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Look Beyond Price Tag in Rating Costs

July 30, 1998|PETER LEVY | Peter Levy is founder and chief executive of Campbell, Calif.-based IntelliChoice Inc., which has been measuring car ownership costs and issuing a Best Overall Value of the Year citation since 1987

The auto industry tells us that the average price for a new car or truck this year is slightly more than $22,500. But that's just the price, not the cost.

If you figure you'll own that new vehicle for five years, the average total cost of ownership climbs to $37,322 for cars and $32,206 for trucks and sport-utility vehicles.

Truth is, the sticker price is just part of the real cost of vehicle ownership.

And consumers who compare vehicles based solely on the sticker price are using a set of criteria that can be very misleading. Vehicles with similar purchase prices can have vastly different ownership costs over time.

A car or truck that may have seemed like a good buy when it was brand-new may actually cost thousands more than another vehicle, so it's vital for buyers to understand the relationship between price and cost of ownership.

When all of this year's ownership factors are calculated over five years, the real cost of ownership can exceed the purchase price by as much as $15,000.

There are seven projected cost areas that must be analyzed to get a real idea of ownership costs. Here's how they break down: depreciation (which accounts for 36% of the ownership cost), insurance (24%), financing (15%), fuel (10%), maintenance (9%), fees (3%) and repairs (2%).

The bottom line?

It's a lot higher than people anticipate.

Ownership may be expensive, but at least the 1998 overall costs fell about $200 from the previous year. This is largely because of a reduction in average maintenance costs now that many vehicles can go 100,000 miles before they need an expensive engine adjustment.

The increasingly popular sport-utility and light-truck vehicles are usually more expensive to buy than cars, but their ownership costs are less because they don't depreciate as much.

But what's all of this really mean to the average consumer?

Let's take a look at two sport-utilities: The 1998 Infiniti QX-4 has a list price of $35,550, and analysts at IntelliChoice calculate the five-year ownership cost to be $42,374. The '98 Land Rover Discovery LE, with a list price of $34,500, is about $1,000 less than the Infiniti, but five-year costs are about $2,800 higher at $45,152.

Here's how that happens:


Infiniti Land Rover Depreciation $15,511 $14,803 Financing 7,279 7,174 Insurance 8,625 9,254 State fees 1,453 1,418 Fuel 5,291 6,713 Maintenance 3,380 4,130 Repairs 835 1,660 Cumulative $42,374 $45,152


As you can see, the Infiniti, even though it costs more to buy, becomes a good value and a wise purchase--at least from an economic perspective.

Smart buyers understand that the true cost of owning a vehicle is not just the money exchanged for the pink slip. Instead, the true cost, as dictated by the seven ownership categories, is what you pay after driving the car off the dealer's lot. So when you shop and compare new cars, use the purchase price to find the cars that fit your budget, and use the expected ownership costs to determine the car that is the best value.

* A complete ownership cost analysis for all 1998 models is available on the Internet at

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