The actual cost of running your car may negate any savings you made on the purchase price; a depressing revelation for some car owners says Donal Byrne.
MOST OF us - naturally enough - tend to look at the purchase price of a car when we come to making our motoring investment.
That is not the approach of many of the experts in the motor trade, however, who look in detail at the actual cost of running a car for a defined period of ownership before deciding which cars they buy. Those who run leasing businesses look at what they call the whole life cost analysis. This includes everything from the initial purchase price to everyday costs, such as fuel, tax and, most importantly of all, the actual value of the car after three years of running it at an average of 24,000 kilometres a year. The results make for illuminating, if depressing, reading in some cases.
"Too often people simply compare the cost of the vehicle up-front, rather than what it will cost them over a particular period. Both companies and individuals can save a lot of money by using such an analysis when deciding between vehicles," says David Wilkinson, sales director of Merrion Fleet Management, one of the country's biggest fleet service companies. Merrion Fleet Management has again undertaken an analysis of whole life costs for Motors.
This week we begin by looking at the smaller hatchback and saloon car segment, which includes some of the most popular cars on the market. For the purpose of this analysis, Merrion has not included discounts on the purchase price; businesses generally get significant larger discounts than individuals.
The analysis takes into account the devaluation that has been occurring in the second-hand market in recent months and this is in the order of 15 to 20 per cent, according to industry experts. Merrion points out that its ultimate estimates of used car values are based on its specific experience of the car market in Ireland.
The analysis includes the lease rate for a car. The figure quoted here the cost of the depreciation of the car and the cost of funding that depreciation through bank or finance company repayments. Figures here are based on what an individual rather than a leasing company would pay. Other figures are for the maintenance based on at least one service a year; road tax; tyres; roadside assistance costs and fuel costs based on the AA's national average fuel price table for July.
David Wilkinson says the residual value of cars in this country has been further undermined by imports from the UK. The decision by the Government to introduce emissions-based tax on cars has, he says, had a further destabilising effect on the market.
In terms of fuel costs - currently a major consideration - it is interesting to note the sometimes marginal difference between petrol and diesel, which shows how diesel engines have improved in terms of efficiency. The Fiat Bravo diesel and the Mini diesel both come with the lowest cost per kilometre at 33 cent, while a Kia Cee'd petrol comes in at 34 cent per kilometre, and the Mini petrol at 36 cent.
It is also interesting to see how some brands such as Volkswagen and Toyota continue to hold their value while others struggle to match them for second-hand values.
A VW Golf 1.4 petrol base model costs €21,790 and should be worth €10,350 after three years, according to Merrion, while a Toyota Auris 1.4 base model goes from €21,225 to €9,500 in the same period.
However, a Citroën C4 goes from €20,150 to €7,200 over three years and a Fiat Bravo 1.4 petrol from €19,695 to €6,900. The Kia Cee'd also goes from €18,295 to €6,900. Diesel prices fare better, but then their initial purchase price can be higher.
Next week: the cost of owning a family saloon
•No discount has been taken off the retail cost of the vehicle. Some manufacturers will offer higher discounts than others and hence would have an impact on these calculations. Opel made this point following a previous exercise.
•The standard residual values have been increased by 15 per cent as an individual would be expected to obtain a higher sale price by selling their vehicle privately rather than our disposal method which is through the trade. The monthly lease rate equates to the financing costs made by a private individual with an interest rate that has been increased by 1 per cent as an individual will incur a higher rate than a leasing company.
•It should also be noted that residual values will be lower on a vehicle when it is coming towards the end of its life cycle.
•This analysis includes the lease rate - depreciation and interest; maintenance - road tax, servicing (as per manufacturers specifications / at least once a year), any other vehicle maintenance required outside of routine servicing, a courtesy vehicle for all service and maintenance work, 24-hour roadside assistance, and tyres. It does not include Insurance or repairs required due to accidental damage or driver abuse. Fuel - this is calculated by taking the AA national average price of fuel for July, and the combined manufacturer fuel consumption figures.
•Recent changes in car prices due to the changes in how VRT is calculated has impacted on used car values. Maintenance figures will have also changed due to the change in road tax. Both VRT and road tax are based on the CO2 emissions of a vehicle, rather than the engine size since July 1st.