The true cost of ownership

A column in the latest New Jersey Chapter Bulletin of the BMW CCA contemplates the true cost of ownership of an older BMW, using the author’s E39 540i as a case study. A sobering reminder that the true cost goes well beyond the initial purchase price of a used German vehicle (although we are ultimately undeterred from pursuing the used BM of our dreams). Read on..

When I was at Summit Point this summer, someone in the paddock asked me if I was still driving Otto, an e39 540i, as my daily driver. My affirmative response led to another question: why are the used e39 540s available so inexpensively? That in turn stimulated my curiosity and I recently got around to doing a search through Edmunds on-line to check out some prices for Otto’s duplicate. Much to my surprise, a great many examples of this model with mileage in the low 100k zone can be found for asking prices between $7k – $9k. Granted, most if not all were automatics not the 6 speed manual preferred by me, but it’s my understanding that automatics generally have better, not worse, resale appeal than their three-pedal cousins. Otto was minted in 2001 and has about 119k miles on his clock, so I’d estimate that he’d fetch $8k or less if sold.

This strikes me as extraordinarily inexpensive for one of the most enjoyable and versatile cars I’ve ever owned. Otto’s seen track duty, has pulled a few long hauls, and makes a great daily ride. His 38501b mass doesn’t seem all that burdensome by today’s standards, with the new M3’s not much skinnier than that. His V8 engine is entertaining enough, providing plenty of thrust for ordinary road use. In my humble opinion, the gas mileage isn’t all that terrible, with reasonably conservative driving easily yielding just a bit more than 20 miles/gallon. The other day as I was rolling through Hopewell on my daily commute, I happened to catch a glimpse of Otto’s reflection in a plate glass window, and I must say, he’s a fine looking gentlemen who’s aging quite gracefully.

So why so cheap? The best I can figure, it comes down to some cold hard realities of the cost of ownership for these aging, trackable limos.

People who know the marque will also know that as these V8’s ripen, they hit a wall of high maintenance costs in the low to mid 100k mileage zone. As I previously wrote, last winter I refurbished Otto’s entire cooling system when the water pump seized. Just getting the parts set me back several hundred dollars, and I think a skilled mechanic (not me) would have probably spent at least 20 hours of labor on this project. The car also hits a service 2 interval at 120k miles. This spring I did a brake job. While replacing rotors and pads yourself is not cost prohibitive, having this work done at the dealer is not cheap. Another unscheduled repair hit me in the spring when Otto’s alternator quit on me. I wouldn’t have thought that replacing the alternator would be all that big of a deal in terms of parts and labor expense, but of course I was wrong. It turns out that the alternator on the M62TU engine is water cooled. A Bosch rebuild will cost you about $500, but prices can run up to $900. Because the alternator is water cooled, replacement involves first draining the radiator and engine block, then removing the cooling fan and belts and finally finding a way to pry the old unit out of its water jacket. It took me about 6 hours to do the job on my lift. It would probably take less than half that time for an experienced mechanic, but still, it wouldn’t be an inexpensive job at the dealership. The bottom line is that all totaled, if I were paying a dealership to maintain this vehicle I figure my minimum outlay for this year would have been at least $6k, probably closer to $8k. That doesn’t account for Otto’s current needs: new rear tires and some replacement front bumper trim. And I just know that there’s a whole list of maintenance and repair work waiting in the wings. For example, Otto is still running the original clutch, exhaust, and air conditioning components. I’m just going to take a SWAG at the cost for these repairs, and put them at another $5-$10k at dealership pricing.

All of this adds up to a cost-of-ownership problem that explains most of the current pricing for used e39 540s. Figure the three year cost of ownership, exclusive of gas, taxes and insurance, as: purchase ($7-$9k) plus maintenance and repairs ($12-$18k) to reach a 3 year total of $19-$25k. I didn’t even account for the additional cost variable posed by an automatic transmission, the failure of which could easily tip another $5k into the maintenance and repair budget, mushrooming the 3 year projected costs to a staggering $30k.

And for your $20-$30k, you get the privilege of driving a car thats close to a decade old, at least one body style out of date, and will undoubtedly inconvenience you with the occasional need to make unscheduled visits to the shop for repair, such visits being facilitated by a tow truck.

Now, let’s compare that to the cost of leasing a new BMW for the next 3 years. BMW recently ran a lease special on the 328i model. The deal was a 36 month lease for $399/month, with a $2,500 down payment and an annual limit of 12k miles. These days I don’t put more than 12k miles a year on Otto, so I view this as a fair comparison, though for those of you with long commutes 12k is a joke. Leasing the vehicle for 3 years gives the advantage of not having any maintenance or normal repair work that gets lobbed at the owner. Therefore, one can predict with a high level of certainty that the comparable cost of ownership would be just under $17k.

So here’s what it comes down to. You could spend $20-$30k to purchase and maintain a used e39 540 for the next 3 years, or you could spend $17k to lease and maintain a brand new 328. In the latter case you get a car with contemporary styling, safety features, and electronics for entertainment. This makes the leased car an easy decision, even if you account for the fact that at the end of 3 years you have to turn it in. We can’t expect that three years from now the 540 would be worth much more than its “cash for clunkers” price floor of $4500. At best, that makes it a break even versus a lease on the new car.

All of this makes me wonder if maybe the asking price on the used 540s is even a bit higher than it should be, which is just the opposite of what I was thinking when I started writing this column. This prompts the question: should I sell Otto and get a newer BMW?

That proposition has a different set of economics associated with it. First, since Otto was paid for long ago, I face no acquisition cost for the next three years by keeping him. Second, I’ve already taken on about half the maintenance and repair expenses I anticipate over the three year ownership period beginning in 2009. Third, my repair and maintenance costs are lower than dealer charges because: a) I have a sympathetic wife who let me build my own auto shop in the back yard and; b) I have a sympathetic mechanic who doesn’t mind coaching me through the repair process and bailing me out when I get in over my head. All things considered, I’d be surprised if Otto’s cost of ownership over the upcoming three years exceeds about $6k for maintenance and repair. That’s far less than I’d pay for a newer car.

In fact, when viewed through that prism, the economics of keeping Otto even gives me a little money to play with. I’d still come out way ahead of the game with a few upgrades like a new Ipod -friendly sound system, and some nick/scratch/dent repair. Dare I even think: supercharger?

Adding to the economic incentive to keep Otto in service are the emotional components to the decision. I still like the e39 styling better than the con­temporary 5 series. I don’t want to scale down to a 3 series, unless it is a new M3, the purchase price of which is comparable to Otto’s new-car price. And by keeping Otto as opposed to buying a 328 or even 335,1 get to drive a V8. For those of us born before the first moon landing, “more cylinders is always more better”, as carbon footprints are and probably always will be invisible to us.

Bottom line is, while Otto may not be a good deal for anybody else at what I would think of as an attractive selling price, our current relationship suits us both just fine and neither of us is looking to trade up or out anytime soon.

Thom Rossi


~ by velofinds on September 1, 2009.

3 Responses to “The true cost of ownership”

  1. Tremendous article. I bought a 1997 e39 last spring for $5500. It’s a beautiful car. I put about 1700 in engine repairs and it was well worth it. I am not sure I would trade for a newer model. The e39 is such a classic model.

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