Website owner:  James Miller

Cost of operating a motor vehicle



 
   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




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