|The MGA With An Attitude
ECONOMICS OF RESTORATION, Part 2 - RT-200B
What does it really cost?
At 06:29 PM 11/18/05, Brian McCullough wrote:
>"There is one fellow who claims his conversion cost $x,xxx [cheap] and used to get very defensive if you say it costs more. He did not figure all the nuts and bolts, the small runs here and there and all the custom work he was doing."
There are at least two views on what it will cost to restore a vintage car. The low end extreme assigns no monetary value to personal labor time or small personal expenses, and counts only out of pocket cash expenditures directly related to the car. That's a hobby, a labor of love, and the enjoyment is worth the expense even if the car has no market value. The high end extreme will count every related expense including travel costs, construction cost of the workshop, utility bills and property taxes on the shop, profit mark-up, and the time value of invested money. That's the strictly business approach. This article is going to have a look at both views.
The low end calculation is a perfectly legitimate method of figuring your cost if it is strictly a hobby, so you don't need to put in any cost of your time. This does not account for any lost wages if it takes time away from a day job, but that decision is a matter of personal priority.
I am a perfect example of this myself. The original restoration of my MGA, finishing in 1986, cost $10,500 out of pocket including the purchase of the car, but not including any value of my time. It also does not include value of the garage or utility bills which I would already have anyway. It does include rental tools, but not purchased tools (which I use for lots of other things). It may include car expense for a long trip specifically to pick up a major project part, but probably not for short pick up and delivery trips around town, which may be mixed in with other personal business. What it comes down to is, this is a hobby, so my time and minor expenses are covered the same as if I was taking a vacation, out of pocket expense for pure pleasure, and I don't expect to account for or ever recover a penny of it. So the cost of restoration may look like only half the price of a new car, which might sound appealing.
After the original restoration, when the car is in long term operation, I separate costs into two categories, daily operating expense, and major repairs and restoration. Operating expense includes replacement brake shoes and tires, replacement wheels if they regularly fail in operation, maybe even a replacement fuel pump if it fails (especially if it happens more than once). Major repairs would be the larger unexpected things, like engine rebuild after catastrophic failure or overhauling a gearbox. Restoration includes anything which is programmed once in 10 years to spiffy the thing up, like replacing sheet metal, re-painting, or replacing chrome and fabrics.
I have kept track of all MG expenses from the end of the first restoration (like new car) to the end of the second restoration 12 years and 144,000 miles later (like new car again). The major repairs and restoration expenses came to $7,200 for that interval. This means I can keep the car on the road forever for $50/mo or $600/yr (adjust for inflation). That makes my MGA the least expensive vehicle I have ever owned or ever expect own, and I could never justify buying a new car. Of course it still does not account for any value of my time. The only trick there is that I cannot spend any time on the car which would take time away from my wage earning day job. That's why it took me nine years to finish the original restoration.
If this was a matter of common sense no one would ever own a hobby car, or ever take a vacation, or ever own a house with more rooms than people. If I insist on treating myself to a toy in the form of a restored vintage car, but beyond that it's still a matter of pure economics, then I would probably pay someone else to do all of the restoration and daily service while I make more money on my day job (because the pro mechanic works cheaper than I do). With that approach I could have had the first restoration done in two years and could have been driving it seven years sooner.
>".... looking at his parts list, I couldn’t get through it very far without going waaay over his cost estimates."
Sure you can. Just do the accounting the same way he does. Separate the costs into two categories, directly related cash out in one category, with the other category to include the value of your time and all shop overhead expenses. You come out even cheaper than he does, because you may do some of your own machining which he may have to pay cash for. Then you present the costs in the second category separately as the expense which would be incurred if you chose to pay someone else to do the work for you. Forget about any attempt to compete on the grounds that you might work for free like he does. If he wants to pay for your time, he's a customer. If he believes time is free, it's his hobby, and he's not a customer.
I am very cognizant about the real cost of owning my MGA. One of the best financial moves of my life was to buy a new car in 1974 ($$$$) so I didn't have to spend all my time fiddling to maintain the daily driver car. In fact the best financial years of my life were when I was buying new cars and paying someone else to do a lot of things, while I was cranking in the dough with long hours on the day job.
This lead to the purchase of my MGA in 1977 with the intent to restore it myself (as a hobby of course). By that time I had already spent money fixing up a workshop style garage ($$$$) with insulation, heat, power, and some tools. Before the restoration was finished I bought a larger house ($$$,$$$) in 1979, then put an addition on that garage specifically to be a workshop ($$$$). In 1981 I bought another new car ($$,$$$) specifically so I wouldn't be spending time fiddling with the daily driver and could have the time available for the hobby stuff. Near the end of the restoration in 1986 I finally took three months off of work ($$,$$$) specifically to finish the restoration.
Truth be known, my time input for the restoration was 1200 hours. When I started the restoration I was billing $10/hr for my professional time. By the end I was billing $35/hr. Average value of my time during the restoration was about $25/hr, so figure $30,000 worth of labor cost (not necessarily value). Forget the cost of the new cars, but add in maybe $2,000 spent on the first workshop (including value of labor), and about $9,000 for the second workshop, and maybe $3000 (conservatively) for tools which I may not have bought if I wasn't doing the restoration work. Throw in at least another $500 for travel expenses and increased utility bills.
10,500 - purchase car & hobby restoration
30,000 - labor equivalent
2,000 - 1st shop fix-up
9,000 - 2nd shop build
3,000 - tools
500 - misc
55,000 - Total?
Adjust for the time value of invested capital from 1986 to 2005 at a nominal 10% compounded annually for 19 years, and it comes to $336,375. That does not include all of the time and expense I have spent campaigning the car for 200,000 miles in the last 19 years (or the second restoration). .... Oops, don't tell the wife. If you're not paying attention to real economics, that restoration which looked like half the cost of a new car could turn out to be half of someone's retirement nest egg.
But hey, it's a hobby isn't it? It really only costs $50 per month to keep it running forever. (Yeah, sure).