A car’s price is just the start. TCO adds depreciation, fuel, insurance, maintenance, and financing over the ownership period — the real cost, often dominated by depreciation, not the sticker.
The example
5-year ownership total.
| A | B | |
|---|---|---|
| 1 | Component | 5-yr |
| 2 | Depreciation | 18000 |
| 3 | TCO | → $41,000 |
The formula
The formula:
How it works
How it works:
- Depreciation = purchase price − expected resale — usually the single largest cost.
- Add fuel (annual miles ÷ MPG × price × years), insurance, maintenance, and financing interest.
- Sum for total cost of ownership; divide by miles for cost per mile, or years for annual.
- Compare two vehicles on TCO, not price — a cheaper car can cost more to own.
Depreciation usually dwarfs fuel. Buyers obsess over MPG but a car that holds its value can be thousands cheaper to own than a thirsty one that depreciates fast. Build all five components in a column and the surprise is almost always how much of TCO is depreciation — which is why resale value deserves more weight than the gas pump.
Try it: interactive demo
Five 5-year cost components.
Variations
Cost per mile
Over the period:
Annual cost
Per year:
Depreciation
Price less resale:
Pitfalls & errors
Don’t skip depreciation. It’s usually the biggest line — estimate resale honestly.
Same horizon. Compare vehicles over the same ownership period.
Include financing. Interest paid is a real cost of ownership.
Practice workbook
Frequently asked questions
How do I calculate total cost of ownership in Excel?
What's usually the biggest cost?
How do I compare two cars?
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