumes carrying out 1 annual service and changing 2 tyres per annum, with no other major outlay on this relatively young car
5. Insurance: €1,800 - This one is a big variable dependent on the driver and his/her status and years of no claims bonus etc, however the same figure will be used on both examples
6. Total Cost = €20,049

The cost of having this car for the 3 years is over €20,000. With good fuel economy and low tax it still amounts to a fairly sizeable amount of cash! If we break that down annually it is €6,683. Per month that is €557. If you are on the higher tax bracket you need to earn €1,100 Gross Salary in order to pay for your car..........................If you earn €50,000 Gross, that is 1 week's work per month to pay for your car! Seems hefty, but lets now compare it to the alternative, a cheaper, less flashy, less efficient and perhaps less reliable motor!

Cost of owning an 'old' car:

• Depreciation: €2,220 - Buy it for €4,700. Based on the research when you go to sell a car of this type in 3 years, assuming average mileage and it being well maintained, you will get approximately €2,500. Irrespective of selling it privately or trading it in this is the approximate value achieved.
• Fuel Cost: €5,039 - This less modern car will give approximately 44 miles per gallon on average. Using the same diesel price of €1.25 per litre, and travelling 13,000 miles per annum, thats the cost over the 3 years for this car.
• Motor Tax: €2019 - As a pre-2008 car, with a 1.8 litre engine you are in for a juicy €673 per year road tax, no avoiding it!
• Maintenance: €2,400 - This assumes carrying out 1 annual service and changing 2 tyres per annum. In this instance we have included €300 per annum for ad-hoc repairs. While this could be quick a lot more or less on a car of this age and mileage this average is an industry accepted figure.
• Insurance: €1,800 - Th...