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How to Determine a New Vehicle’s Value and Cost of Ownership

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Defining “value” is a tricky proposition, because it means different things to different people. Nevertheless, car shoppers tend to agree that when you can get more car for less money without any loss of quality, safety, dependability, or personal satisfaction, that spells V-A-L-U-E in big capital letters.

Let’s look at an example. If Car A and Car B are roughly the same size, same price, and offer the same features, but Car A promises free maintenance for three years and Car B does not, most people would say that Car A is the better value. Pretty basic, right?

Of course, this is an overly simple example. When it comes to new cars, value is about more than just the free maintenance contract, the size of the rebate or discount off the sticker price or many other factors. As you shop for a new vehicle, you should weigh a wide range of factors including:

Available discounts, rebates and incentives (see our latest recommendations for Car Deals)

The price-to-features ratio (some car brands offer more features than their competitors for a comparable price)

The car’s ability to retain value over time (Automotive Lease Guide reports depreciation ratings for most new vehicles)

Warranty coverage (many manufacturers offer a three-year limited warranty, most luxury brands offer four years, but some offer even longer warranties)

Total costs of ownership (more details below)

Understanding a Vehicle’s Cost of Ownership

A car may offer all the features you want, a great warranty, yet still cost much more than other vehicles in its class to operate. That means it will cost you more in the long run. Total cost of ownership is a clearly defined element that many consumers fail to consider. And that oversight can cost you—big time.

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Intellichoice, Consumer Reports and Edmunds are three companies that can help you assess the long-term costs associated with owning a particular car. Even for two different makes and models that are in the same vehicle class and are about the same price, the costs of owning one over the other can vary by hundreds, or thousands, of dollars over the years you own the car.

From depreciation and insurance costs to taxes and fuel and maintenance expenses, understanding estimated long-term ownership costs before you buy can help you make a smarter decision as you choose your next car.

We’ve created an example using the Total Cost of Ownership tool from Edmunds that compares three different 2015 Ford crossover SUVs that are equipped with Limited trim, identical V6 engines, and front wheel drive.

We’ll use the five-passenger Edge, the six- or seven-passenger Flex, and the seven-passenger Explorer.

Where you live directly impacts the cost to own, tax, insure and maintain a vehicle. So for this example, we’ll use 60010, the zip code for Barrington, Illinois, a Chicago suburb, to generate the data. Edmunds factors depreciation, taxes and fees, financing, fuel cost, insurance cost, maintenance cost, repairs, and any tax credits into its calculations. The five-year cost in bold consolidates all the annual costs and represents the estimated real cost of each vehicle over a five-year period.

Ford Edge Limited FWD                Ford Flex Limited FWD      Ford Explorer Limited FWD

Base Price           $37,448                $41,202                                 $43,618

Year 1 Costs       $14,144                $16,083                                 $15,569

Year 2 Costs       $9,372                 $10,086                                $10,475

Year 3 Costs       $8,652                 $9,371                                   $9,646

Year 4 Costs       $9,634                 $9,313                                   $10,329

Year 5 Costs       $8,056                 $9,487                                  $8,923

5-Year Total       $49,858                $54,340                                 $54,942

 

Here are three takeaways from the results:

Even though the Ford Explorer costs $2,416 more than the Ford Flex up front, it ends up costing only $602 more after five years.

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The Ford Edge remains the least expensive car to own when compared to either the Explorer or Flex. It’s $6,170 less expensive than the Explorer up front and $5,084 less expensive after five years.

The Ford Explorer is the most expensive car of the bunch up front and also after five years. If you’re looking for the least expensive car and don’t require a third-row for family or carpool duty, you might want to look very closely at the Ford Edge instead. That choice could save you thousands of dollars while still offering everything you need in a crossover.

Run your own calculations for the vehicle you’re considering by using Edmunds TCO Calculator. Then compare it to other vehicles on your test-drive list.

Having a decent idea of the real costs behind owning your dream car can help you consider the big picture before you write a big check for a car that may cost more than you can really afford.

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