Total Cost of Ownership

When we moved to Hyderabad last year we wanted to bring our 5 year old faithful black steed. But then we were told that we will have to once again pay life time tax to AP government to enjoy the free help with digestion on the HYD roads. The tax on our 5 year old car was coming out to be Rs 17500/- This thought us thinking and we decided it is time to upgrade and buy a new car. The money to be realized by selling the old car was to be used as down payment and go for a sedan.

The need was very simple.

1. Car should be a sedan with good boot space.
2. Should be a petrol car.
3. Should not be popular with taxi trade ( this ruled out Indigo and Logan)

Besides this we ( or at least me) was agnostic towards the look, or brand of the car. The price range we were looking for was in the 8-10 lakh range.

Finally we zeroed in on two cars on SX4 and another Honda City. Missus was in favor of city and I was in favor of SX4. Some of the friends I took suggestion were also in favor of Honda city. So I decided to go the old fashioned way and prepare a spreadsheet comparing the two cars. The comparison is in the spreadsheet attached. The reason most of the well wishers were giving in favor of the city was its superior mileage ( around 14 Km/L compared to 10 Km/L by SX4) and a better brand snobbishnesh.

As I was totally agnostic to the brand except for the fact that it should not be popular as a taxi it was a hard decision to take. The 40% higher mileage by the city was a good motivator, but the price of the city is almost 2.5L more compared to SX4 after taking in account the discounts available and accessories thrown in by the dealer.

So I decided to look at the total cost of ownership of the two cars over a period of 5 years that I expected to drive them. Since my house and office in HYD are pretty close total driving per month was not to be more than 1000 KM. Taking that as the base figure I compared the total cost that Honda City will save me over the next 5 years compared to a SX4. Then I also compared the cost of extra interest I will pay on the additional loan taken for City and the opportunity cost of the down payment that one will save by putting in lesser down payment for SX4.

After comparing all things it turns out that SX4 even with its inferior mileage ends up saving me close to 180000/ over a period of 5 years compared to a city. This is enough to put in down payment for the next car 5 years down the line. The details are attached in the spreadsheet which you can access by clicking here.

This is when I am not even taking in consideration the cost of service and spares which is definitely higher for the city compared to SX4.

I think we should all compare Total cost of ownership whenever we are going for a high value purchase that will have major impact on our finances, be it buying a car or a house or a water filter. Any thing that will consume more money over the years needs to be looked in with the overall Total Cost of Ownership and not just the cost of acquisition of the asset. So considering everything we went for the SX4 the Missus is not very happy but I am sure she will be ok once she reads this blog :)

City fans don't get me wrong it is a great car but for me the what mattered was the total cost of ownership over the next 5 years.

Thanks for reading do leave a comment.