Wednesday, April 24, 2013
Cost of car ownership
I've thought about trying to figure out the "ideal" point at which to sell my car. It's alot like when we think of players. Do I sell it with the warranty still intact (arbitration rights)? Makes it attractive naturally to the buyer, but are the transaction costs too high. Do I run it into the ground, or are the maintenance costs too high (wait until free agency)? Do I wait until just before I need to replace my tires and brakes? Then again, a prospective buyer is going to discount the car knowing that the tires and brakes need replacing. Or sell it right after, on the idea the new equipment is attractive (like a remodelled kitchen)?
Any time I think about it, it seems that it seems pretty much breakeven after 3-5 years, so, there's nothing to really "time". But, I've never sat down to work it out. Have any of the Straight Arrow readers tried? Anyway, a decent blog post above, but I have one issue with what he says here:
In six years, I have driven the car almost 100,000 miles at a cost of $0.69 per mile. Since the end of the monthly purchase payments, that cost is near $0.30 per mile.
That's because he did not factor in the resale value (or similarly, depreciation cost). He makes it seem like the car cost him over 70 cents a mile while he was making his payments, and then 30 cents a mile afterwards. But, if he were to sell his car right after the last payment, he'd get back more than he would after continuing to drive it thousands of miles later.
If you need a stark example: you take a 100,000$ mortgage on your house, and you made 10,000$ in payments. Did you actually pay 10,000$ to live there? Well, not necessarily, because you have to look at the change in asset value. If for example the house appreciated in value by 10,000$, then it actually didn't cost you anything (transaction costs notwithstanding). So, you have to look at the change in asset value, at the time you are making the calculation.
For a car, I'd figure a 10% drop in asset value, for every 10,000 miles. But, that's just a guess on my part.
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