Total Cost of Ownership – the full truth

October 11, 2016

Sjoerd Brenters
International Fleet Consultant

Say ‘Total Cost of Ownership’ and most people think fuel costs, maintenance costs and taxes. Fact is, there are costs that are less top of mind, that at the end of the day, all add up to the total costs of owning and operating a vehicle. Depreciation is one such cost often forgotten despite the fact that it is the biggest spend for a vehicle. And what about roadside assistance, damages or interest costs? What percentage are they of your total costs? And are costs the same in the countries in which you operate?

Finding the facts

In order to find out exactly which cost components weigh the most in which country, LeasePlan recently carried out our annual study and analysed over a thousand quotations for full service lease contracts from our offices worldwide. Cost factors including depreciation, insurance, maintenance, repair, tyres, roadside assistance, interest, fuel, taxes, and management fees were all taken into account. This analysis captures the total cost of ownership of the most popular, greenest, and most cost efficient vehicles over a period of 48 months and a 30,000 kilometres annual mileage.

Same car, different country, different costs

You’re most likely aware that total cost of ownership varies from one country to the next, but are you aware that you could be paying double the amount for the exact same car depending on the country? Generally speaking, the difference in the share of the different aspects of the total cost of ownership for identical cars, driven in different countries, is largely the result of local prices and tax legislation. Take fuel: prices vary considerably across the world depending on availability and local taxes. The average price for one litre of petrol across the globe is currently €0.86. But, driving in the United Arab Emirates costs you as little as €0.40 per litre, whereas drivers in Italy are less fortunate: having to pay €1.46 per litre. This means that operating the same cars in these two countries (all else being equal) will come at a lower total cost of ownership in the UAE than in Italy.

But, it’s not only fuel that impacts costs per country. Take local legislation: some governments are increasingly introducing measures – such as luxury or CO2 taxes on certain vehicles – to help cut back on CO2 emission levels. And it’s not only that polluting vehicles are being taxed more than average: environmentally friendly vehicles often come with lower taxes and additional benefits, such as the use of bus lanes and free parking.

Fact is, there are costs that are less top of mind, that at the end of the day, all add up to the total costs of owning and operating a vehicle

Total cost of ownership in Europe

The most recent analysis has shown that, in Europe, the largest share of costs for cars and vans driving on petrol or diesel are the depreciation costs, at just over 40%. In second place are fuel costs at almost 20%, repair and maintenance have a respectable third place at 14.6%, insurance scores 12.2%, and interest 8.2%.

Vans vs. Cars
Looking at light commercial vehicles only, however, depreciation costs for these are lower than average at 35.5% of total cost of ownership. In general, depreciation for cars is higher than for vans, and this is especially true for premium cars. For example, the analysis shows that the average depreciation for a Mercedes E-class is 51% of total cost of ownership, while the average depreciation for a Volkswagen Polo is 32%. This is probably partly due to the fact that demand for second hand luxury cars is lower than for volume brands (due to relatively high subsequent maintenance and insurance costs).

At 24.7% of total cost of ownership, fuel costs for vans are higher than for cars. This cost difference is due to the relatively larger and stronger engines with which vans are equipped, resulting in higher fuel consumption.

The highs and lows of depreciations costs
Of all European countries considered in LeasePlan’s analysis, Finland scores highest on depreciation costs at 53%. Sweden comes in second at 51%, while Romania (34%) and Italy (27%) rank lowest. The high depreciation costs in Nordic countries is mainly due to their inclination to drive larger premium cars, equipped with all add-ons, making these cars expensive and increasing depreciation costs.

Maybe the most surprising result from our analysis was that, although having one of the highest fuel prices in Europe, The Netherlands has the lowest share of fuel cost in the total cost of ownership: a mere 14.4%. This is a direct result of governmental restrictions on CO2 emissions and tax advantages on environmentally friendly vehicles. These measures have resulted in a wide uptake of hybrid vehicles. This in turn has led to a drop in fuel consumption.

And what you pay outside Europe

When looking at countries outside of Europe, depreciation costs also feature as main cost item within the total cost of ownership. Australia being the only odd one out as far as depreciation costs go: in this country depreciation is the second highest cost, after fuel spend. The popularity of relatively larger sized vehicles in Australia and the absence of hybrid or electric vehicles accounts for the high fuel percentage.

Total cost of ownership in Brazil is heavily influenced by the current high interest rates in the country, pushing interest costs up to 21.8%. Both the US and Mexico are relatively in line with Europe, as far as cost percentages go, although Mexico has somewhat higher interest costs. India has low depreciation costs, thanks to the popularity of small (i.e. cheaper) vehicles.

Eager to know more about total cost of ownership worldwide and how they impact your fleet? Get in touch with our international consultants.