# How to Calculate the Total Cost of a New Car

Posted by Don on July 17, 2012

I am in the market for a new car purchase. My current car is slowly preparing herself for the car graveyard and I have begun to do my research on what I want. I have narrowed my choices down to two cars: a diesel hatchback and a hybrid hatchback. While the sticker prices for both cars are nearly the same, there are many other factors that you have to consider when purchasing a car. Below are the things I focus on when buying a car.

### Purchase Price

This is not the sticker price. The sticker price is the starting point for negotiating. I went online to Edmunds.com to see what the price was of the car selling in my area. If you aren’t familiar with this site, it tells you what others are paying for the same car in your local area. Simply choose the car you are interested in, add your color choice and options and you will see what others are paying for the same car. Here is the breakdown of the two cars purchase price:

Out the door, the hybrid will cost me roughly \$200 less than the diesel. Based on this, it’s a wash – I could go either way as \$200 isn’t going to break the bank. But there are other factors that I need to take into account before making a final decision.

### Fuel

The diesel car gets roughly 38 mpg based on the research I’ve done and the hybrid gets 42 mpg. These are combined city and highway amounts. I feel comfortable using these estimates because I compared the estimates given for my current car and the results are spot on.

In my neck of the woods, diesel fuel runs about \$0.25 more per gallon than regular 87 octane gas, which is what the hybrid requires. I drive roughly 15,000 miles per year. So, some quick math shows that the cost of gas in the diesel will run me \$1,600 per year while the hybrid will cost me \$1,325. (Note that I am rounding numbers so that this is easier to follow).

The running tally now shows that that hybrid will cost me \$475 less than the diesel (\$200 in purchase price and \$275 in gas).

### Other Cost Factors

Other factors that go into the decision making process are: cost of insurance, taxes and fees, maintenance and depreciation. I have outlined all of these costs below.

You can obtain the cost of insurance by calling up your insurance carrier and asking for a quote on the cars. You will need some of the basic information in order for them to calculate an estimate. For the other factors, Edmunds.com lists all of them (including insurance cost) but they are all estimates. I called local dealers to get an idea of what the maintenance schedule looks like for each car.

When all of the above is taken into account, the hybrid will cost me \$22 less than the diesel. But this is just over the course of one year. I want to see what happens after five years of owning the car. After all, things break and maintenance can be expensive.

As you can see, after five years, the hybrid comes out to about \$750 less than the diesel. Reading this, some may say that this was a waste of time, because they both cost roughly the same. But I disagree. This analysis proved to me that I can pick either car as they both will cost me roughly the same. If these were two different cars, the analysis may have shown a huge cost difference. Without completing it, I would never know if one car is more expensive than another. So in the end, the analysis is valuable.

### Housekeeping Items

A couple of additional points that I want to make:

I did not calculate what financing will cost me as I am paying for both cars with cash. If I were to finance, that certainly would play a role and needs to be included. You can use a free calculator online to determine what financing will cost you.

While Edmunds does have all of the above information in their True Cost to Own calculator, do your own homework as well. I called the dealerships of both cars and asked about maintenance, what is covered under warranty and what isn’t. I also asked about the maintenance schedule and how much performing the scheduled services costs. Don’t just rely on the information that the website lists. Call to verify for yourself.

If you keep a car for a long time, be sure to extend the cost analysis out to ten years. While insurance and depreciation will slow down, maintenance and repairs will most likely rise. Especially since the 100,000 mile mark is a time for costly maintenance to occur. You don’t want to buy a car that is less expensive for the first five years and then costs thousands in maintenance in years six through ten.

Lastly, look online to see what used cars are selling for in your area for the same make and model. I feel that the depreciation numbers provided by Edmunds were on the higher side for both cars based on what I found. The depreciation I found was less than what Edmunds stated, but was still roughly the same dollar amount. My depreciation amount is listed in the chart above. As you can see, the adjustment above had little impact on the outcome of my results.

### Decision Time

I’m sure you are wondering which car I am choosing. The answer is: I don’t know. I need to drive both again and see which one I enjoy more. Over five years, \$750 isn’t enough to sway me from one car to another.

But another issue is that there are some new cars coming to the market later this year with newer engines that get roughly the same mileage above (or better), but cost less. I’m tempted to hold out to see if I like any of those models. A lower purchase price would really change the analysis above. So for now, I’m hoping my current car can hold out for a few more months.

### More on the Costs of Cars

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### Comments to How to Calculate the Total Cost of a New Car

1. I’d buy the hybrid car. More environmentally friendly, and hey, every penny counts!

Tony @ A Young Investor

2. Always pretend that you’re going to take their financing when you first walk on the lot. Don’t tell them about the fact that you have a trade-in. If they have a “recent grad” bonus or a loyalty bonus, don’t bring up your eligibility (the latter might be hard to avoid if you’re driving the car). The key is to negotiate down as much as you can over the course of a few days. Walk away after giving the salesperson your number and tell him to call you only if it’s a cheaper deal and that you hope you haven’t bought another car by then. After you’ve negotiated the price down 20%, pull out your “extras”. “Oh, actually I can pay with cash. Since the 0% interest deal costs you money, let’s split the benefit and take another \$1500 off the price.” People don’t play hardball when they negotiate and it costs them big time.

Joe

3. If you do a lot of highway driving diesel is the way to go. They tend to have expensive repairs when needed, but they tend to have less problems than gasoline engines. For the hybrid I didn’t see anything about getting new batteries after a few years, that tends to kill the economics of a hybrid.

Mark

4. Or go to Edmunds.com and look for True Cost to Own. That saves much time!

AR

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