http://www.edmunds.com/advice/specialreports/articles/59897/article.html

Special Reports
True Cost to Own (TCO)
Revealing the Hidden Costs of Car Ownership
By Philip Reed
Date Posted 05-01-2002

You've narrowed your choices to two new cars, but you can't seem to
decide which one is really the better deal.

The purchase price of each car is nearly the same. The features are
similar, and you like the way they both look. Still, a nagging feeling
tells you that there must be a meaningful difference between them, even
if it's not readily apparent during the purchase process.

Your intuition is right on the money. And now there is a new tool that
reveals the hidden costs ? all of the costs ? associated with buying,
owning and operating a car over a five-year period. It's called "True
Cost to OwnSM" (TCO for short), and it is a new consumer product
provided by Edmunds.com.

To show you how it works, let's look at two midsize family sedans. The
purchase price of one is $21,500 and the other is $22,400. You like each
one equally, so your inclination is to say, "I'll just buy the cheaper
one." After all, that would save you almost $1,000.

However, the purchase price is only the tip of the iceberg. What you may
find by reviewing Edmunds' TCO figures is that, over five years, the
cheaper car to buy is actually more expensive to own. Over five years,
it will cost $33,438 to drive the car with the lower initial price. The
more expensive car to buy will cost $30,140 to drive over five years.
The car with the lower purchase price costs 45 cents per mile to drive
while the more expensive car costs 40 cents per mile to drive (assuming
you drive 15,000 miles a year).

At this point you are probably wondering how Edmunds comes up with these
figures. There are seven categories of TCO costs: depreciation,
financing, insurance, taxes and fees, fuel, maintenance and repairs. The
costs are researched and placed into a series of proprietary algorithms
developed by Edmunds' statisticians. The result is an estimated total
ownership cost for a five-year period. This information is presented on
a single page on Edmunds.com for each vehicle (beginning with 2002
models). The information is standardized, so expenses for different cars
can be accurately compared.

TCO reveals a complete picture of car ownership-related expenses,
designed to help consumers make the right choice when purchasing a
vehicle. In fact, Bob Kurilko, vice president of Edmunds' product
development and marketing, remarked that some buyers might find that
"they can afford to buy a car, but they can't afford to own it.
Understanding a vehicle's TCO is extremely important to a person on a
fixed budget."

An Edmunds analyst who participated in the development of TCO used an
analogy to explain its value: "You are choosing between two shirts and
you finally decide to buy the one that is $20 less. But later, you
discover that it has to be dry-cleaned using a special process. Each
time you get it dry-cleaned, it costs $4 plus the hassle of taking it to
the cleaners. After five washes, the savings on the shirt you bought
have disappeared, and you probably wish you had bought the more
expensive one in the first place."

Additionally, TCO may confirm something that you already know and help
you solidify your decision on which car to buy. For example, it may be
common knowledge that a Honda Civic is a good value for the money. With
TCO, you can confirm this: The cost per mile is about 28 cents, one of
the lowest of any vehicle.

You can reach the TCO page via two paths:

? Click on the TCO link on the home page and enter the vehicle's year,
make, model and the ZIP code in which the car will be registered.

? Go to the Vehicle Detail Page for a specific car and look for the True
Costs link in the left-hand column.

On the TCO page, information is broken down into the following four
sections.

TCO Summary Section

The Summary section shows the results of the TCO calculations. The
information is presented in two ways:

1. The True Cost to Own figure. This is all of the ownership and
operation costs for five years.

2. The Purchase Price Total, is the sum of a vehicle's True Market Value
price (another car-buying tool from Edmunds), typically equipped
options, destination charge, base tax for the state and any applicable
luxury/gas-guzzler taxes.

The summary section gives you an at-a-glance picture of the purchase
cost of the car and all the related expenses. Surprisingly, you may find
that the purchase cost of the car is a bargain, while the ensuing costs
make it prohibitive for your budget.

Cost to Own Detail

The Cost to Own Detail section gives a breakdown of how the car's
expenses change over the five-year period. It shows the car's
depreciation (the decline in value). This would be important in a case
in which there was a sudden drop-off in value after, say, the third
year. Knowing this, the owner could sell the vehicle at that time and
avoid the subsequent loss of value to his or her car.

The other related expenses are shown in the table on the Cost to Own
Detail page. While some of the expenses decrease (financing and taxes
and fees, for example) other expenses increase (repairs and
maintenance). A cost-per-mile figure is also listed, providing yet
another way to compare different vehicles.

Compare Similar Vehicles

Moving down the page, you will see a section called Compare Similar
Vehicles. This reminds prospective buyers to consider vehicles made by
other automakers and lists alternatives, along with a thumbnail photo.

Also included in the Compare Similar Vehicles table are the True Cost to
Own five-year total, the purchase price and the expected resale value
for each vehicle. If any of the vehicles look like candidates, you can
quickly jump to the specific Vehicle Detail Page using the links below
the photos.

Purchase Price Detail

The final section is the Purchase Price Detail table. This lists the
typical expenses related to just the purchase of this vehicle. These are
costs that people sometimes overlook when considering a transaction.
Seeing them listed, and then totaled, can help you plan for such a large
purchase.

"Never buy a vehicle before consulting the TCO," said Kurilko. "It makes
ownership costs transparent and gives a breakdown year by year. In this
regard, TCO may influence how long a person owns the vehicle, the number
of years she chooses to finance the vehicle and other decisions.
Consumers can see the depth of the water before jumping in the deep end."

Larry Laumann, executive director of Edmunds' aftermarket data
operations, had one final thought, "The only thing we couldn't factor in
was the emotional side of car buying. That first moment when you look at
a car and say, 'I really like that!' There was no way to put that in a
formula."

Check the TCO of the vehicle you are considering to see the cost of the
car over time. You will see the big picture ? and not just the price tag.