Total Cost of Car Ownership in India

Total Cost of Ownership (TCO) of Cars in India
TCO is basically the total money spent by customer on his/her car after acquisition. There is no set of standard thumb rule to follow. It is generally calculated for...


5-10yrs/1,00,000-2,00,000 km coverage. For taxi or commercial usage cost calculations are projected till 300000km. Economy conscious Indian market is pulling many auto manufacturers out of their shoes to perform better on operating cost front. Over the years Toyota has built a brand by stepping up the ladder gradually towards hassle free low maintenance cost, the same has been reflected in Toyota cars residual value.

TCO is primarily divided into 2 main categories

CARRYING COST

Carrying cost are those which irrespective of the vehicle running spent by the customer, whether your car is running on road or standing in a garage. These are primarily driven by ex showroom value of the car. Higher the ex-showroom value, higher will be the carrying cost of your car. Carrying cost tends to decrease as the age of the car increases. It is further subdivided into 3 categories:

DEPRECIATION COST
Depreciation cost is the biggest component of carrying cost. People tend to realize the residual value of the car when they evaluate while selling. Every year around 20 to 25 new models gets launched & so the old customer tends to think about upgrading with a new one. In a survey, in US for every new car sold, around 3 used cars are sold. Similarly in Europe this ratio is 1:2 while in India it is 1:1.5 & expected to become 1:1.7 in coming few years. On an average cars depreciate by 15-20% of their ex-showroom value in 1st year of ownership. Toyota’s are best known for reliability in taxi market & so has a good residual or resale value of the car i.e. the depreciation cost is very low. Bcoz of the huge resale market growing in india many OEMs jumped into the resale market by setting up new stores with the likes of Mahindra First Choice, Maruti True Value, Tata Motors Assured etc, in order to boost the residual value of their own product & to encash the booming market.

Quality, reliability, brand reputation and facts like the duration and coverage of the warranty affect this desirability. They combine to give the used car buyer confidence that the vehicle will not breakdown and will be inexpensive to run. The buyer will pay more for such a vehicle. So don’t just look at the price you pay for your car, but also the price for which you’ll be able to sell in the future.

FUNDING / FINANCE COST
Although we should think depreciation and not capital cost, the price you pay is important as it determines the costs of funding (or the opportunity cost of not having that money available with us).  So, the less expensive the car, the ...

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