Understanding the real cost of owning a car
- Depreciation - a question of resale value
- The cost of keeping a car well maintained
- Why do electric car costs different
- Vehicle tax as government revenue stream
- Insurance is part of the deal
Purchasing a car comes with a lot of responsibility. Besides registering the car, you also have to pay for its maintenance and running costs. You should calculate these before you buy, so that your dream car doesn’t turn into a nightmare. The price you pay for the freedom of individual mobility is much higher than public transportation. Vehicle tax, insurance premiums, fuel, maintenance, and care add up quickly. On top of all of this is the loss in value, because with every day and every kilometer, the car is worth less.
Periodic Table of Buying a Used Car
Everything you need to know about buying a used car
Depreciation - a question of resale value
A new car loses value disproportionately in its first few years. This can account for up to a quarter of the new price, according to consulting firm Bähr & Fess, which specializes in resale value forecasts. Each additional year increases depreciation by 5%. That means that buyers benefit from the high drop in value in the first few months after new registration, and the younger the vehicle, the cheaper it is. This principle may apply for other markets too and is worth taking into consideration. That’s why it’s good to pay attention to which vehicles have the lowest depreciation.
The German news magazine "Focus" together with experts from Bähr & Fess determines the brands with the most stable values every six months. Almost every year they are Mercedes-Benz, Volkswagen and Audi in interchanging positions. This means that models of these brands are still highly traded as used cars and will go for good prices when resold.
The cost of keeping a car well maintained
The car has to be inspected regularly if it is to be in top technical condition. When you see the bill from a brand-name workshop, you can’t help but rub your eyes when you have to pay several hundred euros or even a four-digit sum for a major inspection. Tires may wear out or have to be changed from summer to winter and vice versa. For example, a tire change with storage and inspection of fluids costs 180 euros at BMW, and this is done twice a year for a grand total of 360 euros. The mandatory technical inspections are another expense. Before that, the car should be checked in a workshop, and you also have to factor that cost in.
💡 If you want to save money, have the inspection or repair done at an independent workshop. Beforehand, be sure to ask if they check the car according to the manufacturer’s specifications. Better yet, ask them to note that information on the invoice. If you decide to have the service done at an independent workshop, the warranty is not affected. Exception: In the case of a leased vehicle, the lessor stipulates those inspections, repairs and maintenance must be carried out at a brand workshop.
In addition to maintenance costs, there are also operating expenses. Good maintenance includes regular washing, for example. This costs around 10 euros at the car wash If you do it yourself, you should at least factor in the cost of water, especially if you don’t have a driveway and need to visit the "do it yourself" car wash. Of course, fuel consumption also plays a major role in running costs. Depending on the miles driven, the amount you fill-up at the gas station adds up quickly.
Why do electric car costs different
Thanks to financial support and a denser network of charging stations, electric cars are increasingly becoming the focus of car buyers. In Germany, for example, the subsidies offered by the government and car manufacturers are leading to the purchase of mainly new vehicles with e-drives. Propelled by the government subsidy and more choice, the number of newly registered electric cars in Germany tripled last year. According to the Federal Motor Transport Authority, around 194,000 purely battery-electric passenger cars were registered.
If other alternative drives such as plug-in hybrids, gas or hydrogen cars are included, there are just under 395,000 climate-friendly cars currently on the roads. This means that they accounted for around a quarter of new registrations.
In Germany, there is a government incentive of up to 9,000 euros (including the manufacturer’s premium) for e-cars, and 6,750 euros for hybrids until the end of 2025. However, this amount is only available if the car costs no more than 40,000 euros net list price. In addition, there is a five-year vehicle tax waiver. Those who want to charge at home need a wall box, which has been subsidized with 700 euros since November 2020. These generous government subsidies mean that used cars with e-drives are often slow to be sold.
Currently, however, new e-cars cost more to buy than those with traditional drive systems. The battery is the main cost-driver. Luckily, here there are signs of a drop in prices. On the other hand, e-cars incur lower maintenance costs. This is at least the case with all-electric, battery-powered, vehicles.
These models do not require lubricants, which have to be replaced. They also have far fewer parts than a combustion engine and are therefore less susceptible to wear and tear. The exhaust, for example, cannot break down in a full-power vehicle, because there is none.
However, new tires and inspections are required regularly, and instead of gasoline, of course, electricity costs are incurred. The strategy consultancy PwC-Strategy& compared the total cost of owning a car in a study from 2020 where they found that small electric cars with a range of 150 kilometers cost less than a diesel or gas-powered car. For e-cars with a range of 300 kilometers, a balance in favor of the electric variant is possible from 2024. Above a range of 600 kilometers, a gas-powered car will still be cheaper for a long time.
For those who don’t like electricity, gas-powered cars are a good alternative. At the gas pump, people are always surprised at the low price of gas. In terms of consumption, this type of drive is one of the cheapest and at the same time the most environmentally friendly. In Germany, gas is promoted by a reduced motor vehicle tax. Many gas suppliers also sponsor the natural gas vehicle with an incentive premium if the customer decides to buy one. Unfortunately, many manufacturers have stopped producing these models. Currently, most European countries are focusing their subsidies on e-mobility. Plus, refueling options are scarce in many countries.
Vehicle tax as government revenue stream
All vehicles are subject to a tax as soon as they are driven on public roads. Vehicle tax is an important source of government revenue. If we still use Germany as our example, the tax there is the fourth-largest source of revenue for customs, which has been collecting the tax in the Federal Republic since 2014, with an annual tax revenue of around nine billion euros. Low-emission cars with internal combustion engines that show a CO2 value of up to 95 g/km are exempt from tax for five years. All previously registered cars are unaffected by the new German regulation, according to the Federal Ministry of Finance.
Insurance is part of the deal
In addition to tax and maintenance, there is also insurance. This is a required insurance in all EU countries. It covers all personal injury and property damage caused to others in the event of an accident. Other costs (e.g., the cost of repairs to your own vehicle) are not covered. In Germany, for example, the premium cost directly correlates to the number of claims filed. The longer one drives accident-free for the insurance company, the better it is for the wallet.
"There are no EU-wide regulations for voluntary supplementary car insurance," the European Union says. For fully comprehensive insurance in Germany (sensible for new vehicles and a prerequisite for financed cars), the premium is based on a different ranking system (SF) than for third-party liability. The SF class is irrelevant for the amount of a partial coverage. This is the most commonly chosen coverage for used cars and pays for damage to your own car, including weather damage, as well as theft. In addition, a partial coverage will include self-inflicted damage and vandalism.
Car maintenance costs - Overview
If you add up all the costs, it doesn’t take long for the upkeep of a car to reach 25% of your income.