## Wednesday, June 17, 2015

### Annual Cost of Owning a Motorcycle

While looking through my facebook feed, I saw an article on the annual cost of owning a car. The assumptions are: the cash price of the car is PhP 700K, driven at 10,000 km every year. The cost is at around PhP 192 K a year. The annual cost can be broken down as (1) depreciation cost of PhP 84K, (2) Fuel at PhP 39K, (3) maintenance at PhP 5K, (4) Registration at PhP 3K, (5) Tires PhP 2.5 K, (6) Insurance at PhP 16.2 K, and (7) Finance charges at PhP 42 K.

In the same spirit, I'd like to show my own calculation of how much a motorcycle costs every year. I will assume a linear depreciation model to make it comparable to the calculation done for the car (although I would think that an accelerated depreciation cost is more natural, since the sudden drop in market value of the car happens immediately after it's bought).

(1) Depreciation cost. From the example given, the number of years it takes for the car to reach zero cash value is given by the cash price divided by the annual depreciation. This leads to a figure of 8.3 years. To make things simple, let me round it off to eight years. For my motorcycle with its cash price of PhP 53K, this leads to an annual depreciation cost of PhP 6.7K every year.

(2) Annual cost of fuel. I've measured the fuel consumption rate in km per litre of my motorcycle, and it ranges from 30km per litre for stop and go traffic, to 50km per litre at cruising speeds. I'll just choose the average of 40 km per litre. Assuming it's ridden for 10,000 km, and if gas prices are at PhP 40 per litre, then the petrol consumed every year costs me around PhP 10 K.

(3) Maintenance occurs every 2000 km, according to my manual. On average, it costs me about PhP 500 for every service visit with the dealer, and this leads to an annual maintenance cost of PhP 2.5K

(4) Registration costs me around PhP 1.2 K. This includes fees and pollution testing.

(5) Tires. The stock tires of my Honda Scoopy are still good at 16,000 km. I estimate that I'll probably change tires every 20,000 km, and it will cost me around PhP 3K. This means, if I follow the assumptions used, then tire replacement costs around PhP 1.5 K.

(6) The only insurance I have is third party liability insurance.This is at PhP 300.

(7) Finance charges. Given that my motorcycle costs as much as the lowest down-payment for cars, it doesn't make sense to buy a motorcycle on credit. If you get it for cash, the finance charges would be zero.

If we add up all the numbers, we get an annual cost of PhP 22.2 K. If I keep using my motorcycle after 8 years-- Honda does make reliable motorcycles-- I get a figure of PhP 15.5 K a year, since the depreciation cost has gone to zero.

Given these numbers, I'd be nuts if I decide to switch to a car! As I tell my friends, the only reason I'll get a car is a pregnant wife.

1. Owning motorcycle still be cost-effective if the right maintenance and proper care is being practiced. It is also best to compare car insurance before acquiring one.

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I hope my request will be approved.
For any additional information, don`t hesitate to contact me.

Thank you.