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# Cost of operating a motor vehicle

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What does it cost to operate a motor vehicle during the "n"th
year of ownership? The formula for computing it is:

C = R + M + G + I + V1 - V2

where:

C --- cost of operating vehicle during "n"th year
R --- all money spent on repairs, service and
maintenance during the year (including oil and
filter changes)
M --- miscellaneous costs including cost of insurance,
safety inspections, emission inspections, vehicle
registration, and personal property tax for the
year
G --- cost of gasoline for the year
I --- interest paid to the bank over the course of the
year on the bank loan
V1 --- value of the car at the beginning of the year
(i.e. retail value, bluebook value, what you could
get for the car if you sold it)
V2 --- value of the car at the end of the year (i.e.
retail value, bluebook value, what you could get
for the car if you sold it)

The formula above can also be written:

C = R + M + G + I + D

where:

D = V1 - V2

i.e. D is the depreciation for the year

If you own the car outright (i.e. there is no loan on it) the
formula is:

C = R + M + G + V1 - V2

NOTE.  There is one cost that this formula does not include.
It is the cost to you, for the rest of your life, on the lost
interest on the money you have laid out.  For example, if you
paid cash for the car and the price was \$25,000, you lose the
interest on that \$25,000 for the rest of your life.  The same
applies to money that you paid out for repairs, gasoline and
the various miscellaneous expenses.

EXAMPLE.

How much does it cost to operate a motor vehicle?  Suppose one
purchases a new GMC Jimmy, 4 wheel drive, sport utility vehicle
for \$30,000.  Let us suppose one drives it 15,000 miles per
year and that at the end of four years the trade-in value on it
is \$8700.  Let us assume that the insurance on it was \$1000 per
year. Suppose the repair, maintenance and miscellaneous costs
(including insurance) averaged \$1100 per year.  Assume a price
of \$1.40 per gallon for gasoline and that the vehicle gets 20
miles per gallon.  For simplicity of computation let us assume
that the person paid cash for the vehicle.  How much did it
cost to operate this vehicle per year?

Cost of gasoline per year:   1.40 x 15000/20 = \$1050.00

Repair, maintenance and misc. costs:  \$1100.00

Average yearly depreciation: (30000-8700)/4 = \$5325

Lost interest on 30000+1050+1100 (assume 7% interest):
.07 x 32150 = \$2250

Total yearly cost: 1050+1100+5325+2250 = \$9725

Apr 2001