Thursday, 26 January 2012

Dream on four wheels

stuart mile's
Everyone have a dream of owning a 4 wheeler…sooner or later once they start earning, The aim is to have your own car…. Be it Brand New or Used Car
One of my friends “Rajesh” asked me if he should buy a USED or NEW CAR. I was like… Lemme think over…and get back to you on this. Annoyed Rajesh frowned and left away.
Lemme introduce Mr.Rajesh…28 Year old bachelor, working as Software Engineer with 40 K take Home. Rajesh stays with friends in an apartment located 15 KM away from his Office. Office has provided him Cab facility. It takes an hour for him to reach the office. Thanks to the traffic J
Life of Software Engineer is all about Early to Office and Late to Home. Weekends are all yours, provided you don’t have project deadlines.
Recently Rajesh’s Company announced bonus of 75 K, Probably this surplus cash has revived the forgotten dream of owning a CAR. He always wanted to buy a car as his father could not own one.
Here is the Scenario:  Rajesh in all has 1 lakh Rupees with him. This is inclusive of the bonus money. He would go for loan for rest of the money.  He is open for Used or New Car. 5 lakh is his budget if he opts for new car. He plans to sell off the car after 3 years.
Let’s find out which option works best for Rajesh, Keeping emotional quotient of “MY FIRST NEW CAR” aside..
  • Considering that he has Cab facility, he would be using Car mainly over weekends which would not exceed 150 KM/Week?
  • He would like to sell his Car after 3 years. Cars depreciate a lot in the initial Years. Assuming 45% Depreciation in 3 years. So affectively 5 lakh would be worth 2.75 lakh after 3 Years.
  •  150 KM per week, in 3 years would Clock 21600 (150*4*36). Let me round it to 22000
  • Money Spent on Insurance  for 3 year : 25000
  • Money spent on Fuel in 3 years: 128333 (   12 km per liter(city driving)  you would need for 1833 Liter of petrol for 22000 km travel.   So 1833 * 70 (price of 1 liter petrol) = 128333. )
    Let us round Money Spent on Fuel to : 128000
  • Interest Paid to Bank for 4 Lakh Loan @10.5% for 3 years tenure: 68000
So this gets the below data in general:

Interest Paid to Bank(4 lakh loan for 3 years Tenure)
Money Spent for insurance (3 years)
Loss due to sale of Car after 3 years(5lakh -2.75lakh)
Money Spent on Petrol(22 KM City Drive)

Total Money Spent by Rajesh

446000 is the total spending from Rajesh’s Pocket. This Outflow includes all the spending and the deprecation. The Car in all had clocked 22000 KM. So cost per KM = 446000/22000 = 20.27 Rs per KM. So let us Round off to 20 RS per Km is the actual Cost.

In case of Used Car, the price he would pay is 2.75 lakh. To buy used car worth 2.75, He would go for 1.75 lakh as he already has 1 lakh with him. Let us assume after 3 years Rajesh would be able to sell the Car at 1.5 Lakh. The insurance amount would be much lesser in comparison to the New Car. I am assuming 30K would be the maintenance cost for this Used Car
Details for the User Car:

Interest Paid to Bank(1.75lakh loan for 3 years Tenure)
Money Spent for insurance (3 years)
Loss due to sale of Car after 3 years(3.75lakh -1.5lakh)
Money Spent on Petrol(22 KM City Drive)
Maintenance cost for used Car
Total Money Spent by Rajesh

Actual Cost per KM in case of used car is 323304/22000 =14.69 Rs
After this analysis, my suggestion to Rajesh was to Go for chauffeur driven car. With the call on Taxi service, you don’t have to break your head for driving in crazy traffic; you get AC Comfort all in 15 RS per KM. In case of chauffeur driven car, Rajesh will be spending only 330000 Rs to travel 22k km. That is 1 lakh 16 thousand lesser than the amount he would have spent in case of New Car. 
The advantage of Chauffeur drove Car:
·    Good comfort
·    Accidents/Theft are not your headache
·    You don’t have to think about mundane like maintenance, fueling, etc

Please let me know your opinion/suggestion for Rajesh.


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