Marcella Scarlett, Business Reporter
Consumers tend to be distracted by the price tag when looking to purchase a car and barely focus on the cost of ownership. That reality tends to hit home later, and often the cost of upkeep ends up competing with other household spend.
Some buyers might find that they can afford the down payment, but can't afford the 'spend' to keep it operational, the larger portions of which are required by law and demanded by creditors.
Take the most popular car in Jamaica - the Toyota Corolla.
The two biggest banks, Scotiabank and NCB, tell Sunday Business that most car buyers try to pay between 10 per cent and 30 per cent of the price upfront. So to buy a new model, the mid-size 2013 Toyota Corolla XLI, which has a sticker price of J$3.1 million as quoted by Toyota Jamaica, the average down payment of 20 per cent would amount to J$620,000.
Packages with zero down payment are also available from some lenders, but such loan deals tend to be more costly to service.
Acquiring a used version is a little different as the banks offer up to 95 per cent financing for vehicles two to four years old, and up to 85 per cent for vehicles five to seven years old.
Assuming you are buying a four-year-old vehicle - the Toyota Corolla Axio 2009 model - you will need a minimum of J$90,000 as down payment, based on a sticker price of J$1.8 million quoted by three dealers.
That covers the cost of purchase. Easy. You - and your ban - now own a car.
Now for the costs associated with operating and maintaining the vehicle.
Car buyers tend to own the asset for about five years on average, according to dealers.
In year one, the new car owner will spend another J$916,000 on six auto-related expenses atop the down payment on the vehicle, according to estimates by Sunday Business in consultation with traders and industry specialists.
The cost of owning a used Corolla was more tricky to tie down because it depends on the state of the car at acquisition, but it could amount to J$766,000 in year one, including the cost of four new tyres.
Over the five-year period, the new car owner will spend J$4.4 million on average on the new car or J$878,000 per year; while the cost of owning a used Corolla could amount to J$3.6 million or J$716,000 per year.
The calculations are based on current prices that will change over time.
The annual average falls below the year-one costs because insurance premiums are expected to fall as the car ages. Other prices were held constant for the purpose of the analysis.
"Insurance varies because you can qualify for different discounts, plus if you install a tracker or alarm you can get even more discount," said an insurance representative.
Unavoidable expensesThe bulk of the cost is insurance, gasolene and debt repayment. Other spend include fitness and registration, which are unavoidable; as well as servicing and maintenance, which persons try their best to avoid.
According to valuators, the 2013 Corolla has fuel efficiency of 8.2 kilometres per litre and a gas tank with a capacity of 49.97 litres - which means the car can run for 409 kilometres on a full tank when performing at its optimum.
With pump price currently at around J$128 per litre for regular gasolene it would cost the owner J$6,395.78 to fill the tank. The price of fuel changes weekly and is influenced by the performance of world oil prices.
Typically, a used car is expected to burn gasolene at a less efficient rate than the new vehicle.
However: "Once you change the oils and filters and do the regular servicing, the car is supposed to drive like brand new," said a used car dealer.
Valuators say the average non-commercial driver travels 12,000 km per year, which means that at the current pump price, the car owner will spend around J$187,653 on fuel per year.
Assuming that you pay down 20 per cent of the price on the 2013 model, and borrow the other 80 per cent or J$2.48m at the going rate of 12.5 per cent for eight years from NCB, it would cost about J$492,000 per year or J$2.46 million over five years to service the loan.
At the end of the five years, the car owner would have a principal balance of J$1.23 million remaining.
For the used version, NCB offers interest as low as 14.45 per cent, and financing for six years on the 2009 model. Also assuming that a down payment of 20 per cent or J$360,000, the car owner would end up paying J$1.8 million to service the loan over five years.
The outstanding principal at the end of five years would be J$333,563.
As for insurance, while the Corolla is the most traded car in Jamaica it is not the cheapest to insure. That's because it is prone to theft, according to insurers polled by Sunday Business. On the plus side, its parts are among the most affordable.
"It is no secret that Toyota parts are cheaper. You can get them almost anywhere," said one car dealer.
"The demand is here so people are willing to carry them in É but for other cars you don't want to be stuck with the parts because only a few people drive those cars," the dealer said.
Fitness and registration amount to J$3,500 and J$10,500, respectively.
Other costs to be considered are: tyres, which cost J$6,500 per unit or J$26,000 for four for the cheapest on the market fitting the specifics for the Corolla; as well as repairs and overhauls that may be needed in the case of accidents or other damage, given Jamaica's proclivity for road disasters and susceptibility to natural disasters.
All new cars are sold with a three-year warranty in Jamaica and for the first three years of ownership a specific service schedule is set and must be done by the dealer.
The cost of servicing twice annually at Toyota Jamaica amounts to J$38,446 for the new car owner.
Should the car owner miss a service schedule or use a garage that is not authorised by the dealer, the warranty becomes null and void.
It costs J$30,000 for two servicings per year for the used car.
The biggest 'cost' of ownership often goes unnoticed by owner - depreciation - which means the car loses value as it ages.
"You see because you are not paying for depreciation some people don't even realise that that cost is there," said the car dealer.
It also means that the cost of insurance premiums should decline over time as the car loses value.
Depreciation does not require the car owner to pay anything out of pocket, but he or she will be out of pocket at the point of resale, that is, the car will be worth less than the price at which it was acquired.
The Toyota depreciates at eight per cent in the first year of ownership and at five to seven per cent per year thereafter, said one valuator. Using straight line depreciation, the car would value approximately J$2.3 million at the end of five years, the valuator said.
Toyotas and Hondas, which are two of the most popular brands, are said to have lower rates of depreciation due to brand loyalty.