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View Full Version : How much is paid for a car over its life?


subzali
11-04-2010, 09:50 AM
Wondering if there are studies out there that track what, on average, is paid for a car over its life?

Say its MSRP is $30,000
A few years later it's sold for $20,000
Later it's sold for $10,000
Etc. etc.
By the end of its life a car that originally was worth $30,000 has had a total amount paid on it over its lifetime of easily twice that amount...


And what about houses? A lot of times they go up in value, so there total lifetime sale price must be a LOT more than their original sale price...

I know I'm not really an original thinker, so I'm sure there must be a group of people somewhere that does studies on this sort of thing...anybody know?

satchel
11-04-2010, 11:23 AM
There are so many variables to how much a car would cost over it's life that you would need to be more specific on the vehicle (such as MPG, how much it breaks down, how much parts are), but we could do an estimate of something like a land cruiser.

The typical car depreciates 10% per year of it's current value. If a new land cruiser is worth say, 60k new (I don't really know), then next year it would be worth 54k, and the third year is 48.6 (90% of 54k). This is the typical rate of depreciation.

That means that no matter the value of the car, most cars are at their salvage value around 20 years. More expensive cars depreciate faster than less expensive cars, so they both reach salvage value around the same time. Salvage value would be what you what you could sell it off at the end of it's useful life for, but in real terms on a Land Cruiser, it would be that number where it pretty much stops depreciating and that is around 4k.

The reason I brought all this up is because you ask how much you would spend over the life of the car. Most people would consider the "useful" life of the car to be near 20 years and depreciation would agree. We tend to keep ours longer, but we will go with 20 years for the example.

So, you have your vehicle. If we assume you are going to keep it for the duration of it's useful life, 20 years, then take the buying price of the new land cruiser, I'll assume 60k, and subtract 4k from it, which is the salvage value you will get for it at the end of it's useful life. That's 56k for the asset itself.

When I worked in accounting and we accrued maintenance expenses on machinery, our formula was as follows: Years old X Current Value X .005. This means after one year the maintenance on the vehicle would be $270. 1 year old X 54k X .005. 2 years old would be 2 X 48.6k X .005 = $486. Now do that for all 20 years and you get a sum of just over 17k.

Now add in gas mileage. The typical amount driven is 10k per year. If you get around 15 MPG then that would be 10k/15 X price of gas, 2.5. That comes to about $1,600 X 20 = 32,000.

Then you have insurance, so let's assume it is $75/month. It will be higher at first because it is probably full coverage with a high value of the car, and lower at the end as the value goes down, so let's just assume $75/month. That's $900/year X 20 years is $18,000.

So let's sum up.

Asset depreciation 56k
Maintenance 17k
Gas 32K
Insurance 18K
Total cost of LC for it's 'useful' life = $123k
Value of owning a LC for life = PRICELESS

This also obviously does not include improvements, just regular maintenance.

Edit: I hope no one complains that I didn't factor in yearly inflation. Let's just not go there.

subzali
11-04-2010, 01:42 PM
I was actually wondering more specifically about how much is paid through transfer of ownership throughout a vehicle's life. I know it depends on the vehicle (and how many times over its life it is sold) - I was just curious if anybody had really heard of studies being done on the subject. I just find it interesting that my Tundra, which MSRP'd for about $32K in 1999/2000, may have as much as $75K paid to purchase it through transfer of ownership throughout its life.

I guess it's probably not too useful as information just by itself, without knowing depreciation rates, inflation etc. that all factor in, plus there are several other variables that it would probably be hard to pinpoint the effects of them individually, so this probably isn't all that interesting.

satchel
11-04-2010, 02:10 PM
I see what you mean. Yeah, I don't think there's any way to know that because it all just depends on how many times a vehicle is sold and at what value it is worth when it is sold. One vehicle could get sold 30 times in it's life and another could be kept by the same person forever, so I'm not sure how you could calculate something like that.

In reality it doesn't come out to that much though. You are not calculating the fact that the person who bought it and then sold it only lost the amount of depreciation.

You buy it for 60k and sell it that year for 50k, then you didn't spend 60k on it, you spent 10k. The total amount of purchases - sells should never be more than the initial vehicle price.

Hulk
11-04-2010, 02:22 PM
You'd need to subtract what the previous owner got paid when the next person bought it, right? Let's say that in the course of 20 years, a vehicle has 5 owners. Maybe it would look like this:

Owner A buys car from dealer: $30,000
Owner A trades car in on a new car, receives trade-in value: ($15,000)

Owner B buys car from dealer: $19,000
Owner B sells car on Craigslist: ($10,000)

Owner C buys car on Craigslist: $10,000
Owner C sells car to neighbor's son: ($6,000)

Owner D buys car for his son: $6,000
Owner D sells car after his son wrecks it: ($2,000)

Owner E buys a wrecked car: $2,000
Owner E drive car into the ground, sells what's left to a scrapyard: ($400)

If you look at it this way, the total investment in the car over its lifespan is only $33,600 for the vehicle itself.

This is a misleading number, since it doesn't include title, registration, insurance, maintenance (oil changes, tires, brakes, belts), repairs (head gaskets, water pumps, etc.) upgrades, fuel, storage, and other items. Owning a vehicle is an expensive proposition.

DanS
11-04-2010, 08:56 PM
Owning a vehicle is an expensive proposition.

Yes it is. I have done the math. The faux-lux costs me 22.3 cents per mile to drive (or rather, it has over it's life with me--roughly 180,000 miles). That number is highly skewed however by the diesel conversion there, but lower than most vehicles because I bought it for $6500 when it was 7 years old, and have owned it ever since. That's a number that includes gas/fuel, maintenance, insurance, etc...

Man, that means that every time I drive to work and back it costs me roughly $20 total.

Still, your example of multiple sales (and the obligatory teenager wreck) is pretty impressive (and probably fairly accurate for most vehicles). That means that roughly 10% of the vehicle's initial value has been spent by someone, for no more utility than the vehicle produced when it was new. Of course, the utility for each is the use of the vehicle, but still... The lesson here is that you want to be the dealer, and not let your teenagers drive. ;)

Dan