Cost of Toyota Camry XLE vs the Lexus ES350: $1.1 Million
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Lazy Man’s post on the silly Lexus commercial that Lexus repeats around the holidays reminded me of the true cost of switching from a Toyota Camry XLE V6 to a Lexus ES350. Both are nice cars which are similar, but the Lexus has the luxury badge on the grill and a few amenities.
The cost difference between the Camry and the base Lexus is not large if you look at the sticker prices. According to my favorite car website, Edmunds, you should be able to pick up a Toyota Camry for about $28,117 (price picture). The Lexus ES350, which is the sister model to the Camry, can be purchased for about $33,976 (price picture). A difference of just $5,869. If you plan to own the car for five years, the cost difference is just $1,174 per year. You work hard, so you deserve this little luxury, right?
Edmunds has the great feature True Cost to Own that estimates across cars a value that includes gasoline, insurance, depreciation, etc. The Camry’s five year Total Cost of Ownership is $44,629 and the Lexus ES350’s Total Cost of Ownership is $57,033. Now the difference has expanded to $12,404 or $2,481 per year for five years which is double the difference in sticker price. Additionally, the Lexus has many more expensive luxury options that could drive the cost difference even further apart. Furthermore, you are not required to select the top of the line Camry as I have — the XLE V6. There are several less expensive versions of the Camry that are still nice cars that would increase the savings.
My biggest concern about buying the Lexus ES350 is not the cost difference over five years. The problem is that you will expect to own a Lexus rather than a Toyota after this one. So buying this Lexus could cost you an extra $2,481 per year for the rest of your life. The Toyota just will not be good enough for most people after they own the Lexus.
The problem of Lifestyle Inflation
To prove the point of a lifestyle increase such as a Lexus can be costly, I will assume that that the cost differential between the Lexus ES350 and the Camry will increase by 4% per year and that the opportunity cost was to invest the difference at an average stock market return of 10%. If you buy your first Lexus at age 30 and continue to buy luxury cars through age 65 (assuming you will scale back in retirement), you will have given up $1.08 million dollars to drive the Lexus.
Do NOT buy that first Lexus ES350 — purchase the Toyota Camry because it will save you a great deal of money over time - $1.08 million to be somewhat exact. Also, consider driving an even less expensive version of the Camry than the XLE to earn more savings.
Spreadsheet reference for calculations. As I usually do, the spreadsheet is easily configurable by changing the values with the yellow background.
Note that the spreadsheet currently has some control calculations and has the stock market return set to 12% rather than the above stated 10%. I am having trouble uploading my latest version, but the version posted currently is fine for illustrating the calculation. If you want, you can change the rate of return back to 10% or any other value you prefer.
camry, toyota, lexus, automobiles, cars, one million dollars, lifestyle
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January 5th, 2008 14:49
You might want to consider the stock market returning just 6% - factoring in inflation rather than the 10% or 12%.
How many millions do I save if I buy a heavily depreciated e-year old Kia and stick with it my whole life?
January 5th, 2008 15:23
I like you idea of automatically accounting for inflation by adjusting down the return. I did include the present value in the spreadsheet by adjusting back for the 4% inflation rate which shows savings of $272K in today’s dollars for the Camry over the Lexus. This should nearly match the 6% return you suggest. One million is much more fun to say.
One million is also a better figure to force people think about the cost of upgrading to a luxury item. I think people take that decision too lightly by looking only at the sticker price difference and not the long-term cost in the lifestyle change.
As for your Kia, at some point, the repairs will probably overtake your savings but it is an interesting point of comparison. I tossed in the spreadsheet $10K annual savings (10% return with 4% inflation) and it returned almost $4.4 million future value and $1.1 million adjusted back for inflation.