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Buying Tips
True Cost to Own (TCO)
Revealing the Hidden Costs of Car Ownership
By Philip Reed, Senior Consumer Advice Editor
Email
You've narrowed your choices to two new cars, but you can't seem to decide which
one is really the better deal.
The purchase price of each car is nearly the same. The features are similar, and
you like the way they both look. Still, a nagging feeling tells you that there
must be a meaningful difference between them, even if it's not readily apparent
during the purchase process.
Your intuition is right on the money. And now there is a new tool that reveals
the hidden costs — all of the costs — associated with buying, owning
and operating a car over a five-year period. It's called "True
Cost to OwnSM" (TCO for short), and it is
a new consumer product provided by Edmunds.com.
To show you how it works, let's look at two midsize family sedans. The purchase
price of one is $21,500 and the other is $22,400. You like each one equally, so
your inclination is to say, "I'll just buy the cheaper one." After all, that would
save you almost $1,000.
However, the purchase price is only the tip of the iceberg. What you may find
by reviewing Edmunds' TCO figures is that, over five years, the cheaper car to
buy is actually more expensive to own. Over five years, it will
cost $33,438 to drive the car with the lower initial price. The more expensive
car to buy will cost $30,140 to drive over five years. The car with the lower
purchase price costs 45 cents per mile to drive while the more expensive car costs
40 cents per mile to drive (assuming you drive 15,000 miles a year).
At this point you are probably wondering how Edmunds comes up with these figures.
There are seven categories of TCO costs: depreciation, financing, insurance, taxes
and fees, fuel, maintenance and repairs. The costs are researched and placed into
a series of proprietary algorithms developed by Edmunds' statisticians. The result
is an estimated total ownership cost for a five-year period. This information
is presented on a single page on Edmunds.com for each vehicle (beginning with
2002 models). The information is standardized, so expenses for different cars
can be accurately compared.
TCO reveals a complete picture of car ownership-related expenses, designed to
help consumers make the right choice when purchasing a vehicle. In fact, Bob Kurilko,
vice president of Edmunds' product development and marketing, remarked that some
buyers might find that "they can afford to buy a car, but they can't afford to
own it. Understanding a vehicle's TCO is extremely important to a person on a
fixed budget."
An Edmunds analyst who participated in the development of TCO used an analogy
to explain its value: "You are choosing between two shirts and you finally decide
to buy the one that is $20 less. But later, you discover that it has to be dry-cleaned
using a special process. Each time you get it dry-cleaned, it costs $4 plus the
hassle of taking it to the cleaners. After five washes, the savings on the shirt
you bought have disappeared, and you probably wish you had bought the more expensive
one in the first place."
Additionally, TCO may confirm something that you already know and help you solidify
your decision on which car to buy. For example, it may be common knowledge that
a Honda Civic is a good value for the money. With TCO, you can confirm this: The
cost per mile is about 28 cents, one of the lowest of any vehicle.
You can reach the TCO page via two paths:
- Click on the TCO link on the home page and enter the vehicle's year, make,
model and the ZIP code in which the car will be registered.
- Go to the Vehicle Detail Page for a specific car and look for the True Costs
link in the left-hand column.
On the TCO page, information is broken down into the following four sections.
TCO Summary Section
The Summary section shows the results of the TCO calculations. The information
is presented in two ways:
- The True Cost to Own figure. This is all of the ownership and operation
costs for five years.
- The Purchase Price Total, is the sum of a vehicle's True Market Value
price (another car-buying tool from Edmunds), typically equipped options,
destination charge, base tax for the state and any applicable luxury/gas-guzzler
taxes.
The summary section gives you an at-a-glance picture of the purchase cost of the
car and all the related expenses. Surprisingly, you may find that the purchase
cost of the car is a bargain, while the ensuing costs make it prohibitive for
your budget.
Cost to Own Detail
The Cost to Own Detail section gives a breakdown of how the car's expenses change
over the five-year period. It shows the car's depreciation (the decline in value).
This would be important in a case in which there was a sudden drop-off in value
after, say, the third year. Knowing this, the owner could sell the vehicle at
that time and avoid the subsequent loss of value to his or her car.
The other related expenses are shown in the table on the Cost to Own Detail page.
While some of the expenses decrease (financing and taxes and fees, for example)
other expenses increase (repairs and maintenance). A cost-per-mile figure is also
listed, providing yet another way to compare different vehicles.
Compare Similar Vehicles
Moving down the page, you will see a section called Compare Similar Vehicles.
This reminds prospective buyers to consider vehicles made by other automakers
and lists alternatives, along with a thumbnail photo.
Also included in the Compare Similar Vehicles table are the True Cost to Own five-year
total, the purchase price and the expected resale value for each vehicle. If any
of the vehicles look like candidates, you can quickly jump to the specific Vehicle
Detail Page using the links below the photos.
Purchase Price Detail
The final section is the Purchase Price Detail table. This lists the typical expenses
related to just the purchase of this vehicle. These are costs that people sometimes
overlook when considering a transaction. Seeing them listed, and then totaled,
can help you plan for such a large purchase.
"Never buy a vehicle before consulting the TCO," said Kurilko. "It makes ownership
costs transparent and gives a breakdown year by year. In this regard, TCO may
influence how long a person owns the vehicle, the number of years she chooses
to finance the vehicle and other decisions. Consumers can see the depth of the
water before jumping in the deep end."
Larry Laumann, executive director of Edmunds' aftermarket data operations, had
one final thought, "The only thing we couldn't factor in was the emotional side
of car buying. That first moment when you look at a car and say, 'I really like
that!' There was no way to put that in a formula."
Check the TCO
of the vehicle you are considering to see the cost of the car over time. You will
see the big picture — and not just the price tag.
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