by Jeremy Cato

Robert De Serres once owned an MGB roadster – a car he calls “a money pit” – and while that experience isn’t the only reason he watches his car ownership costs like the management consultant he is, De Serres does admit that shelling out fistfuls of hard-earned dollars on a famously unreliable British roadster had a profound effect on how he spends his money on cars today.

This self-described “obsessive compulsive” from North York, whose consulting practice includes advising small businesses on asset and liability management, is also watchful of how he spends his money in every other aspect of life – right down to creating his own database of the best prices of more than 200 grocery items sold in a variety of stores.

In short, he is not your typical consumer and he certainly is not your typical car owner, either. “I’ve been told by mechanics that most people don’t take care of their cars like me, either,” he says.

He says his 1992 EX Accord and 1991 Accord EXR wagons have cost him an average of $.06 and $.23 per kilometre to own and operate. That is dramatically less than the $.47 a kilometre cost estimate (for 24,000 km/year) to drive a new Dodge Caravan minivan as calculated in the Canadian Automobile Association’s 2004 Driving Costs report.

It is also less by far than the price of driving 20,000 km/year in a thrifty little Toyota Echo sedan, as determined by calculations for this article. Using cost estimates for depreciation, fuel, insurance, finance, repairs, maintenance, license and registration, a 2005 Echo requires $.31 per kilometre for the typical owner, or $6,209.77 a year.

The biggest expense? Depreciation (see Table 2 below). In this case it comes to $.12/km, making depreciation the largest single expense. Some, of course, contend that depreciation and financing are not legitimate, across the board ownership costs.

True enough, for those who plan to keep their cars and trucks until they are hauled away to the scrap heap, depreciation doesn’t really matter. And not everyone pays to borrow the money for a new vehicle. De Serres himself is among those who argue against depreciation as a fair and appropriate factor in calculating the ownership cost of a new vehicle.

I disagree. For this article I have included it as a cost, just as others including vehicle management company Runzheimer Canada have done in calculating costs for the CAA (Canadian Automobile Association). In the accompanying vehicle comparisons, all four sample vehicles had spent at least 55 per cent of their value after four years; one of the four, the Dodge Caravan, depreciated a substantial 71 per cent – or in dollar terms, it lost $20,877.55 of its original $29,405 MSRP (manufacturer’s suggested retail price).

(For the purposes of this analysis, depreciation in all instances was calculated by using the manufacturers’ own lease calculators to determine residual or resale values after four years. The dollar value of depreciation and the percentage value of each vehicle were determined by subtracting the residual amount from the original MSRP.)

Table 1: Cost to Own over first four years
per kilometre unless otherwise indicated
2005 Toyota Echo sedan
2005 Dodge Caravan
2005 Chevrolet Malibu Maxx
2005 BMW 530i

Depreciation (1) $0.12   $0.26   $0.20   $0.46  
Fuel (2) $0.04
Maintenance & repairs (estimated)


Licence & registration (4) $0.01
Finance charge (5) $0.02


Insurance (6) $0.09
Total ownership cost/km over first four years $0.31


Total annual ownershp cost based on 20,000 km/year in dollars $6,209.77

  1. Based on manufacturers’ lease calculator with projected residual values after four years. Note: Depreciation is heavily weighted for first four years of ownership. If you keep the car longer, cost per kilometre is reduced dramatically.
  2. Based on annual fuel cost estimates from Natural Resources Canada
  3. Based on estimates
  4. Based on $115/year
  5. Based on 48-month loan at 6% and 13% added fir taxes. Includes 10% down payment.
  6. Based on rate for 46-year-old married male with excellent driving record

Still, De Serres is not alone in arguing against depreciation as a factor in calculating ownership costs. He and others say that the new vehicle marketplace is riddled with discounts which hopelessly complicate valuations. In addition, new car values differ dramatically from region to region, therefore, “there is no way of assessing the (actual) net worth of a car after three or four years.”

He asserts that ownership costs should really be restricted to black and white expenses for maintaining a vehicle. It is not appropriate to include depreciation as a variable in calculating the cost to drive a vehicle, as it is also wrong to assume finance charges apply across the board to all buyers.

Nonetheless, most consumers borrow the money to buy a new car, or they opt for a lease which also includes a borrowing cost. On the other hand, depreciation is affected by a “multitude of variables.” Bringing depreciation into the mix can be misleading, he says. Not only that, in a real day-to-day sense, depreciation does not factor in how vehicles are used and in what condition they are maintained.

“I would consider depreciation as a consideration only from an asset/liability perspective, or if you intended to sell the purchased, not leased, new car in the future,” he says. “Since depreciation on a vehicle is something that you as the car owner have no control over, it is therefore a non-black and white variable in the overall cost analysis.” A compelling argument from someone who crunches the numbers, and one worth considering. However for De Serres, the whole debate about how to account for depreciation in terms of ownership costs is moot because he doesn’t buy new vehicles at all.

“I wouldn’t buy a new car,” he says, pointing out he purchased his ’92 Accord in 2003 for a mere $4,800.00 and his 1991 Accord was acquired in ’94 for $17,000.

“You do better in the used car market, on the assumption that you buy from someone you know and trust and I do,” he says.

He also is fastidious about caring for his aging family wagons, to the point of having them inspected and repaired for potential rust damage before it becomes a serious issue.

“I look for a car in terms of 12, 13 years,” he says. “That is how long I plan to keep it and take care of it. I want it to last as long as possible, as long as it is not labour intensive.”

Regardless of how many years you hold onto your car and whether or not you consider depreciation an important variable cost, car ownership represents a substantial and ongoing financial commitment. There is no controversy about that. So in managing your family finances, it is critically important to understand how hard car ownership will hit your wallet.

“For most people a car is your number two expense behind housing,” says De Serres. “Now if you’re going to count pennies to save for your mortgage, doesn’t it make sense to care of your vehicle?”

Watch out for the cost of those give-aways

The new vehicle marketplace is awash with zero per cent financing deals and cash-back giveaways, and while they are attractive up front, buyers may find themselves paying a price down the road.

Incentives generally accelerate depreciation rates on most vehicles, both domestic and import. Those deals push down the value of used cars by creating a glut of them on the market. The value of that rebate you get today may be eaten up in accelerated depreciation down the road.

That is one argument for holding onto a new car or light truck for six, seven or eight years, perhaps more. On the flip side, car shoppers looking for a good deal on a three- and four-year-old set of wheels might want to shop among models from manufacturers who have offered the richest sweetheart deals in the past few years.

For the most part, buyers can expect foreign brands such as Honda, BMW, Toyota and Volkswagen to hold their values best. Domestic brands, led by General Motors which has been exceedingly aggressive with incentives for many years now often lose their value the most quickly.

In fact, an older domestic can be an exceptional deal. For instance, you should be able to find a 2002 Buick Regal with low kilometres for $11,000-$13,000, according to the Canadian Black Book of used car valuations. That is less than half the original out-the-showroom price for the Regal which last year Consumer Reports named the most reliable car in the industry.

And also to understand its financial bite. So for starters, look beyond the actual sticker price. It is only one piece of a much larger picture. Everything from fuel to insurance will take up major chunks of your transportation budget. And the more you drive the higher those added costs become. Also, if you are among those who consider depreciation a legitimate ownership cost you may be in for a surprise when comparing two vehicles with the same price. In short, some vehicles depreciate much faster than others.

To calculate ownership costs there are a number of online resources of enormous value, though a search of Canadian Web sites did not find a “True-Cost-To-Own” calculator comparable to the one at which is designed for owners in the United States. Using figures for many new and used autos, the Edmunds calculator crunches ownership costs for up to five years.

After depreciation (table 2)and finance charges (table 3), insurance (table 4) is the largest ownership cost, although this cost varies province by province. In Ontario, even a very modest Toyota Echo runabout costs $.09 a kilometre to insure for a middle-aged male driver with a perfectly clean driving record. On the other hand, a ritzy 5-series BMW sedan costs $.11 a kilometre for the same driver. Insurance costs were calculated using data from, which claims to get the best rates from among up to 30 insurance providers.

Fuel (table 5), maintenance and repairs (table 6), and license and registration are relatively insignificant as a cost – even with fuel prices rising seemingly by the day. Using figures provided by Natural Resources Canada’s Fuel Economy Guide, the Echo not surprisingly soaks up half as much in fuel costs as the BMW — $.04/km versus $.08. We assigned $.03/km across the board for maintenance and $.01 for license and registration. Finance charges were included to determine overall ownership costs, but they were excluded for calculating depreciation.

If you are someone looking to reign in your car costs, the best choice is a smaller and consequently more fuel-efficient vehicle – like the Echo. The four-cylinder Echo with a five-speed manual transmission uses $828 a year of fuel, according to Natural Resources. A 530i sedan with six-speed automatic burns $1,576 in fuel each year.

Still, in general terms fuel costs are relatively minor compared to the price of insurance, financing and depreciation. Large sport-utility vehicles (SUVs), as a general rule, guzzle gas mightily. In response, many automakers are offering smaller SUVs. Also note the difference between high-octane “premium” fuel and regular. It is fair to assume premium adds 10-15 per cent to your fuel bill.

While maintenance and repairs do not consume a huge piece of the overall ownership cost of relatively new vehicles covered under three- or four-year warranties, there are still savings to be found in this area, minor as they might be in the first few years of ownership. Thrifty buyers might want to look over the maintenance schedule of any potential vehicle purchase and also ask the seller of a new model if maintenance is included in the purchase price, free of charge. With some automakers it is.

Also, consider the price of pricey fancy features. Bi-xenon headlights can cost well in excess of $1,000 each to replace if broken or damaged, and that sort of goodie is rarely covered under warranty unless a failure can be traced to a mechanical malfunction.

For those weighing a new vehicle purchase against a used one, do note that repair and maintenance costs get higher as vehicles get older. De Serres, though, argues that for the smart shopper, they do not outweigh the financial benefits of living with an older vehicle.

Regardless, crunching ownership costs should not be just an obsessive-compulsive exercise for penny-pinching drivers. Knowing what you can expect to spend on transportation before you buy a new vehicle is critical for proper budgeting and for guiding purchase decisions.

There is, after all, a lot of money on the line.

Costs for depreciation, finance, insurance, fuel and maintenance and repairs

Table 2: Depreciation
2005 Toyota Echo sedan
2005 Dodge Caravan
2005 Chevrolet Malibu Maxx
2005 BMW 530i

MSRP for new vehicle (1) $15,098.00




Projected residual value after four years (2) $5,772.80








Dollar value of depreciation








Percentage of value vehicle retains after four years









Yearly cost of ownership for depreciation (first four years)








Monthly cost of ownership for depreciation








Cost/km for depreciation for first four years








  1. Includes destination charge
  2. Source: Vehicle Manufacturer, based on estimated values provided by online lease calculator

Table 3: Finance charge calculation
2005 Toyota Echo sedan
2005 Dodge Caravan
2005 Chevrolet Malibu Maxx
2005 BMW 530i

MSRP $15,098.00
Sales tax at 13% $1,963.00
Down payment 10%
Fiance rate 6%   6%   6%   6%  
Monthly payment for 48-month term
Total cost with finance charges (48 x monthly payment)
Total amaount financed


Total finance cost
Cost/km $0.02

Table 4: Insurance
2005 Toyota Echo sedan
2005 Dodge Caravan
2005 Chevrolet Malibu Maxx
2005 BMW 530i

Annual insurance cost
Monthly insurance cost
Insurance cost/km based on 20,000/year

Source: Rates based on quotes from

Table 5: Fuel Consumption
2005 Toyota Echo sedan
2005 Dodge Caravan
2005 Chevrolet Malibu Maxx
2005 BMW 530i

L/100 km
6.7 city
5.2 hwy
12.2 city
8.2 hwy
10.5 city
6.7 hwy
11.9 city
7.3 hwy
Annual fuel bill
Monthly fuel cost

Table 6: Maintenance and repairs
2005 Toyota Echo sedan
2005 Dodge Caravan
2005 Chevrolet Malibu Maxx
2005 BMW 530i

Estimated maintenance cost/km
2.6 cents
3.01 cents
2.98 cents
3.12 cents
Estimated annual maintenance costs at 20,000 km/year

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